Case to Accompany Consumer Behavior Part
1. Kodak: Creating Digital Moments
Abstract: Kodak is one of the leading companies in the world, however, it meet a big challenge in the internet economy and its traditional products cannot meet the needs of consumers such as send photos by email. Kodak work hard to study the consumer’s needs
in the internet world and find several good solutions to meet the needs. The case introduces the research process how Kodak researches the consumer’s requests and what
the solutions are.
―It’s an easy way to show your prints. It’s one thing to receive a written e-mail from
home. It’s much more powerful to see family and friends right on your computer screen,‖ says Phil Austin, system specialist for the Navy Exchange Service Command in Virginia Beach. Phil was one of the first to see the benefits of joining Kodak’s network of processing labs that turn conventional film into computer-digitized images for computer use.
One of Phil’s first digitization customers was Debbie Dey who attached four photos
to a pre-Christmas e-mail to her husband, a naval aviator, while he was at sea. ―I think he was pleasantly surprised to see pictures instead of just e-mail‖ Dey says. ―I wouldn’t
have sent regular pictures. Snail mail can take several weeks.‖
Such comments are music in the ears of Rory R. Gumina, Kodak’s director of marketing for digital imaging services, and Carl Gustin, Jr., Senior Vice President at Eastman Kodak.
Since Kodak made the decision in the early 1990s to enter the digital imaging business in a big way, Kodak management led by then-CEO George Fisher has been roundly criticized.
For a long time, it looked as through the critics were right. The diversion of funds from the traditional photography business to digital imaging came just at the time that Fuji began aggressively distributing and cutting price on film in the U.S..
Without marketing funds (that had gone to digital imaging), Kodak’s market share
in film dropped by 10%. To improve the bottom line, Fisher slashed 7,600 jobs and reduced costs by $350 million which boosted operating profit margins to 18.5%. But even as these measures shored up the balance sheet, the digital business was drowning in red ink and it got worse. In 1998, digital sales declined 5% and Kodak lost another $64 million.
Why is Kodak willing to make sacrifices for digital imaging? The answer is simple. They think it’s the future for photography. According to Carl Gustin there have been three major developments in photography. The first was silver halide photography; the second color photography and the third digital imaging. The first made it possible for ordinary folk to take pictures; the second gave them color pictures and the third enables them to ―remake their pictures, access them and make it easy to display them, recompose
them, share them and communicate them around the world,‖ according to Fisher.
Digital imaging relies on computer technology and the ability to record pictures on disk for use on PCs and upload to the Internet. When Kodak first entered digital imaging for the consumer market, they introduced digital cameras with price ranges of $800 to several thousand dollars. Although the investment in the camera was significant,
purchasers would save over the lifetime of the camera because they could use computer disks and store their pictures on their hard drives, foregoing the cost of film and processing. And they could use the disks over and over and over. Even as Kodak brought the price of digital cameras down to the $300 and $400 mark, they found that consumers weren’t buying, and the red ink continued to flow.
Thinking that CDs might be the answer, Kodak introduced the Photo CD which required that consumers purchase a $400 machine to read the disks.
Then, they shifted to FlashPixCD which cost about $25 per unit, but which took several days to process but the consumer couldn’t manipulate the images.
Finally, Kodak realized that you just can’t teach old picture-taking dogs major new
tricks. They realized that they were asking consumers to change the way they take and develop pictures in order to get digital images useful for computer manipulation. Suppose it were possible for consumers to engage in their usual behavior (same camera, same film, same trip to the retailer to be processed), but their pictures were returned in digital format? It wouldn’t be true digital imaging, but it would still allow them to upload their pictures and, like Debbie Dey, send them around the world via e-mail.
Because it’s a hybrid process, Kodak calls it digitization which means taking
traditional film and digitizing it. To obtain it, all consumers have to do is ask for Picture CD when they take their film in for processing. The extra cost is approximately $9 per roll, but the consumer gets a CD which contains all the necessary software to manipulate their pictures in addition to their prints.
To produce Picture CD, Kodak teamed with Adobe which developed the software for the CD. Once loaded in the CD-ROM drive, easy-to-follow instructions guide
people through the CD’s options using a magazine format. A pop-up window delivers
the consumer’s entire roll of pictures in a slideshow format. The table of contents includes basic functions, more advanced functions and ―Other Cool Stuff‖.
What can you do with Picture CD? In Basic functions, you can rotate images, add names/captions and sharpen the color. You can e-mail pictures as attachments to friends, family, even husbands on the other side of the world. You can create a slideshow by choosing specific pictures for presentation, customizing the timing and selecting from a variety of slide transitions. You can pint simple or multiple pictures in different sizes and make your pictures into wallpaper for your computer monitor. Finally, you can upload your pictures to the Internet—hopefully to Kodak PhotoNet Online where you will find
more ways to extend your picture use by printing them on t-shirts or neckties or making your own calendar or mouse pad. That’s for starters.
In Advanced functions, you can adjust brightness and contrast; trim; remove red-eye or stylize your pictures with artistic effects such as embossing, mosaics, or even convert them to black and white. You can apply visual effects to create new looks such as mirror images or painting one picture over another.
The Other Cool Stuff enables you to use Cosmopolitan Virtual Makeover Beauty Sample from SegaSoft to glamorize your pictures.
Choosing not to make the same mistake, Kodak test marketed the Picture CD in the last quarter of 1998 in Salt Lake City and Indianapolis. These markets were chosen because of their geographic isolation (no spillover effects to other markets), normal penetration of PCs, and availability of Kodak Qualex labs (necessary for the digitization
process). Picture CD was purchased by 5% of consumers who had film processed—a
greater percentage than Kodak had expected.
―We’ve tapped into a pent-up demand for digitization,‖ says Rory Gumina. ―We
think, with these products, we’re finally hitting a sweet spot that consumers have been
Based on the results, Kodak planned to roll out Picture CD to 40,000 labs nation-wide in 1999. The rollout will be backed by a $150 million campaign over a three year period. In that campaign, Kodak has some powerful partners.
First, it has inked a deal with AOL (America Online) that will allow users to use the famous e-mail service—You’ve Got Mail--to send pictures—You’ve Got Pictures. This
expands the Picture CD market by 19 million, the size of the AOL customer base.
Second, both Kodak and Intel, the firm that developed the technology to actually make digital images from traditional film, will advertise the product. ―First, Kodak’s ad will show how Kodak Picture CD lets people do innovative things with their pictures on computers, followed by Intel Pentium II advertisements promoting Kodak Picture CD as a feature application,‖ says Gumina. The Kodak ads will introduce a new tagline, ―Take Pictures Further.‖
The combined companies have come up with a new slogan ―Cool Technology.
Warm Moments to capture the Intel technology image and the Kodak moments image. The result is possibly a fusion in the consumers’ mind of Kodak + Intel. Kodak becomes more of a technology company and Intel becomes a warmer, fuzzier company. The goal is to re-position Kodak as a technology firm for the new millenium. That’s why it is
leveraging its alliances with Adobe, Intel and Hewlett Packard (what else are you going to print those pictures on?) in advertising and co-branding of products.
While you may not think that 5% of film processing sounds like a big market, just consider that 750 million rolls of film are processed each year. If Kodak captures just 5% of that processing business with an additional cost of $9 per Picture CD, they will enerate over $330 in revenue which would be split between Kodak and its partners. Twenty percent of the market would be over $1 billion in extra revenue.
But are sales of Picture CD Kodak’s desired end result? Think about consumers who begin having fun remaking their pictures. For every roll of film developed, it costs them an additional $9 for Picture CD. Eventually, they will realize that they are buying the same software over and over. Would they then begin to think about buying—you guessed
it—a digital camera? After buying 33 Picture CDs, they would have paid for a digital camera!
In between purchase of the first Picture CD and eventual possible purchase of a digital camera lies the Internet. Kodak’s PhotoNet Online service not only enables
consumers to do more with their pictures—remember the t-shirts and neckties? It also
brings Kodak into contact with its customers. At present, Kodak produces the film, the cameras, lenses and filters and the photographic developing equipment, but it’s the
retailer who has personal contact with the end user. Through its Internet operation, Kodak can begin to identify its customers and build a database that could be used for direct marketing offers. Then, it would be in a position to engage in relationship marketing with its consumers which could increase the potential to trade Picture CD
users up to digital cameras. Heavy users could be identified and offers for cameras and other Kodak products could be sent to them.
Will digital imaging succeed in the consumer market? So far, Kodak has found this a difficult concept to sell, but maybe Picture CD will change that. Being copied by the competition is usually a good sign. In 1998, Seattle FilmWorks, Inc., a mail order developer began offering a similar product with lower image resolution and a lower price tag – about $4.00. Both Konica and Fuji plan to enter the market with CD products in the year 2000. What does that mean for Kodak? ―They (Kodak) have a leg up on the competition with regards to taking advantage of the Web for imaging, because no one knows imaging better than they do,‖ says Jack Kelly, analyst at Goldman Sachs in New
York. If Kelly is right, Kodak may finally be able to leverage its imaging investment. If not, it may be in another price war with Fuji.
Method of Using the Case
; Email the case to the students
; Read and discuss the case according the questions follows by students groups ; Present the conclusions and extended materials onto the BB
; Oral present the conclusions in the class by groups choosing by teacher ; Evaluation the presentations by teacher
Questions for Discussion
; Who are likely to be opinion leaders for Picture CD?
; What kind of innovation is Picture CD? Continuous, Dynamically Continuous or
; Evaluate Picture CD on the five characteristics of relative advantage, compatibility,
complexity, trialability and observability. Evaluate the digital camera. Which
scores better? Why?
; Why were consumers resistant to earlier versions of digital imaging from Kodak?
What were the barriers to their diffusion?
; If Kodak gets 5% of the film processing market in 1999, what categories of adopters
will have used Picture CD?
; How could Kodak affect each of the stages in the adoption process? Awareness,
interest, evaluation, trial and adoption? Is this likely to lead to full-scale adoption
of Picture CD?
; Is purchase of Picture CD extensive or limited problem solving or routine response
; At present (early 1999), is purchase of a digital camera extensive or limited problem
solving or routine response behavior?
; How can Kodak affect need recognition, prepurchase search and evaluation of
; Explain at least two ways that Kodak could use relationship marketing with its
database of PhotoNet Online users.
Methods and Theories in the Case
; stages of adoption process
; evaluation methods of alternatives
; characteristics of relative advantage of innovation
; opinion leaders
―New Kodak Picture CD Changes the Way People Create, Store, Enhance and Share
Pictures on Computers,‖ Kodak Press Release;
Michael Clark, ―Consumers Use Internet to Share Photographs,‖ Knight-Ridder/Tribune
Business News, January 13, 1999, pA6;
Alec Klein, ―Kodak is Rolling Out Digital Photo Processing on CD-ROM Disks,‖ Wall
Street Journal, February 9, 1999, pA4:
William Symonds, ―Finally, a Good Kodak Moment,‖ Business Week, July 27, 1998,
Michael R. Zimmerman, ―Kodak big zooms in on digitization,‖ PC Week, April 26, 1999,