MGMT 4950 Photography Industry Notes
1. Economic characteristics of the photography industry that are presented in the case.
; Segmentation: The industry was segmented into film-based (or traditional) and digital categories.
In 1996, 91 million U.S. households owned a film camera compared to 300,000 households
owning a digital camera. In 2003, it was projected that 74 million U.S. households would own a
film camera and 33 million U.S. households would own a digital camera. Industry analysts
expected digital photography to nearly replace sales of traditional film-based cameras by 2008. ; Market size and growth: Traditional camera sales declined from $1.65 billion in 2000 to an
estimated $1.21 billion in 2002. Digital camera sales increased from $2.1 billion in 2000 to $2.96
billion in 2002. Film processing declined from $6.93 billion in 2000 to $6.68 billion in 2002.
Sales of film declined from $2.978 billion in 2000 to $2.86 billion in 2002.
; Consumer characteristics: Men were more likely to purchase digital cameras than women (58%
vs. 42%), although women were more likely to spur the decision to purchase a digital camera.
Also, 50% of digital camera purchasers were aged 35-50.
; Consumer needs: In 2002, consumers printed only 20% of all digital photos taken. Of the 2.1
billion images printed in 2003, 77% were printed with home printers, 6.4% were ordered from
online photo services, 8.7% were made at a local retailer, and 3.6% were made using digital self-
service kiosks. Other means were used to print 4.2% of digital photos in 2003. ; Scope of rivalry: Industry rivalry was global with all major sellers competing in the same mar-
; Pace of technological change: Students should readily understand the importance of technology
in digital camera design and printing solutions.
; Economies of scale: The razor-thin profit margins available in the digital camera and printer
industries required economies of scale in purchasing, manufacturing, advertising, and other
2. Five Forces Analysis:
Rivalry among competing sellers – a strong competitive force
The rivalry of competing companies in the photography industry was very strong. The photography industry had been characterized by extensive alliances, mergers, and acquisitions, blurring previously distinct products, services, and competitors. Rapid market growth and the foundation of strategic partnerships had made a multitude of digital products available to consumers and businesses. Ease of use and accessibility of digital solutions intensified competitive rivalry.
However, the photography industry also included traditional photography. This segment was slightly declining, losing market share to digital photography, but still strong in 2003. Competition in this area was mainly between Kodak and Fuji. Eastman Kodak held the leading position in this segment of the market in leading geographical areas.
General trends in the photography industry indicated that eventually traditional photography would be replaced by digital. As the market evolved, digital imaging solutions available to both businesses and consumers communities grew larger and more complex, thus intensifying the rivalry among industry companies.
Threat of new entrants – a moderate competitive force
PC makers like HP had entered the digital photography industry but other PC and printer manu-facturers presented a threat since these firms possessed the technology to produce digital cameras. Conversion costs for this transformation would be minimal. Also, these firms were already producing computers and printers, which were necessary for printing digital pictures. Better cost management along with better distribution and logistic networks of these companies allowed them to design and produce cost efficient products, which were competing against Kodak’s products.
Bargaining power of suppliers – a weak to moderate competitive force
It is important to distinguish two types of suppliers in the photography industry. First category of suppliers was the contractors of raw materials for traditional photography. This sort of suppliers had significant power over companies like Kodak and Fuji. However, due to shift of demand towards digital technologies, the bargaining power of Kodak’s suppliers was deteriorating.
The second type of suppliers was providers for digital photography. Primarily, these suppliers inclu-ded lens producers, memory producers, and the producers of circuit boards and processors. Suppliers tended to be weak since they were typically more concerned with losing market share than with maxi-mizing profits.
Bargaining power of buyers – a strong competitive force
Most buyers purchased in large volumes and had low switching costs from one camera to another, which gave buyers considerable leverage in their negotiations with sellers. However, consumer
demand for the most advanced and best-priced cameras mandated that large retail buyers carry selected brands. Small independent buyers could be expected to have less leverage with global con-sumer electronics firms specializing in digital camera production and sales. Threat of product substitutes – a moderate competitive force
Cell phones represented a potential threat for digital and traditional cameras since sales of camera-phones were growing dramatically in most country markets. Consumers seemed intrigued by the ability to zap pictures from one handset to another.
3. Industry driving forces.
; Rapid decline in demand for traditional photography equipment in developed economies ; Rapid growth in demand for digital cameras in developed economies
; Steady decline in demand for film and photo processing
; Development of new imaging technology such as photo-enabled wireless telephones and high-
megapixel digital cameras
; Convergence of technology (PDAs, wireless phones, digital cameras, web browsers) ; Declining prices and profit margins in digital cameras
4. Key success factors in the digital photography industry.
; Technological capabilities
; Rapid design-to-market cycle times
; Reputation for producing high-quality consumer electronics
; Reputation for producing high-quality optical devices (cameras, binoculars, microscopes, medical
; Distribution network that includes large electronics chains and local camera retailers ; Involvement in multiple segments of the industry value chain—camera production and sales,
printing supplies, professional photo processing