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 user 2005-09-01 at 11:20:00 am Views: 34
  • #12644

    Is this a Kodak moment?
    Has the Kodak moment gone?

    Kodak suffered from a
    failure to embrace digital photography as swiftly as its rivals, but is
    aiming to fight back with a radical shift in strategy.

    The announcement that Kodak is to cut 600 jobs and shut two plants in
    the UK as it refocuses on digital technology does not come as the
    greatest surprise. A global cull of 15,000 staff was first revealed
    last year.

    But it does raise two interesting questions: why has Kodak taken so
    long to react to the digital revolution and what must it do now to
    ensure its survival?

    Nobody at Kodak was smiling last year when the US company, which was
    responsible for inventing popular photography in 1888, realised that
    things were going badly wrong with its business. For a time, it looked
    as though that ‘Kodak moment’ might soon be nothing more than a faded

    From Brownie cameras to colour film, Kodak has traditionally been at
    the forefront of innovation in photography and, ironically, was a
    pioneer of early digital camera technology. It is the failure to carry
    through that early work that has put its core business of film
    manufacturing into free fall. It lost further ground as brands new to
    photography such as Sony became alive to the changes; the Japanese
    giant jumped in with stylish, sexy products and established market
    leadership in the digital arena.

    By 2003, Kodak’s revenue had fallen four years in a row and its share
    price had plummeted. It was clear that the business needed a drastic

    James McConnell, Kodak’s general manager of Digital Film Imaging
    Systems (DFIS) for the UK and Ireland, says: ‘Kodak has always invested
    in digital – we own many of the patents on products that are out there
    now. But there wasn’t an articulation of that into a solid strategy
    that really focused on digital.’ In Kodak’s defence, he adds: ‘It was
    only two years ago that we first saw an actual decline in film. Even
    then, the real question was when are people going to print from

    Industry commentators say Kodak failed to anticipate the speed at which
    film photography would start to die out. Growth in the sector had been
    expected to come from developing markets such as China and Eastern

    However, according to Paul Withington, senior analyst at technology
    consultancy IDC, many of these consumers leapfrogged film, and went
    from no camera to digital camera. ‘Kodak wildly underestimated the
    speed of digital take-up,’ he says. ‘Its management wasn’t focused on
    the digital revolution.’

    Kodak faced a painful decision. It could stay in film – a declining
    market, but one with high margins. Alternatively, it could move into
    digital technology, where margins are low, prices were falling and its
    brand supremacy – for so long unquestioned in the film market – was not

    The company opted for the latter. Chief executive Daniel Carp began
    with an overhaul of senior management, importing top-level expertise
    from brands at the forefront of the digital revolution. Recruits
    included: Antonio Perez, head of Hewlett-Packard’s (HP) consumer
    business, as president and chief operating officer; Bernard Masson from
    Lexmark as president of Kodak’s display group; and Yusuke Kojima, a
    design guru from Olympus, who took charge of the digital camera

    Strategy overhaul

    In September 2003, Kodak announced it was to focus on digital
    technology, end investment in its film business in developed markets,
    boost its efforts in the digital camera arena and invest in relevant
    technologies, such as inkjet printers for consumers and high-end
    digital printing. To fund this, it slashed its dividend by 72%,
    shocking investors. Carp predicted this would boost sales from about
    $13bn to $16bn by 2006.

    At the end of 2003, Kodak said it would cut 20% of its workforce -
    15,000 jobs worldwide – as it continued to concentrate on digital
    technology, and would abandon its Advanced Photo System camera business.

    Initially, investors were sceptical of Kodak’s plans, questioning
    whether it could catch up with competitors. Yet results have shown the
    strategy starting to bear fruit. In July, it revealed second-quarter
    sales had grown by 6% and income by 38%.

    Whether Kodak has done enough to make its brand relevant in the digital
    era is debatable, however. In Interbrand’s 2004 ranking of the world’s
    most valuable brands, Kodak took the biggest hit, with its worth
    falling by 33%. ‘It missed the boat in technology terms,’ says Jan
    Lindemann, global managing director of Interbrand Group. ‘The “Kodak
    moment” on film was a great story, but Kodak does not have digital
    credibility. It needs a new proposition to make the brand relevant.’

    Kodak argues it is on the way to achieving this. The entire structure
    of its business is changing. As a result of last September’s
    announcement, its European division is merging the sales, marketing and
    back-office functions for its digital, professional and film businesses
    into one operation – DFIS.

    Digital will be the driving force of DFIS. McConnell, previously head
    of Kodak’s consumer digital business in the UK and appointed to his
    role at DFIS in August, says the structure will be leaner, more dynamic
    and reflect the fact that Kodak now has ‘one story to tell’.

    In Europe, marketing teams will be unified under Philippe Kalmbach,
    formerly digital imaging services manager, now director of marketing
    services for DFIS. The aim is for more consistent marketing, with
    digital at the heart of the strategy.

    Kodak has indicated that spending on digital technologies and
    acquisitions will be focused on its professional businesses, from which
    it expects the highest growth. But it is also determined to transpose
    its strong heritage as a consumer photography brand into the digital
    age. To do this, it aims to position itself as a brand for the entire
    digital photography process, from image capture to output.

    With film in steep decline, Kodak predicts 33% penetration of digital
    cameras in UK households by the end of this year, and 45% by the end of
    next. But McConnell says that the company is more interested in how
    many digital images are being taken, and what people do with them -
    printing them or sharing them online, for instance. ‘Digital cameras
    are just one arm of the business,’ he says. ‘Kodak is aiming to own the
    whole picture.’

    With its EasyShare digital camera range, Kodak has focused on ease of
    use – making it simpler to transfer photos to a PC or printer. The
    company is also targeting the mass market with an entry-level model,
    the EasyShare CX range.

    In terms of digital camera shipments, Kodak has jumped from fifth
    position in the UK market in the first quarter to third in the second
    quarter, behind Fuji and Olympus, according to IDC. However, in Western
    Europe as a whole, Kodak lags in sixth place, with a 7.6% share, behind
    Canon, Sony, Fuji, Nikon and Olympus. So what can it do to improve this?

    Design dilemma

    IDC’s Withington says that while Kodak digital cameras boast decent
    technology, there are still design issues. ‘Its products lack the style
    of some competitors. Canon has taken the sleek, stylish look, while
    Sony has gone for small and sexy. By contrast, Kodak’s products are
    still rather clunky.’

    Kodak may have some way to go to persuade consumers to lust after its
    cameras, although it claims that Kojima is addressing this issue, but
    its game plan is not just about hardware. It is also investing in
    retail services and home-printing technology that will, it hopes,
    ensure its place in the digital future.

    In June Kodak tied up with Boots, setting up kiosks in 1000 stores,
    allowing consumers to print pictures instantly from their digital
    cameras. The kiosks featured in its most recent UK ad campaign, through
    Ogilvy & Mather.

    According to Kodak, the scheme has been a success and more than half of
    all the prints produced have come from newcomers to digital photography.

    Kodak has also installed order stations in Carphone Warehouse branches,
    enabling pictures to be printed onto Kodak paper from camera phones.

    Another facet to Kodak’s strategy is the Ofoto online photography
    service, which it acquired in 2001 and launched in the UK at the
    beginning of this year. It allows consumers to order prints from
    digital photos, and to share pictures online.

    Kodak is also making inroads into home printing of digital photos – an
    area predicted to be a massive growth market as print quality improves
    and consumers become more familiar with the technology. HP is leading
    this market, which McConnell says is a crucial one to Kodak’s future.

    ‘We are just as much a competitor to HP now as we are to Fujifilm,’ he admits.

    The company has already established market leadership for the inkjet
    paper to which photos are transferred from PC printers, and has
    launched products such as Printer Dock Plus, which enables consumers to
    print Kodak photos straight from their digital cameras, without the
    need for a computer.

    Belinda Parmar, senior planner on the HP account at Publicis, who
    worked on Kodak while at O&M, says Kodak is well placed to become a
    success in home printing, particularly as the sector moves from
    high-end to mass market. But first, she says, it must focus its
    marketing communication on why, rather than how, people print out
    digital photos. ‘It has not addressed the emotional reason, the human
    need for sharing.’

    Parmar’s comments tap into what observers believe is Kodak’s greatest
    problem: it may have promising digital technology, but it has failed to
    communicate this effectively and convince consumers that Kodak is a
    digital brand.

    Lindeman says Kodak’s leadership in film may make it difficult to
    persuade techno-savvy consumers of its digital credentials. ‘Its
    heritage does not make it seem a technology leader. Its brand equities
    are closely associated with the old technology.’

    Image consciousness

    So is Kodak simply an old-fashioned brand being outshone by cooler,
    more marketing-savvy rivals? Sony has just launched a pan-European TV
    campaign for its Cybershot digital camera range. The stylish ads,
    created by Fallon and directed by Antoine Bardou-Jacquet, the man
    responsible for Honda’s ‘Cog’ ad, emphasise the spontaneity of digital
    photography. Canon and Fuji have been running style-led ads in women’s
    glossies, positioning their cameras as must-have objects of desire.

    ‘It’s such a competitive market. Canon is spending a fortune promoting
    digital,’ says one agency executive who works on a competitor brand.
    ‘From a consumer perspective, I’m not sure people will trust Kodak,
    whose heritage is in film, to have the same expertise in digital

    IDC’s Withington suggests that to convince consumers it has changed,
    Kodak may need to undergo a major brand relaunch, as HP did with its
    Invent campaign.

    Kodak’s McConnell concedes that criticism of Kodak’s past marketing is
    ‘fair comment’, but claims it is changing. ‘We spent too much time
    marketing our traditional business in the past two years, but from now
    on 99% of our marketing activity will be focused on digital,’ he says.
    ‘You will see a distinct change.’

    There will be no more TV ads for film and single-use cameras and to
    underline the brand’s role in the entire digital process, ads for
    cameras, printing and retail services will come under one umbrella
    campaign for the first time. McConnell says the recent ads for the
    Boots kiosks is a taste of things to come. ‘The initiative said, “yes,
    digital images are great, but what about printing them?”‘

    McConnell acknowledges that HP’s Invent activity has been effective,
    although he won’t reveal whether Kodak plans a similar evolution. But
    he indicates that Kodak, like HP, will target a younger audience and
    position itself as a cutting-edge brand.

    As part of this strategy, it plans to make more of technology
    innovations such as its high-definition OLED (organic light emitting
    diode) display technology, which allows for thinner designs in devices
    such as cameras and mobile phones. Analysts including Withington
    believe OLED will be potentially captivating for consumers, but
    McConnell admits that until now it has been Kodak’s ‘best-kept secret’.

    With its new structure in place and more innovation in the pipeline,
    brand is now at the top of Kodak’s agenda. It will certainly need to
    act quickly to ensure its survival; film for the mass market is
    predicted to be dead in three to five years. ‘We need to change the
    brand perception from traditional to digital,’ says McConnell. ‘But we
    are definitely on the right path.’


    Kodak financials (dollars m)

    2003 2002 2001 2000 1999

    Net sales 13,317 12,835 13,234 13,994 14,089

    Net income 265 770 76 1,407 1,392

    Gross profit 4,284 4,610 4,568 5,619 6,003

    Source: Kodak/Hoovers.com


    1880: Bank clerk George Eastman begins commercial production of dry plates in Rochester, New York State.

    1888: The Eastman Dry Plate and Film Company launches the first
    Kodak-branded camera, with the slogan ‘You press the button – we do the

    1900: The company, renamed Eastman Kodak, introduces the first Brownie Camera, costing $1, with film at 15 cents a roll.

    1942: Kodak launches Kodacolor Film for prints, marketed as the world’s first true colour negative film.

    1963: The Instamatic camera, featuring easy-to-use cartridge-loading film, is launched. Kodak produces more than 50m by 1970.

    1982: Kodak launches ‘disc photography’ – a range of compact cameras using a rotating disc of film.

    1996: Kodak introduces the Advanced Photo System format and Advantix
    brand. It also launches a range of pocket-size digital cameras. TV ads
    feature the strapline ‘Take Pictures. Further’.

    2001: Kodak launches its EasyShare digital cameras and the slogan ‘Share Moments. Share Life’.

    2003: Kodak announces it is to refocus on digital technology.

    2004: Kodak’s brand value plummets by 33% in Interbrand’s 2004 ranking of the world’s most valuable brands.