Kodak cuts jobs and spending, and may need to cut some prices

The Outlook

November 16, 1997|By Samantha Kappalman

Eastman Kodak Co. announced last week that it cut 10,000 jobs and chopped $150 million off its research budget -- the latest in a string of restructurings that have yet to boost profit or market share.

The cost-cutting -- $1 billion over two years -- is a response to stiff competition from Japan's Fuji, which has undercut Kodak's film and processing-paper business, and continuing steep losses its digital photography products.

The measures are the most drastic yet by George M. C. Fisher, the former Motorola chief executive who was brought in four years ago to rejuvenate the 113-year-old company.

Are these moves enough? What other steps should Kodak take? Does it have to cut film prices to compete with Fuji? Can it regain its pre-eminence, or has Kodak's moment passed?

John Larish

Digital consultant and owner, Jonrel Imaging Consultants, Rochester, N.Y.

They have to do something more. They are taking on a value strategy, but people buy price. If one milk price is better, they buy that kind of milk.

The first thing is that prices are going to have to come down, and they will still have to put a better product out so that people will continue to buy its brand. They have to accept that they cannot live on the old brand anymore -- there is a 30-percent price differential.

I think they've got to tighten up their line of professional products; they have too many. They have to figure out what's important to us [Kodak] and what's important to them [customers]. If they are going after the picture market, they need to go after the professional market that uses film. At the press conference, they asked the photographers what kind of film they used, and they all said Fuji.

Michael W. Ellmann

Vice president of equity research, Schroder & Co., New York

Kodak was once the premier, if not the only, photographic product supplier in the United States, if not the world, and these changes are not going to restore the company to that position of near-monopoly power.

I suspect that at this stage of maturity in the industry, most companies can produce very good products for the consumer without there being a great amount of product differentiation. The route to victory is cost position and marketing skill. Kodak presumably needs to improve both.

You have to essentially leverage your market with your distribution, advertising and promotion and with relationship-building to key customers, and you have to be tough on cost. If you can be pre-eminent in all those disciplines, you win.

The intelligent answer to lowering cost of film is yes and no.

What has happened in the United States market in 1997 is that Fuji, for a variety of complex reasons, has in mass merchant channels -- Wal-Mart, Target, warehouse clubs -- made available four-packs of film at very attractive prices.

When you go to the store and look in front of you and see 96 exposures for $7.99, that's $2 a roll. That is a terrific price for film.

Kodak is in a position where they don't have to necessarily match prices but they have to offer an alternative. They have to narrow the value gap. It just can't be priced at 25 to 30 percent above Fuji and not expect some customers to switch.

Eugene Fram

J. Warren McClure, research professor of marketing, Rochester Institute of Technology

One of the major areas is price concerns with Fuji.

They have to meet those price concerns. Three, four, five months ago they were taking the high road and saying they would not get involved in price conflict. They have to go out to advertise, to promote.

They are also cutting back on the sales force. They are trying to create the demand from the consumer -- to get them to come in and ask for the product.

This is a pull strategy instead of a push strategy. If they are going to meet the challenges, they have to take this route.

The downside is that margins will have to be cut in order to meet that. They will not be able to enjoy long margins as they previously had.

If they handle this correctly, they'll regain some of the pre-eminence that they've had.

RF It's a fine line to try to maintain the silver halide [tradition-

al film and processing] business they now have to a reasonable degree while coming out with digital products.

It's a balancing act.

They have to hold on to the past because it's their cash cow, but they also have to move forward with better digital products.

They have to face competition from Fuji, but, also in the digital market, Hewlett Packard is coming on strong.

It's announced some photographic products for the consumer market. It's my understanding that [the time] from their decision to go until they introduced the products was a small gestation period compared with a chemical plant, where you have to plan, build and train workers and have all the EPA requirements.

With digital, all you need is some very bright programmers who know their way around electronic products.

Pub Date: 11/16/97

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