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Growth of individual competitors strengthens their brand equity (and perhaps diminishes Kodak perceived quality edge)

Alternative 3 - Reposition the overall Kodak product line to skew toward the higher end products. Concede the economy market and offer a film between "Gold Plus" and "Royal Gold." Replace "Funtime" with "Gold Premium Plus."

Pros
• Retain Kodak's respected brand equity, no new product or packaging to detract from image as quality
• Higher gross margins (see Table 2)
• Distances perceived quality divide between Kodak and low-price competitors
• Maintains Kodak's reputation as a market leader, as opposed to a "me too" strategy of following competitors
Cons
• Concede economy market segment
• Give up some market share

Recommendations
Kodak should abandon Funtime film and pursue an alternative strategy. We recommend that Kodak move upscale by offering a product between "Gold Plus" and "Royal Gold," such as "Gold Premium Plus." Consumers prefer three levels of choice and tend to gravitate toward the middle choice. This would yield higher gross margins on the market share they retain. Any ‘cannibalization' from the Premium category would be to a higher priced product. The integrity of Kodak's brand name would also improve and its image as the high quality source would be strengthened. We recommendation the new product line be introduced with an advertising campaign that focuses on "choosing the right film for the right occasion."


Table 1
Pricing for Original Funtime Proposal
Royal Gold Gold Plus Funtime
Retail $4.19 $3.49 $2.79
Dealer margin 20% 20% 20%
Dealer price $3.35 $2.79 $2.23
Dealer markup $0.84 $0.70 $0.56
Gross margin 75% 70% 62%
Variable & fixed costs $0.84 $0.84 $0.84


Assumptions:
1. Variable & Fixed cost are based on...