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Kodak Funtime - Ans2 and 3

Fuji has cost advantages over Kodak in film production that allow it to compete aggressively in the economy camera segment. Kodak is considering launching a new "Funtime" film brand at lower prices to also target this segment. However, calculations show that for Kodak to break even on such a launch, it would need to gain a 35% market share, equivalent to over 70 million additional units sold annually. It would also lose some profits from cannibalizing sales of its existing higher-priced brands. Fuji's lower advertising costs and higher margins give it an edge in any potential price war over this market segment.

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Shreeraj Pawar
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424 views2 pages

Kodak Funtime - Ans2 and 3

Fuji has cost advantages over Kodak in film production that allow it to compete aggressively in the economy camera segment. Kodak is considering launching a new "Funtime" film brand at lower prices to also target this segment. However, calculations show that for Kodak to break even on such a launch, it would need to gain a 35% market share, equivalent to over 70 million additional units sold annually. It would also lose some profits from cannibalizing sales of its existing higher-priced brands. Fuji's lower advertising costs and higher margins give it an edge in any potential price war over this market segment.

Uploaded by

Shreeraj Pawar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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2.

Fuji, seeing that Kodak is trying to capture market share by launching a


brand close to Fujis price can respond in the following manner:
Fuji can enter into a price war with Kodak in this situation. Considering that
Fuji is already well established in the economy segment, it will try everything
possible to ensure that Kodak stays out of that segment. Market share of
Kodak is the highest currently(70%) but their concern after seeing the growth
rate of Fuji(18%) has made them think about launching Funtime to compete
with economy brands. In terms of cost advantage, Fuji had an advantage
over Kodak because of following reasons:
Low advertising cost- Kodak spent close to $50 Million on advertising. This
was four times that of Fujis advertising cost ($12.5 Million).
The other cost advantage that Fuji had over Kodak was the margin
advantage that Fuji got (55%) over a film of $2.91 versus the margin that
Kodak got(70%) over a film of $3.49. If Kodak did decide to launch Funtime
version, their margins would also be affected because of cannibalization and
seeing the increase in product lines that Kodak has to offer, we can assume
that dealers could increase their margin on Kodak film from 20% to 25%,
thus

again

hurting

Kodak.

Kodak

historically

focused

on

increasing

advertising and focusing on marketing, however it is important that they also


build in house strength and keep the price on line like Fuji did.
3. Considering introduction of Funtime, we calculated the breakeven points in
terms of increase in market share and breakeven units needed. As per the
below calculations, Kodak would gain market share of almost 35% if it goes

ahead with the introduction of Funtime. In terms of breakeven number of


units, the number would be 70350000.
Also, for cannibalization we assumed the rate to be 15%.

Price
Gross Margin
Dealer Margin
Profit Markup
Selling Price
Profit
Sales
Profit

Gold Plus
Current
New Price
3.49
2.9665
70%
70%
20%
20%
0.698
0.5933
2.792
2.3732
1.9544
1.66124
375200000
441411764.7
733290880
733290880
Increase in Sales
17.65%

Fun Time
Price
Gross Margin
Dealer Margin
Profit Markup
Selling Price
Per Unit Profit
Cannibalization
Lost Profit
Breakeven Units
Mkt Share Gained
Absolute Market
Share

2.792
70%
20%
0.5584
2.2336
1.56352
56280000
109993632
70350000
35.00%
10.50%

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