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Kodak at a Crossroad: The Transition from Film-Based to Digital Photography

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Essay title: Kodak at a Crossroad: The Transition from Film-Based to Digital Photography

Kodak at a Crossroad: The Transition from Film-Based to Digital Photography

Traci Dawson-Butcher

1. What are the standout features of the photography equipment industry? How do economic characteristics differ between the film-based and digital segments?

The digital photography industry is fast-paced and crowded, offering razor thin profit margins. The photofinishing and retail camera industry includes about 8,000 locations with combined annual revenue of $7 billion. Ritz Camera Centers operates over 1,300 stores. The industry is concentrated: the 50 largest companies hold more than 60 percent of the market. A typical store has five employees and about $500,000 in annual revenue.

Competitive Landscape - Demand depends on consumer income. Profitability of individual companies is linked to marketing, and, for photofinishers, efficiency of operations. Large companies can have economies of scale in purchasing and operations. Small companies can compete successfully by offering superior service. The industry is fairly labor-intensive: annual revenue per employee is about $100,000.

Major competitors are big box retailers, like Wal-Mart and Target, and electronic superstores, such as Best Buy and Circuit City. Photo kiosks and mini-labs are also found in many major drugstore chains. Digital photography has had a major impact on the industry.

Products, Operations & Technology - Film processing and printing account for about 50 percent of industry revenue and the sales of cameras and film account for about 40 percent. Stores also offer repair services and sell related items like picture frames and albums. Photofinishing labs may provide direct retail services or may process films and images for other retailers.

A typical store occupies about 3,000 to 5,000 square feet and stocks 2,000 to 3,000 items, which are distributed from central warehouses of big companies. Smaller companies buy from distributors or directly from manufacturers. Many camera stores have photofinishing mini-labs or kiosks.

The digital market is characterized by faster growth, tighter profit margins, aggressive pricing and swift product turnover.

Economic Differences – The digital segment was expanding and growing at a fast pace and the film-based segment was a mature market. The following chart shows the growth in digital cameras and the decline in the number of households owning traditional film cameras. The 2.6 percent decline in traditional film cameras in 2002 was attributed to the growing demand for digital cameras and the rising popularity of one-time-use cameras.

2. What is the competition like in the photography equipment industry? What competitive forces seem to have the greatest effect on industry attractiveness?

3. How is the photography industry changing? What are the underlying drivers of change and how might those driving forces individually and collectively change competition in the industry?

Kodak’s status as an iconic brand was threatened by the technological shift away from its cash-cow business of traditional film and film processing. The bursting of the technology-bubble proved that the absence of a strong profit generating business model could not be replaced with information technology solutions.

The photography industry is changing from a traditional industry to a much more technically advanced industry. This expansion in the field of technology for the photograph equipment industry opens the door for other industries (computer industry, software, printers, etc.) to step in and broaden their product line and offers huge potential for market growth.

4. What key factors determine the success in the digital segment of the industry?

Kodak is going to have to keep their traditional film market strong because of its profit potential, but in order to stay in business they are also going to have to continue their growth and progress in the digital lines of photography. Key factors will include:

Having a business model that will allow Kodak to move even faster than its competitors to take full advantage of the profitable growth that the digital technology promises

Being more competitive – Kodak will obviously need to be profitable, have a more balanced earnings stream, and will need to have a lower cost structure

Making the most

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