MBA 623- Final Exam - Christopher M. Johnson

George Mason University
School of Management
Marketing Area
MBA 623-001: Marketing Management
FINAL EXAM: FALL 2011
Name: Christopher M Johnson
SID # G00545690
Exam Instructions:
 Write your name and Student ID# on the answer sheet
 Answer all questions. Each question carries equal points.
 This is an OPEN BOOK, OPEN NOTES exam.
 This is an INDIVIDUAL EXAM: Cooperation / Consultation with other class members is neither expected
nor permitted.
 Deadline: Dec 15th, 2011 (11:59pm) {No Late Submissions Allowed}
 Turn in your exam via BLACKBOARD. (Look under Assignments)
 Deadline is enforced by BLACKBOARD system. Avoid technical issues by submitting atleast 24hrs
earlier.
 Recommended formats to upload (to Blackboard): .DOC or .PDF
 Recommended file name (upload) format: “lastname_firstname.doc” or “lastname_firstname.pdf”
Case Access:
The deliverable for this exam is a CASE ANALYSIS. Download this case from XANEDU
Xanedu: CoursePack 364512
Case: "Eastman Kodak Co.: Funtime Film." Dolan, Robert J. Case No. 9-594-111.
Published 02/25/1994, Revised 05/08/1995. Harvard Business School Publishing, (5 pages).
Case Analysis Instructions:
 Provide detailed assumptions for each answer. Show detailed calculations, explain procedure and your
approach for all quantitative questions. Do NOT narrate case facts.
 If using Excel sheets for calculation, kindly explain calculations on each row. (Pls. cut and paste the
excel sheet in your answer file).
 Data from any other external source, reference etc. should NOT be used in your analysis.
 Use Appendices to show tables or figures.
 Do not repeat large pieces of factual information from the case or summary of the case. Rather, use
the information in the case to illustrate and defend your arguments, or to make salient points. - you
must exhibit analytical thinking.
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CASE ANALYSIS QUESTIONS
1. Why are film prices and market shares so different among different brands of films?
Consumers are increasingly regarding camera film as a commodity because they know little or nothing
about the differences in film brands. As such, film prices and the subsequent market shares are based
off of consumer needs. However, the issue of different brands of film arises out of Kodak’s and Fuji
inability to sell film on a private label basis which has allowed more competitors to enter the market.
These competitors are selling private label brands but Kodak (and Fuji) are not able to do this because
of a 1921 consent decree still in force. This is preventing them from taking advantage of the private
label market. Private label film products are targeting the price sensitive consumers. The price
sensitive segment is becoming increasingly important because as previously discussed more consumers
tend to view film as a commodity, and are therefore buying on price alone. Dealer percentage margins
are typically higher for private label products. Therefore, it is a very profitable venture for those
companies involved enabling them to increase their competitiveness in the market.
1. a) What are the reasons for Kodak's market share loss? Despite a drop in market share in the U.S.
Kodak still has an overwhelming domination of the photo film market (Exhibit 1) However, the
reasons for Kodak's market share loss are:




Competitors
Consumer's Behavior
Quality/Price Point Confusion
Price Tier Competition
Over the previous five years competitors such as Fuji and Konica catered to consumers with lowerpriced versions of their film. Fuji and Polaroid U.S. dollar sales had grown over 15% in the past year
while Kodak only grew 3%. Fuji was able to hold the line on price, an area in which Kodak struggled
and was unable to do so. Fuji was also able to gain widespread consumer attention when it grabbed the
extremely large account of being the official film of the 1984 Summer Olympics in Los Angeles.
Private labels, film produced by other manufacturers and sold under store labels, had grown 10% in the
past year (Exhibit 2). The competition in the film industry was strong and it was moving the price of
film downward.
Consumer behavior was also changing. A 1991 survey cited in Discount Merchandiser pointed out that
more than half of U.S. picture takers claimed to know little or nothing about photography. The
implication here was that they would be focused on price rather than on quality or brand. While 50%
of buyers were "Kodak-loyal", 40% included "samplers" that still mainly depended on Kodak, the
remaining 10% made their decisions based on price which contributed to the data above illustrating
larger growth by companies that could compete with lower prices.
There was also a problem with the market that there was beginning to be confusion of where products
where positioned and their pricing points. A Consumer Reports test showed that there was little
difference between competing film (at the same speed). Their prints were comparable in quality, even
though they varied among the price tier. For instance, Polaroid's High Definition branch ranked
number one in terms of quality and fit into the "Price Brands" tier. Kodak Gold (Premium Tier) ranked
third in terms of quality and Kodak Ektar (Superpremium) ranked fifth in terms of overall quality.
Three of the other top six films, Fujicolor Super G, Konica Super SR, and Scotchcolor were all
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Economy Tier films (Exhibit 3). This was starting to show that other manufacturers were able to
provide less expensive, higher quality film.
The final reason for market share loss is that other competitors were beginning to focus on providing
film for private labels to retailers, competing heavily in the Price Tier. Scotchcolor in particular was
beginning to provide film for other private labels. The growth, as mentioned above, in private labels
was 10% from the previous year. This trend should be very troubling to Kodak, because there could be
numerous retail, grocery and drugstore outlets who could also jump into the market at any time
because all they have to do is find a film manufacturer to provide them with private label film (Exhibit
4). Due to the 1921 consent decree, Kodak was prohibited from providing film for private labels. This
has hampered them in their quest for growth.
1.b)What is the likely trend for Kodak's share if it does nothing? If Kodak maintained the status
quo, they would see their market share reduce even more, due to the amount of Price Tier films
growing at a much faster pace than the Superpremium, Premium and Economy Tiers. The
Superpremium Tier may survive due to the specialty nature of their consumers (professionals, serious
amateurs, etc.). However, the Premium Tier and the Economy Tier will start to see pressure on them
because of price. The Economy Tier may survive, but the Premium Tier is in danger of disappearing.
In fact, the shift could cause the Economy Tier to be, in effect, the new Premium Tier.
Profit Margins and Gross Margins would shrink for all competitors and all price category tiers. The
competition (along with any new competitors) will drive the margins down because they will all be
competing merely on price if consumers start to look at film as homogeneous products completely
interchangeable with each other and as a result, companies will have a hard time differentiating
themselves from each other. Also, any new competitors that will enter the market will more likely
enter in either the Economy Tier or Price Tier which will put more pressure on the Superpremium Tier
and the Premium Tier. Kodak, in particular, stands to lose a lot because they rely so heavily on their
brand to differentiate themselves from their competitors. If they lose this, they will lose a major
competitive advantage.
On top of the price pressure, the film market would also be susceptible to potential disruptive
technologies. The market appears to be at the tail end of the maturity stage of the product life cycle and
possibly in a declining stage. Sales aren't growing as quickly as they could and profits are being driven
downward. The Market could stagnate, or decline as is evidence by the meager 2% annual growth for
the past five years. Any new disruptive technologies, new manufacturing process, or a complete
change in image capture is a wild card that all manufactures should be aware of. In addition to
competing now, they all need to make sure they are funding their R& D to compete in the future.
1.c) What will the loss of a (market) share point cost Kodak? $13,065,000 (Exhibit 5)
2) What should Kodak’s objectives be at this point? Market-share, Profitability, or Brand Equity?
Provide a detailed set of Pros-and-Cons for each objective.
2.a) Can a firm (ever) increase its market share, contribution / profits and brand equity at the same
time? Why or Why not?
2.b) Can Kodak (in the current market situation) simultaneously increase its share, increase its
contribution, and increase its brand equity? If so, how?
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3) What is the role of a brand in consumers’ buying decisions? The consumer decision-making
process, regarding purchase and utilization of different products and services, is influenced by many
internal as well as external factors. Among the external factors the most important attribute of the
product is its brand. Brand awareness, is one of the fundamental dimensions of brand equity, and is
often considered to be a prerequisite of consumers’ buying decision, as it represents the main factor for
including a brand in the consideration set. Brand awareness can also influence consumers’ perceived
risk assessment and their confidence in the purchase decision, due to familiarity with the brand and its
characteristics. On the other hand, brand awareness can be depicted into at least two facets – unaided
(brand recall) and aided (brand recognition) – each of the two facets having its more or less effective
influence on buying decision and perceived risk assessment.
The relationship between a brand and the consumer can be viewed as a type of "bond" or "pact."
Consumers offer their trust and loyalty with the implicit understanding that the brand will "behave" in
certain ways. To the extent that consumers realize advantages from purchase and as long as they derive
satisfaction from consumption, consumers are likely to continue to buy the brand. The benefits that
consumers realize from brands may not only be purely functional in nature. Brands can serve as
symbolic devices, allowing consumers to project their self-image. Certain brands are associated with
use by certain types of people and thus reflect different values or traits. As a result, consuming these
brands may be a means by which consumers can communicate to others-or even to themselves-the
type of person they are or would like to be.
3.a) Does a “brand” matter in this photo-film market? If so, how? Not anymore, the dynamics
within the photo industry have changed too dramatically in the last 10 years. Once upon a time, the
film industry within the United States was basically stable and predictable, with industry leader
Eastman Kodak, having a commanding share of the industry, hovering between 80 to 90%. No
competitors even had a double-digit percentage of the amateur photo market and many consumers
automatically equated Kodak when they thought of film.
Then, beginning in 1984, the general photographic market and particularly Kodak has noticed a subtle
change in consumer attitude. Kodak still retains its enviable and commanding share of the market, but
the market-savvy consumers of the new millennium now have more choices and do not automatically
and faithfully equate film with Kodak alone. Three major functions have eroded consumer brand
loyalty and allegiance to Kodak these past 10 years.
First, American consumers are more accepting of foreign-based products, though they enjoy preaching
the virtues of “Buying American.” They celebrate their patriotic freedom by waving the American flag
at picnics on the Fourth of July. However, it is not uncommon for some guests to drive to the
Independence Day celebration in a Mercedes Benz (German) automobile, while listening to music on a
Sony (Japanese) radio/disc player. In addition, while waiting for their all-American burgers to cook,
many Americans are reaching into the ice chest to find Bass (English) Ale, along with Perrier
(French) bottled water.
Second, consumers have found a bona fide competitor to Kodak in the name of Fujifilm. Clearly,
Fujifilm has emerged from a minor player in the early 1980’s to take a solid number two position
within the US market and has caught the attention, as well as the wrath, of Kodak.
Third, the landscape within retail America has changed dramatically within the past five years. The
success of Wal-Mart has taught retailers that diversification, scrambled marketing and “one-stop”
shopping are important to consumers. As consolidation sweeps the nation in mass merchants, food and
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drug accounts, retailers realize they must maintain their competitive advantage or close shop. To
survive, they are squeezing manufacturers for quality products at competitive prices to capture profit
margins for expansion within the industry. This environment has provided an opportunity for Fujifilm
to prosper in an otherwise stable and mature photographic industry.
3.b) How would you reconcile the conclusions from the Discount Merchandiser survey and the
views of Jim Van Semus, Kodak’s manager? The 1991 survey in the “Discount Merchandiser”
found that price sensitive consumers were increasing. Also, a large percentage of consumers
specifically 50% tended to view film as a commodity, differentiating on price alone. That is to say that
50% of the people surveyed by the “Discount Merchandiser” would be brand loyal up to the point that
price became a factor. That conclusion was reconciled by Jim Van Semus when he noted that was
exactly what Kodak’s research showed as well. While 10% of consumers bought solely on price. It
also showed that 50% of the consumers (40% samplers, 10% shopping on price) did not just buy on
brand loyalty alone. Meaning that shoppers would be brand loyal to Kodak up to the point that price
became a factor. Rather than say that, Jim Van Semus choose to emphasize the positive of the research
by focusing on the 50% who are brand loyal to Kodak
4) Develop an analysis of the economics of a modest (e.g., 15%) price cut on Kodak Gold Plus.
Your analysis should reflect a 15% shelf price cut at retail. What is the sales volume increase
that would be required to break even? Assuming a 15% price cut on Gold Plus we get a discounted
retail price for Gold Plus at $2.97 (Exhibit 6) which is a reasonable price that reflects Kodak’s superior
brand image over other brands, especially for Fuji’s Fujicolor Super G which is priced at $2.91. In this
case, Kodak’s contribution margin will be decreased to 76% and in order to maintain the market share,
478,380,000 products have to be sold out (Exhibit 7). Also Kodak will have to maintain 88.7% of
market share in order to maintain profit (Exhibit 8) and contribution margin will decrease by about
11% (Exhibit 9).
4.a) What are the pros and cons associated with such a price cut? A price cut strategy is beneficial
in the short term if you have deep enough pockets to maintain but if the product is not supported by
quality difference it will be a shortsighted strategy. It might hold customers who are now trying other
brands to stay but once the consumer tries the competitors’ products they it will get a notion that films
are not differentiated. It will give negative impacts on earnings by reducing customer margin. In other
words, it will erode Kodak’s brand equity by understanding that the brand isn’t worth the premium it
used to be. Also as the need for sales increase it will cause extreme price competition.
4.b) How do you think consumers would react? Consumers will benefit and most likely buy the
cheapest film available as it will all yield prints of comparable results.
4.c) How do you think competitors will respond? The competition will respond in kind making
their own price cuts to recapture the market but losing profit. So the manufacturer with the deepest
pockets who can price cut the longest will win out. However, for every 1percent cut in film prices, a 1
percent drop in earnings per share results.
4.d) How do you think retailers will react? Retailers will benefit from the any mark-ups and dealer
incentives they have to move one manufacturer’s products over another. Or they may themselves
decide to enter the private label market to capture some of the market share
5
5) What is Kodak trying to accomplish with Funtime film? Will it accomplish it? Why or why
not? Kodak is trying to capture some of the market in the Economy Brand Tier (Exhibit 3)
5.a) Evaluate the proposed launch of Funtime. What are advantages and disadvantages for
Kodak if it follows its Funtime Strategy? This strategy proposed a major repositioning of Kodak’s
film product line through offering three different films with a new emulsion technology that increased
exposure latitude:
 Kodak Gold Plus: Continue with this brand at a price unchanged since 1993 levels, with 60%
of the dollar advertising budget.
 Royal Gold: To replace Ektar in the Super premium section targeted to a broader audience for
‘very special’ occasions. Particularly useful for when the consumer wishes to make
enlargements. It would have 40% of the advertising budget and sell at a 9% premium over Gold
Plus.
 Funtime: This is a modified version of Gold film at a slightly lower price. This will give Kodak
presence in the Economy Brand tier at a price 20% below Gold Plus on a per roll basis. It will
not be advertised, it will only be available twice a year at off peak times, available in limited
quantities in ‘value packs’ and only offered in the two most popular speeds.
Advantages of Funtime
 Facilitates customer needs based segmentation: This strategy enables Kodak to be selective in
targeting specific customers with specific brands because they will now have a film product
available in three brand tiers (Super premium, Premium and Economy). I.e. Royal Gold is for
‘those very special memories’, Gold film is ‘for capturing those unexpected moments and
Funtime is for price sensitive customers. Therefore, Kodak has the ability to target
professionals and serious amateurs but it can also lower their profit margin to attract price
sensitive amateur buyers, ultimately broadening their customer base, increasing their
competitiveness and market share.
 Help regain market share loss:
o Funtime will attract Price Sensitive customers: Market share had been decreasing
primarily due to aggressive competitors and private label companies, offering lower
priced versions combined with 10% of shoppers found buying on price alone. However,
Kodak can now attract these customers with the competitive advantage of their strong
brand equity.
o Increase sales of Royal Gold: By reformulating the previous advanced amateur Ektar
film with a consumer friendly name and marketing campaign informing consumers to
use it for ‘special occasions’ sales are likely to grow because it will attract a larger
customer base.
 Available in limited quantities: By only being available in limited quantities and ‘value packs’
it will maximize profitability. Firstly, it will allow them to limit Funtime’s impact on sales of
Gold Plus in these periods and secondly it will reduce packaging costs therefore, maximizing
the profit margin.
 Funtime offered in the two most popular speeds (ISO 100 and 200): By selling, ‘Funtime’ films
in these two speeds the product will be more competitive and appealing to customers. This is
because competitors currently offer these speeds at lower prices, so in order to compete with
them they must do the same. At the same time, Royal Gold will be offered in five speeds,
helping consumers to see the differentiation of quality usage between the two brands. This is
necessary in order to prevent Gold film customers from switching to the lower priced brand in
the off peak selling times.
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

Available to all classes of trade: By having wide spread, distribution the product is likely to
gain rapid awareness and trial without advertising, thus reducing costs.
Funtime’s effect on share point contribution compared to Kodak Gold Plus:
The following tables show the impact on break-even sales point of a 15% price cut for Kodak Gold
Plus and Funtime.
Table 1: Kodak Gold Plus
Regular Price
15% Price Cut
Retail Selling Price
$3.49
$2.97
Dealer Margin
$0.70
$0.594
Revenue
$2.79
$2.38
Contribution
$1.95
$1.536
Variable Cost
$0.84
$0.84
469,000,000 rolls
595,410,000 rolls
Break Even Point to get 1993 profit of
$914,550,000
Break Even Sales Change
126,410,000 rolls
% Break Even Point Sales Change
27% increase in sales
Table 2: Funtime
Regular Price
15% Price Cut
Retail Selling Price
$2.79
$2.37
Dealer Margin
$0.56
$0.47
Revenue
$2.23
$1.90
Contribution
$1.56
$1.32
Variable Cost
$0.67
$0.58
469,000,000 rolls
551,270,000 rolls
Break Even Point to get 1993 profit of
$732,109,000
Break Even Sales Change
% Break Even Point Sales Change
82,2700,000 rolls
17.5% increase in sales
The above tables indicate that if Gold Plus were to cut prices by 15% that the effort to reach breakeven point would be a 27% increase in sales. On the other hand, assuming that Funtime’s break-even
point is also 70% of the market sales the profit at break-even point is $732.109 and a price cut of 15%
would require less effort of 17.5% to increase sales. However, if Kodak wants to keep profits at the
current level of $914.55m by introducing Funtime, sales it would need to increase by 25%. This is
shown in the table below:
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Table 3: Break Even Point Sales
Kodak B.E.P sales ($914.55m)
Funtime B.E.P sales ($914.55m)
% B.E.P. change
469
585.87
+25%
In consideration to the above financial implications, it would be best for Kodak to introduce Funtime at
a lower price, rather than decrease the price of Kodak Gold Plus because this will require more sales
effort. Therefore implementing Funtime as opposed to decreasing the current price of Gold Plus will be
more profitable for Kodak.
Disadvantages of Funtime




Adversely affect Kodak’s reputation or brand image: The price quality effect may occur, where
customers perceive Kodak’s quality based on their prices so Kodak’s premium quality image
will decrease. As a result, Kodak’s differentiation from competitors will decrease and
customers will become to view film as a commodity, preventing them from continuing with
premium prices.
Offered in the two most popular speeds, which may cannibalize sales: Photo film is beginning
to be perceived as a commodity, particularly by amateur customers, therefore they may not
understand the difference between Royal Gold, Gold Plus and Fun time when they have the
same speeds available. As a result, the sale of these products could decrease.
Funtime sold only at off peak times: The product will not have a great impact on market share
if it is only available at off-peak times in comparison to competitors who sell lower priced films
all year round.
Competitor’s reactions: Private label owned brands may continue to increase and may be more
aggressive by increasing their advertising or further lowering their prices in order to prevent
Kodak from successfully attracting price sensitive customers. This could work because Kodak
is unable to sell through private label owned brands and they do not want to lower their prices
to much in fear of damaging their brand image of high quality products. Since, Fuji is the
dominant competitor their reaction will be very important. It may cause them to increase their
advertisement spending because Kodak currently spends four times as much as Fuji.
Ultimately, it could risk a price war and deterioration of the industry.
5.b) What steps would you recommend to Kodak management? Would you launch Funtime as
proposed, change the price of Gold Plus, or pursue other possible alternatives? Substantiate your
answer with factual information. Kodak should enter the Economic Brand Tier with Funtime Film
to target amateur buyers. In order for the implementation of ‘Funtime’ to be effective it is
recommended that it is introduced as a limited-time offer for the fall and spring/summer heavy picturetaking periods as opposed to the original idea of introducing it at off-peak times because this will not
be an effective way to compete with lower priced films and increase market share. If this is successful
then it should be made available all year round thereafter. Secondly, Kodak must ensure that they
effectively communicate and educate consumers about the differences between the three brands in
order to prevent photo film from becoming a commodity and reduce their ability to charge premium
prices. This can be done through ensuring that customers understand the ‘usage’ differences. For
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example, Royal Gold is for ‘special occasions’ so it should have a premium presentation design, in
special displays and sold in more upscale settings where professionals can provide information. If this
is communicated effectively then Kodak’s brand image of premium quality should not depreciate
because the new strategy will not relate price to quality, but instead it will relate price to usage
situations, thus increasing their competitive advantage. Thirdly, it is recommended that Kodak
consider the reactions of its competitors. It is likely that there will be continued growth of private label
films that will compete with Kodak. In addition, Kodak’s main competitor Fuji will definitely react
aggressively. Fuji also has a super-premium brand, which it may revamp to compete with Kodak Royal
Gold. Finally, it would be best for Kodak to introduce Funtime at a lower price, rather than decrease
the price of Kodak Gold Plus because this will require more sales effort. Therefore implementing
Funtime as opposed to decreasing the current price of Gold Plus will be more profitable for Kodak. See
above comments regarding advantages/disadvantages as well as financial considerations.
5.c) What other marketing options exist if the Funtime product is not pursued (excluding new
product development)? What are the pros and cons of each? Kodak currently has the largest selling
brand in the industry, Kodak Gold Plus and this implies that customers are satisfied with the film
product quality but that competing products are viewed as sufficient substitutes when available at a
lower price. As a result, a strategy could be to increase mail order buying of film through offering
lower prices on line.
The proposal is to, sell Gold Plus at a price 10-20% lower than $3.49 on the internet but ensure that it
is only available when the consumer buys a minimum amount of 20 packs at a time.
Advantages
 Technological development and increased use of the internet is increasing the adoption of
online shopping for consumer products.
 Convenience: Customers can order products from their home; it is quick and efficient and
allows them to access products from all over the world.
 Increase camera usage: The internet provides an opportunity to offer other services, including
selling film, e.g. order prints. This will increase customer’s ability to take more photos.
 Businesses have the ability to sell their products to a larger customer base
 Lower costs: packaging, distribution, overheads and marketing costs are reduced. For example,
having a minimum amount of products that need to be purchased at one time spreads the
shipping costs and the business can benefit from economies of scale
 Attract Price sensitive customers: Reduced costs provide the opportunity to lower costs,
without decreasing their profit margin, allowing Kodak to compete with lower priced products.
 Competitive advantage: Only 2% of photo film is currently sold through the internet, therefore
Kodak will have a competitive advantage by using this distribution channel more effectively
before competitors.
Disadvantages
 Low awareness and trial rate: It may take customers a long time before they are aware of this
service and even longer before they adopt to use it. Therefore, it may not solve the immediate
problem of decreasing market share quick enough.
 Cannibalize sales of Kodak Gold Plus in stores as customers become more prices sensitive and
opt for online purchases.
 Adversely affect Kodak’s reputation and brand image: Charging different prices for the same
product may create customer dissatisfaction and it may reduce the premium quality image of
Kodak Gold Plus in the long term, ultimately decreasing their profitability.
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Exhibit 1:Breakup of US Market Share
Private Label
10%
Other
5%
Polaroid
4%
Fuji
11%
Kodak
70%
Exhibit2: Annual Growth Rate
15%
15%
15%
10%
10%
5%
3%
2%
0%
Average
Kodak
Fuji
Polaroid
Private
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Exhibit 3: Price Tiers
Fujicolor
Reala
Kodak Ektar
• Superpremium Price: $4.27 - $4.69
• 5% Market Share
Kodak GoldPlus
• Premium Price: $3.49
• 67.67% Market Share
Agfacolor XRG
Fujicolor Super G
• Economy Price: $2.69 - $2.91
• 13.34% Market Share
Konica Super SR
ScotchColor
Polaroid High Definition, Kroeger,
Walgreen's,York, Clark Color, Kmart Focal,
Target
• Price $2.91 - $2.49
• 14% Market Share
Exhibit 4: Distribution Channels
2%
6%
9%
32%
Department Stores
Drug Stores
Camera Shops
13%
Supermarkets/Convenience
Wholesale Clubs
Mail Orders
Other
14%
24%
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Exhibit 5: Market Share point value in terms of contribution dollars (unit: $)
Kodak 70%
Kodak 69%
Market Volume in 1993
670,000,000
670,000,000
Unit Market Share
469,000,000
462,300,000
Retail Selling Price
$3.49
$3.49
Dealer Margin
$0.70
$0.70
Revenue
$2.79
$2.79
70%
70%
Contribution
$1.95
$1.95
Variable Cost
$0.84
$0.84
Profit in 1993
$914,550,000
$901,485,000
Gross Margin%
Exhibit 6: Change in Contribution Margin by price of Gold Plus (unit: $)
Price Cut
0%
5%
10%
15%
20%
Retail Price
3.49
3.32
3.14
2.97
2.79
Wholesalers Price (80% of retail price)
2.79
2.65
2.51
2.37
2.23
Cost (30% of retail price)
1.05
1.05
1.05
1.05
1.05
Contribution Margin
1.95
1.81
1.67
1.53
1.39
% vs. Present
100%
92%
84%
76%
68%
15%
Exhibit 7: Maintain 70% market share (unit: rolls)
Total Market
1993
670,000,000
1994
683,400,000
Kodak (70%)
469,000,000
478,380,000
Ektar (10%)
46,900,000
47,838,000
Gold Plus (90%)
422,100,000
430,542,000
Assumption: 10% of Kodak selling product is Ektar and the others are Gold Plus. It is reasonable because 14% of films
are sold at camera shop. But for that camera shop, Gold Plus also will be sold. It assumed that sold products about 70% in
camera shop would be Ektar.
Cut 20%
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Exhibit 8: To maintain profit, prediction about Gold Sales and Kodak Market Share (unit: rolls)
Price Cut
0%
5%
10%
15%
20%
Target Contribution Market
736,564,000
736,564,000
736,564,000
736,564,000
736,564,000
Expected Sales
422,100,000
458,804,036
502,499,659
555,394,360
620,734,873
0
36,704,036
80,399,659
133,294,360
198,634,873
67.4%
74.6%
81%
88.7%
98.3%
Incremental Sales
Kodak’s Market Share
Target CM: 0% = 422,100,000 * 1.75
Kodak’s MS: = 473,039,011 + Incremental sales / Total number of rolled consumed
Exhibit 9: When Price elasticity is 1, Change in demand of Kodak Gold Plus (unit: rolls)
Price Cut
Expected Sales
Kodak’s Market Share
Kodak’s Contribution Margin
% vs. Present
0%
5%
10%
15%
20%
422,100,000
458,804,036
502,499,659
555,394,360
620,734,873
67.4%
74.6%
81%
88.7%
98.3%
847,248,500
822,205,307
791,269,598
754,441,373
711,720,632
100%
97%
93%
89%
84%
Kodak's MS: (Expected Sales of Gold Plus + Ektar Sales) / Total Market Size in 1993
Kodak's CM: (Expected Sales of Gold Plus x Unit CM of Gold Plus) + (Ektar x Unit CM of Ektar)
13