An Analysis
of
Polaroid's Marketing Strategy
Prepared for
Sandeep Krishnamurthy
Consumer Marketing
University of Washington, Bothell
by
Lora Boivin
Riki Clark
Phil Humphrey
Heidi Salstrom
Debby Welsh
April 17, 1997
Industry Overview 3
Marketing Mix 4
Product 4
Price 6
Distribution 7
Positioning 7
Promotion 8
Critical evaluation 10
Appendix A-D 13
Works Cited 20
Polaroid's core business is the design, manufacture, and sale of instant photographic imaging products. Photographic products represent over 90 percent of Polaroid's total company revenues (Appendix B). In February of 1996, Polaroid reorganized the management of their core business into three areas: consumer, commercial, and new business (www.polaroid). Polaroid felt this would allow the company to react quicker to customer requirements and the changing market conditions (www.polaroid). The contents of this report will focus on the consumer division with an emphasis on instant cameras and film.
The Consumer Imaging division of Polaroid represents well over half of the company's total sales. The divisions sales are expected to increase 3%-5% per year through the year 2001. To achieve this growth Polaroid's focus now expands to include many new and emerging markets. The company feels by targeting countries with little or no film developing infrastructure they will be early arrivers into these markets.
Some of the countries Polaroid focuses their targeting efforts on include Russia, China, India, Brazil, Africa, and Latin America. In 1995 Polaroid's sales in Russia reached $200 million, making it the company's second largest market. Unfortunately, emerging markets are often very unstable, and Polaroid's sales in Russia fell by 40% in 1996 (Prudential, 2). The company is still very optimistic about sales in emerging markets and hopes tariff reductions, targeted pricing campaigns, and customized product offerings will increase sales in many of these markets (Prudential, 2).
Polaroid holds a rather unique strategic competitive position in the market of instant cameras. Polaroid introduced their first instant camera in December of 1948 (Abeil, A2). The company continued selling instant cameras unchallenged, because of a strong patent, until 1976. From 1976-1985 Kodak began selling a line of instant cameras called Kodamatic's (Abeil, A2). Polaroid sued Kodak in 1976 accusing them of violating Polaroid's patents (Abeil, A2). The case was finally settled in 1985 and Polaroid was awarded $909.5 million in damages (Abeil, A2). With the exception of the brief period between 1976-1985 Polaroid has had a virtual monopoly on instant cameras. The company's patent did expire in 1990, but competition has been slow to enter the market place because of the products mature position in the product lifecycle
Polaroid's threats are not from direct competitors; they are from the indirect competitors. Polaroid's instant cameras have continually lost market share to disposable, 35mm, video, and digital cameras. The company also continues losing market share because of one hour photo processing shops and a reduction of shelf space at many outlets (Davis, F1).
Product
When consumes think about instant photography think generally think of Polaroid. This stands true because the Polaroid company remains the only instant camera on the market despite efforts of competitors to enter the market. Not only does Polaroid dominate the instant market, they also successfully compete in the medical imaging and innovative digital camera market. Although Polaroid offers this vast array of products, we will focus mainly on the instant market.
The Polaroid instant product line includes the camera, film, and accessories. Polaroid's camera line contains thirteen different cameras, several types of films, and individual programs to accompany some specific cameras (Appendix A) (www.polaroid). The camera line includes specialized cameras for construction workers, medical professionals, children, and police departments. They use these for cameras for investigative work and documentation. The other cameras are used by the general public for recreational purposes (www.polaroid). In combination, Polaroid presents a vast product line to the consumer which demands separate target and segment markets and a varied marketing strategy.
Polaroid's product line has many features; over 20 to be exact (Appendix A). One can find these features not on one individual camera, but spread out among the thirteen cameras. When evaluating the product line for marketability, we found that Polaroid has some problems with the camera from the point of view of the general public consumer. For instance, we found that using the camera was hard because it was so bulky. Second, finding a place to keep the pictures once they were taken seems to present a problem. Third, the price of the film proves to expensive for the number of pictures received. Fourth, because the roll only contains ten pictures, constantly changing the film was a great inconvenience. These problems together outweigh the instant feature of the Polaroid.
The above problems, however, do not seem to bother the consumers who use the Polaroid for specialized professional reasons. The convenience of having a quick picture is all that counts for the police, construction, and documentation work while quality of picture, ease of use, and film price do not matter as much. That is why Polaroid has focused its main marketing efforts towards this target market and not the general public consumer (See promotion section for marketing details). This marketing scheme has proved successful in the past, but now Polaroid is turning its focus to the general public in hopes of rejuvenating the recreational use of the instant camera. To successfully do this, we feel that Polaroid must overcome the product feature problems because the Polaroid must now complete with one-hour photo, digital cameras, and regular cameras.
Price
Because Polaroid is a unique product, it also posses a unique pricing strategy; especially with its captive film market. This captive product pricing method ties specialized film to each camera. The Polaroid instant film is the only type that can be used with the camera, so the pricing method used by Polaroid is the best strategy for maximizing profit.
When researching price we found that the price of the camera and film does not vary much among stores, however, the price of film costs almost as much as the camera. When we asked employees at Kits Camera if the camera ever goes on sale, they responded that the camera usually does not because it is priced close to net cost, but the film does sometimes. Bartell's sales usually consist of a 2 pack (20 pictures) for the price of a single pack (10 pictures). Payless usually puts their film on sale once every two months, and their film was the second cheapest out of the four stores we looked at. Fred Meyer sold the cheapest Polaroid film which went on sale a couple times a year (Appendix C).
We feel that this strategy, as a consumer, does not help promote the continued use of the Polaroid camera. Many customers complained about the high priced film. The customers would much rather pay more for a quality camera and less on film. Although this pricing strategy may have worked in the past to maximize profit, we feel it will cause more damage than do good in the current competitive market.
Distribution
For the instant camera, Polaroid has - in the U.S.- a wholesale distribution system that delivers the camera and film to larger retail companies that are primarily in convenient locations to the consumer. Locations such as Target, Payless Drug and Fred Meyer give easy accessibility to the consumer. Convenience is a prime marketing target of Polaroid and establishing these types of location is a key factor.
In emerging markets, Polaroid takes a much less traditional approach to distribution. For example, in Russia Polaroid began with a direct distribution system by selling directly to flea markets and small shops. With increasing demand, Polaroid began expanding their distribution by adding wholesale distributors in the major cities. Because this process works, Polaroid continues to implement this system in other countries such as China, India, and Vietnam (www.Polaroid).
We feel the above distribution strategy proves to be a good one for Polaroid. Although the U.S. market is decreasing, Polaroid can make up for lost profits by creating new demand in other countries. In order to continue its success, Polaroid must keep abreast of global demands and trends.
Positioning
Through repositioning, Polaroid is attempting to create new customers for their product in the domestic market. In an attempt to increase sales the company has targeted young parents who usually buy disposable, 35mm, or video cameras. According to Simmons Market Research, in the last five years ownership of instant cameras has declined by 17% while ownership of 35mm cameras has grown by 24%. (Davis, F1) To change this trend Polaroid is attempting to demonstrate new uses for their product and to rejuvenate product awareness through community programs and advertising.
In emerging markets Polaroid has positioned their product differently than in more established markets. Polaroid positions their product as a practical solution for those who want to take pictures, but live in areas that lack the infrastructure required to process and develop rolls of film. The company has done very well in these markets and plans to increase sales to more countries in the future.
Promotion
Polaroid's core product line, instant cameras, is mature and is in a no growth industry. Traditionally, Polaroid's main customers are insurance adjusters, real estate agents, and interior designers who needed immediate photographic images. With the introduction of digital cameras and camcorders, along with the increasing number of one-hour processing labs, the demand for the once "magical" instant photographic development seriously declined. Early in 1996, Polaroid faced the task of rejuvenating demand for its product and chose to spend approximately $50 million on an aggressive advertising campaign.
Objectives
Polaroid focused on repositioning itself and seeking new market segments for its mature product. The objectives they set were to:
Strategy
Polaroid developed a strategy around communicating the satisfaction of instant pictures. They hired the same advertising agency, Goodby, Silverstein and Partners, which did the "Got Milk" campaign. They hoped to achieve similar results gained from the milk campaign and thought this would be the best strategy to rejuvenate their very mature product.
In appealing to the baby boomers, they developed the "See What Develops" campaign. The campaign consisted of a variety of humorous and interesting ads. One was about a man at work who opened his briefcase to find an interesting picture of his wife. Another commercial used humor and was entitled "Instant Evidence." It showed a dog who was previously accused of knocking over the trash, photographing the real culprit; the cat. I would say that the people who share provocative picture fantasies or want instant photography of their pets, for example, would not be substantial or sustainable enough to be treated as a separate market segment. By combining a variety of ads, Polaroid appeared to be attempting to appeal to a variety of latent needs and desires to create an eclectic collection of customers all within the baby boomer segment of the market.
The second advertising objective for Polaroid, to excite a younger generation about instant photography, focused on a campaign with the message of building self-esteem and protecting children. One strategy that Polaroid used for this campaign was to partner with an author, Diane Loomans, who wrote "Full Esteem Ahead," a book which describes 100 ways to build self-esteem in kids. The selling to kids effort also focused on protecting kids by supplying "Kid ID Kits." Polaroid ran ads that were directed at parents and were found in magazines such as Parents and Woman's Day. Polaroid also focused on public relations by working with missing children organizations. These efforts were meaningful in the way they pointed out wonderful ideas for building self-esteem and protecting kids, but they did not seem to demonstrate the advantages of instant photography over one-hour developing.
Price Promotion
To coincide with the aggressive reintroduction campaign to increase awareness, interest and desire for instant photography, Polaroid also offered rebates, free film offers, and other promotions at various dealer sites in an effort to encourage consumers to take action.
Emerging Market Promotion
Polaroid recognizes the potential for growth of instant photography in countries campaign in Russia in which Russians were photographed in various U.S. scenes such a Hollywood and New Orleans. Polaroid is currently sponsoring major world-wide trade shows which introduce some of their other products such as digital imaging and sunglasses, along with instant photography.
When coming into this project we were excited because we thought Polaroid's marketing campaign was ingenious. Further into our analysis of the company we found some great marketing strategies, but also found some flaws in Polaroid's overall plan. The following state the critical evaluation we use to examine Polaroid's marketing plan.
Another evaluation looks at the company's marketing program fit. The idea of this analysis is to see how well Polaroid's marketing program fits the skills and culture of the company. Overall, we felt Polaroid did an excellent job of fitting together their very innovative management and diversified company with their marketing program. Internally the company has many innovative employee programs. Some of the programs are, grant-making committees, Polaroid Dispute Resolution System, and an Aids education and prevention program. The company is also very concerned about the environment and supports the Coalition for Environmentally Responsible Economies. (www, Polaroid)
Polaroid's uses the same innovative philosophy in the external environment as well. Polaroid sets up programs that teach abused women shelter worker's and police forces the proper way to photograph victims and their injuries. The company is also working hard to create an environmentally friendly film.
In 1995 Polaroid corporation underwent a restructuring. Through infrastructure changes and cost reductions the company felt it could sustain a lower cost base for the future. As a result of the restructuring the company showed negative net profit margins of (6.3%) for 1995 of and (1.8%) for 1996. Earnings per share were also negative for both years at ($3.09) for 1995 and ($0.89) for 1996. The company did post increased sales from 1995 to 1996 of $38 million. We believe based on the ratios from the exhibit ? the company will continue to see increased profits. We do not feel the growth will be coming from increased instant camera sales, instead they will come from Polaroid's well diversified and broad product line.
Overall marketing Strategy
Our group feels Polaroid's marketing strategies are ingenious, but we question the decision to spend millions of dollars on promoting a mature product. We feel Polaroid's efforts to seek new growth for instant cameras in the domestic market is like beating a dead horse. We believe it would have been more effective to spend money on Research and Development and the promotion of their new digital camera. Our group feels Polaroid should continue to advertise their product with more of an emphasis on name recognition, not new growth for instant cameras. Our group also feels Polaroid is doing an excellent job in emerging markets and should continue with the same strategy.
When looking back at our group's choice of Polaroid, we agree that we would study the company's marketing strategy again, but now realize that it is not as great as we first thought. The marketing itself seem creative and receives high marks for strategy, but we feel Polaroid's overall campaign should be re-evaluated for overall, long-run profitability.
Appendix B
Profitability ratio:
Operating profit margins = profit before taxes and interest / sales
year 1995
($158 million) / $2,237 billion = (7%)
year 1996
$52 million / $2,275 billion = 2.3%
Profit from current operations without regard to the interest charges accruing from capital structure. An increase of 9.3% from 1995 to 1996.
Net Profit margins = profits after taxes / sales
year 1995
($140 million) / $2,237 billion = (6.3%)
year 1996
($41 million) / $2,275 billion = (1.8%)
After-tax profits per dollar of sales. Polaroid lost 6.3 cents per dollar in 1995. Net profit margins
in 1996 by 4.5 cents resulting in losses of only 1.8 cents per dollar.
Liquidity ratios:
Quick ratio = current assets - inventory / current liabilities.
year 1995
$1,449 million - $616 million / $719 million = 1.16
year 1996
$1,386 million - $549 million / $763 million = 1.10
measures the firm's ability to pay of short term obligations without relying upon the sale of inventories
Cash ratio = cash and market securities / current liabilities
year 1995
$73 million / $719 million = .10
year 1996
$73 million / $763 million = .10
Indicates how long the Polaroid can go without further inflow of funds. This shows the company can go just a little under a month.
Current ratio = current assets / current liabilities
year 1995
$1,449 million / $719 million = 2.02
year 1996
$1,386 million / $763 million = 1.82
Measures short-term liquidity. In 1995 Polaroid had $2.02 in asset for every $1.00 in liabilities. In 1996 the number decreased by $0.20.
Inventory in net working capital = inventory / current assets - current liabilities.
year 1995
$615 million / $1,449 million - $719 million = .84%
year 1996
$549 million / $1,386 million - $763 million = .88%
Measures how much Polaroid's working capital is tied up in inventory. Shows a 4% increase from 1995 to 1996.
Leverage ratio:
Total debt ratio = total assets - total equity / total assets
year 1995
$1,449 million - $718 million / $1449 million = .50 equity, .50 debt
year 1996
$1,386 million - $658 million / $1386 million = .53 equity, .47 debt
Measures Polaroid's ability to meet long-term obligations.
Appendix C
Bartell's-University Village
Polaroid one step camera $34.99
Polaroid Spectra 2 camera $99.99
Polaroid 600 plus film-2 pack $23.99
Polaroid Spectra film-single pack $12.99
Polaroid Captiva film $12.99
Kit's Camera-University Village
Polaroid one step camera $34.98
Polaroid one step AFSE camera $69.99
Polaroid 600 plus film-2 pack $24.98
Polaroid Spectra film-single pack $12.99
Payless-Wedgewood
Polaroid one step camera $34.99
Polaroid Captiva camera $151.99
Polaroid 600 plus film-2 pack $22.99
Polaroid Spectra film-single pack $11.99
Fred Meyer-Lake City
Polaroid one step camera $29.99
Polaroid 600 plus film-2 pack ` $21.98
Polaroid Spectra film-single pack $11.58
Costco
Polaroid one step camera $27.79
Polaroid 600 plus film-4 pack $38.99
In comparison of how much it costs to use the Polaroid instant camera versus the 35mm camera, the 35mm film and processing totaled $0.52 a picture plus second set is free and the Polaroid costs $1.14 a picture. The 35mm one hour processing per picture costs $0.56.
Appendix D