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Corporate Close-up: Kodak (chart) KODAK'S FUTURE : COLOR IT UNCERTAIN MARKETER TRIMS DOWN, THINKS DIGITAL UNDER FISHER

By Published on .

This "Kodak moment" is not one for the scrapbooks.

Under George M.C. Fisher, Eastman Kodak Co. is going through the painful process of getting down to fighting trim so it can grapple with a potentially difficult future-a future that may have no place for the venerable Kodak brand.

Mr. Fisher, named Kodak chairman, president and CEO a year ago, is scrambling to get the company back to basics-imaging-while keeping Wall Street happy.

The U.S. giant of photography has sold off most of its healthcare and other non-imaging operations (including Sterling Winthrop, Lehn & Fink and Clinical Diagnostics) for nearly $8 billion. Also, Mr. Fisher has made 9,000 job cuts and announced last week another 800 layoffs by first quarter 1995.

But the third quarter was still abysmal, with earnings plunging 31% on an 8% rise in revenue.

The leaner Kodak is setting its sights determinedly on imaging. Film is a flat market, though, so Kodak is pushing into what it sees as the future: digital imaging. But even after a decade of investing in digital technology, such products generated just under $500 million in sales for Kodak last year.

Kodak executives have been public about their disappointment. In May, Dick Bourns, then VP-general manager of the digital and applied imaging division formed early this year, said: "We have not been successful in taking our digital technology and commercializing it."

At the center of Kodak's digital efforts so far is Photo CD, which was originally marketed as a system for storing photographic images digitally and playing them back by computer or TV. Kodak later introduced software that made Photo CD more interactive.

The company has forged some alliances to develop new digital products. These so far have yielded mostly commercial applications.

In fact, business-to-business is where Kodak sees the best prospects for its digital offerings. Consumers are a fuzzier part of the picture. A recent partnership with Apple Computer produced a $750 non-film digi-tal camera that transfers images directly to Macintosh computers. It ties in with Photo CD but sells using Apple's QuickTake name. No consumer product is available under Kodak.

Mr. Fisher hired John Sculley, former Apple CEO, as a part-time marketing consultant in June. In August, Mr. Sculley brought on Carl Gustin, a former marketing executive at Digital Equipment Corp., to take Mr. Bourns' title; the latter moved to Kodak senior VP and exec VP in the imaging group.

Mr. Sculley declined an interview request.

Little has been realized yet from his relationship with Kodak, and industry insiders question Kodak's commitment to marketing of new technology.

"I don't think Kodak can be successful in this [digital] environment," said Alex Henderson, an analyst at Prudential Securities, New York. "There is a lot of technology coming down the pike from a lot of companies" that are quicker to react. Kodak, he said, has a three- to five-year turnaround for new products compared with six months for small, entrepreneurial companies. Mr. Gustin admitted Kodak's turnaround time is too slow but said: "Response time will be cut dramatically; it already has."

Kodak last week named Ogilvy & Mather, New York, as first agency of record for the digital and applied imaging division. O&M's "first efforts will be business-to-business," which is what the division is mostly about, Mr. Gustin said, adding that "occasionally, some of our products will reach the consumer side."

A basic, critical factor is whether brand Kodak can make the jump into imaging's electronic age.

"We're at a critical stage, to be a significant player in digital photography," said Dick Bartlett, Kodak director and VP-worldwide marketing communications brand management. "We're trying to find out how elastic the brand is. Can we go from traditional imaging to digital with the same brand name?"

The company is conducting a worldwide brand equity audit to help answer that question.

Developing new technologies is crucial for Kodak because the marketer's cornerstone products-film and disposable cameras-are in slow-growth areas.

Film, the largest part of Kodak's business, is a mature category. Wholesale U.S. film sales hit $3.5 billion in 1993, said the Wolfman Report. An analyst added that U.S. film sales were up just 4% for the first two quarters of this year. And according to Strategic Marketing Analysis, Kodak's film share has slipped 10 points in the past five years to 70%.

That has led Kodak to expand into Asia, India, Latin America and Russia. Mr. Fisher recently made a deal in China. And in a coup for Kodak in the homeland of Fuji, he landed exclusive film sponsorship of the 1998 Winter Olympics in Nagano, Japan. Overseas film sales will account for 14% of Kodak's 1994 revenue and U.S. film sales, 13%.

At home, under attack from other marketers like Fuji Photo Film USA as well as private labels, Kodak segmented its film products with high-end Royal Gold and low-end Funtime.

Although sales have been strong for single-use cameras, that category is also mature and tightening.

To boost earnings, Kodak may cut research and development and reduce advertising in the fourth quarter. Through June, measured media spending for film and cameras hit $23.5 million, up 43% from a year earlier, according to Competitive Media Reporting.

Apart from technology, Wall Street has given mostly high marks to Mr. Fisher, who came from Motorola with a reputation for forming alliances and turning science into consumer products.

"Divesting was very wise," said Robert Curran, senior VP-securities analyst for Merrill Lynch & Co. "It's the first of a number of steps that need to be undertaken to change their corporate culture."

But, added Sharon Dorsey Wagoner, analyst at Argus Research: "The bottom line for Kodak is the core business has to grow. And that's not going to happen overnight."

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