Eastman Kodak is suffering from profit margin losses and technological changes in the photo world. Film has always been a high profit product for Kodak, but the margins and sales are rapidly reducing. Kodak is shifting the focus to digital printing market to save itself from financial ruins. The new CEO, Antonio Perez has been appointed to make Kodak the industry leader. Based on the analysis below, which analyzes the current environment and identifying threats and opportunities in the environment and comparing that information with the competitors, it is clear Eastman Kodak is on track to become a major player in the digital printing market.
Potters five forces model is used to analyze the current competitive environment of Eastman Kodak. The five forces that are examined are: Entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing players. The entry of competitors is always a huge issue when dealing with technology products, mainly because of their very short product lifecycle.
With Xerox, Hewlett-Packard and other major companies already established in the market, it will be difficult for small players to enter the market; Eastman Kodak should acquire technology from small companies to strengthen their position. The threat of substitutes is an area that Eastman Kodak cannot ignore especially in the production and launching of their new consumer inkjet printers. While HP is relying on profit margins in the replacement cartridges, Eastman Kodak is marketing a quality printer, affordable cartridges, and quality paper combination to produce highest quality prints.
If consumers buy Kodak’s economic value pack, the cost to print is about 10 cents, vs. 24 cents for HP products. Since Kodak is counting on the package as a whole, they must make sure marketing conveys the message, that it is truly a combination of it products that produce value and quality. Another major force is the bargaining force of the buyer. Eastman Kodak is entering the consumer printer market which is full of competitors who produce products that allow the consumer to have significant buying power.
As mentioned above, most producers rely on profit margins from selling replacement cartridges and not on the printer itself. With companies producing quality printers at extremely affordable prices, the buyers have a lot of power. With a lot of generic replacement cartridges suppliers the buyers have even more power. Eastman Kodak is aware of this and even though they are launching into the consumer printer market, they are also making a play into the commercial printing market where the bargaining power of the buyer is not as great.
The bargaining power of suppliers is more significant to Eastman Kodak that its competitors who develop and produce most of their own parts. In an effort to get its printers on the market quicker, Eastman Kodak developed its printers using off the shelf parts. They worked with technology partners such as chip-design specialist, rather than trying to design everything from scratch. While this tactic did allow for faster development and lower development costs, the reliance on the suppliers for the parts to manufacture the printers gives the suppliers greater buying power.
Compared to the traditional manufacturing by others in the market that develop and produce most of their own parts, while risky, could pay off for Kodak in the long run. Of the five forces, rivalry among competitors could be the most significant. The fight for more shelf space, bundling of printers with the computers, discounts, and rebates makes this market extremely competitive. Economically Kodak has significant disparities with its competitors. The major difference is in the stage of the business cycle.
While Eastman Kodak is a well-established company, with decreasing emphasis on film and an increased emphasis on digital printing, they are behind the power curve of their established competitors. However, this can be an advantage according to Kodak CEO, Antonio Perez, The opportunity to disrupt the industries business model and address consumer’s key dissatisfaction: the high cost of ink. Another economic issue is labor. Kodak has moved much of its labor to Mexico thus avoiding the higher cost of labor in the U. S.
The technological environment will play a key role in Kodak’s future. One of the primary areas that may be of the concerns is in the research and development area of Kodak. While the research is well led and established with specific visions and goals, as they develop and buy their parts from the technology partners , anything that Kodak develops and produces will be easier to mimic since the parts are available to others as opposed to being developed and manufactured internally. As mentioned throughout there are numerous threats and opportunities that Eastman Kodak will face.
Some of the significant threats are HP’s position in the market and capital available to quickly react and launch competitive products for the most anything Kodak produces. Another significant threat is Kodak’s ability to break into the consumer printer market in a significant manner. As of this period of time, they are not a major player and may find it more difficult than expected to meet its goal. While they have significant leverage in the film and digital camera markets, the consumer printer and commercial printer markets are better established by the number of solid performers.
Finally the most important threat is entering the market 20 years behind the market leaders. Along with threats come opportunities. One of Kodak’s biggest opportunities may be in the commercial printing market. As mentioned earlier, the profit margins are reliant on the replacement cartridges and if Kodak can present a high quality printer and offer the replacement cartridges at a lower price, they may very well gain a significant market share. Kodak does have the opportunity to become a major player in the digital printing market.
They must continue with their current vision to produce a printer that produces the absolute highest quality prints and make the printer affordable to the average customer. In addition they must develop the new technology for the commercial printing market. They must continuously evaluate their operations and direction to make sure they are still in track. It is also important that they follow the lead of CEO, Antonio Perez, and push forward with research and development of new products.