*NEWS*HAS THE KODAK MOMENT GONE ?
*NEWS*HAS THE KODAK MOMENT GONE ?
2005-09-01 at 11:24:00 am #12782
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
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
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
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?
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
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.’
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
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
TIMELINE – KODAK
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.