Kodak Funtime Film Case Analysis

Kodak Funtime Film: Case Analysis

What is the situation?

For many years Kodak has enjoyed more than three-quarters market share of the photo film market. Lower priced competitors have reduced Kodak’s share to about 70%. Fuji Photo Film poses the most serious threat and has been advertising heavily. They even garnered official sponsorship of the 1994 Olympics.

As shown in the table below, Kodak’s most popular brand of film is more expensive than Fuji’s, but Fuji’s dealer margin and per-unit profit is higher. Although Kodak is the volume leader, Fuji’s attractive dealer margins are likely a strong selling point for their field merchandisers who plead with retail managers for equal display and shelf space with Kodak products.

| Kodak | Fuji |

Retail Price | $ 3.49 | $ 2.91 |

Dealer Margins | 20% | 25% |

Dealer Profit/unit | $ .70 | $ .73 |

Wholesale price | $ 2.79 | $ 2.18 |

Gross Margins | 70% | 55% |

Contribution | $ 1.95 | $ 1.20 |

Also shown in the table are the overall gross margins for each company. Taking 70% of Kodak’s per-unit wholesale price of $2.79, we calculate a per-unit contribution to gross profit of $1.95. Fuji’s contribution figure is considerably lower at $1.20 per unit.

Decisions and Pricing Options

Kodak management proposes offering a new film called Funtime to be priced 20% lower than Kodak’s most popular label, Gold Plus. The danger in this strategy is cheapening the perception of the Kodak name for the sake of additional, lower margin, market share.

Kodak will also take this opportunity to reposition its film product line into three distinct tiers. The low-volume, super-premium Ektar film will be replaced by Royal Gold. Ektar had been sold mostly in camera shops to professionals and enthusiasts and did not receive much ad support from Kodak. Royal Gold will be targeted to a broader audience, priced a bit lower than Ektar, and will receive heavy ad support (40% of the total film budget). As shown in the table below,...