The picture looks bleak for Eastman Kodak.

Recently, the Rochester, N.Y.-based firm laid off hundreds of employees, after reporting a 60% drop in second-quarter profits. That announcement, made last month, riled many investors who question Kodak’s recent obsession with digital, given its late arrival to that market.

At the heart of the controversy are Kodak’s reported plans to spend US$3 billion on digital acquisitions and to downplay its consumer film business going forward. The company has already poured more than US$4 billion into digital research in the last decade, yet its digital offerings only accounted for US$3.8 billion of US$12.8 billion in sales last year.

Things got even more interesting stateside when earlier this month, the Federal Trade Commission ruled that American billionaire financier Carl Icahn could purchase up to US$500 million worth of the company’s stock, an amount that would make him Kodak’s largest individual shareholder and second largest shareholder overall.

Despite the tumult at company headquarters, life north of the border is rosier. So says Paul Dillon, director, marketing communications, at Toronto-based Kodak Canada, although he can’t share specific figures. ‘We’ve done very well with Canadian numbers and Canadian consumers continue to support us,’ he says, adding that the domestic firm is aided by a strong relationship with retailers. ‘It’s not bleak at all here in Canada.’

And certainly, like its American parent firm, the Canadian contingent, under its new president Michael P. Duffy (who formerly worked out of the U.S. office), will heavily support its digital arm. In fact, Kodak Canada just unveiled a new TV campaign earlier this month showcasing its EasyShare Four Megapixel Digicam and EasyShare Printer Dock. The TV advertising, engineered by Toronto-based Ogilvy & Mather, bolsters a print initiative launched about a year ago.

There are two targets for EasyShare: the ‘influencer’ and the ‘event/memory sharer.’ Obviously such diversity calls for two distinct strategies, so while TV and print advertising for the former group features the camera as hero, in creative geared at the latter segment, the camera will take a back seat.

‘[For the influencer], we have a clear, crisp product shot, which is first and foremost in the ad, and then we also get into the feature set, such as the number of mega pixels, what type of zoom, etc.,’ explains Dillon, who says that Kodak is one of the top three players in Canada’s digital camera sector.

In contrast, for the ‘event/memory sharer,’ typically moms with kids, the hero in the lifestyle-oriented creative is an event and the point of the ad is to demystify confusion about digital cameras. Adds Dillon: ‘It’s paramount for her to capture the important moments of her family life. The message is that Kodak EasyShare is the easiest way to [do that] digitally.’ The tagline is ‘Just press share.’

A print ad, for instance, shows two kids enjoying a rainy day and goes on to describe how using EasyShare is a cinch.

Despite the push behind digital, Dillon says there are no plans to drop the traditional film-based business in Canada. To that end, a new campaign touts the firm’s new High Definition film, as well as other traditional products. One commercial, which carries Kodak’s well-recognized tagline ‘Share moments. Share life,’ features a group of people building homes for charity. A young woman uses a disposable Kodak camera to take photos of the characters hard at work, and then leaves the snapshots for the family who moves in. In the end, the clan of mom, dad and kid is obviously touched.

Dillon says the overall objective is to communicate that photos aren’t just for special occasions like weddings, but for everyday experiences, in an effort to increase usage overall.

‘Both our customers who use the product and retailers have clearly indicated that there’s still a strong demand for film-based products,’ says Dillon, who points out that Kodak is still the market leader in this category. ‘Our brand has heritage and a familiarity with the consumer market. We will continue to play that up further with the advertising, by reminding people that they’ve always trusted their memories

with Kodak.’

Kodak has more surprises in store for 2004. It will introduce promotions in conjunction with partners Cineplex Odeon and Disney Home Video. Even more new film products are in the works and Kodak will double its number of Picture Maker kiosks, which are do-it-yourself film processing centres housed in retail locations like Shoppers Drug Mart. The Picture Makers will also be depicted in advertising next year.

‘Innovation is a huge priority for us,’ says Dillon. ‘We will continue to invest and spend heavily in developing better [products] to accommodate the needs of consumers, whether traditional or digital.’

Strategy asked three marketing experts whether Kodak is on the right path, and how the mother ship can avoid going the way of the horse and buggy.

Alan Middleton, professor of marketing, Schulich School of Business, York University, Toronto

It would have been unreasonable to expect that Kodak would have the same success in the digital marketplace as in the pre-digital marketplace.

What you’re seeing is a change from a market where Kodak built up dominance over time, to a market where a whole bunch of players were all ready to go at exactly the same time. You had traditional photographic [firms] and the non-traditional entry. So Kodak faces competition it hasn’t faced for decades in the other market.

However, Kodak was slow to enter the market, and when it did enter, it didn’t move in with the same aggressive commitment to marketing that it demonstrated in the previous film category. Part of that has been caused by an understandable but ill-advised reluctance to accelerate the cannibalization of traditional film by the new digital media. This often happens – the incumbent has a vested interest in keeping things the way they are, and even though it realizes life is going to change, it makes that change more slowly and with less enthusiasm.

Kodak has to bring digital to the same level of quality and price as regular film. And only Kodak can do that, because if you think about what made its original success in the film market it was three things: the quality of its product, the fact that Kodak made it affordable and easy for people, and its dominant distribution. Kodak can apply that formula to the digital world.

John Larish, principal, Jonrel Image Consultants, Rochester, N.Y.

[John Larish is a former senior market analyst at Kodak with 50 years’ experience in the photo industry.]

The [categories] Kodak has decided to enter are populated with very strong competitors. Kodak has been hiring from HP, but that alone isn’t going to give it the edge [it needs] to reach the actual buyers, whether they are resellers or users.

It will be a very challenging effort because Kodak’s brand identification has dropped in rating. The last Businessweek [Interbrand] report identified Kodak as 34th in brand value. That’s a terrific drop in identity, which has always been Kodak’s strong suit. [The brand] was generally between number one and number five; at one point, it shared the top rating with Coca-Cola. I think that the company has been living on its past laurels without realizing it had lost them.

Kodak has certainly been floundering through a whole series of ad campaigns. Some of them have been very cute, but do they really reach the ultimate consumer? The real issue is, has Kodak forgotten that it is in the picture business? I think [the company needs] to bring its focus back to pictures, whether they are pictures of people, families and memories, or pictures from the science side, such as radiographs and cat scans.

Kodak has tried to focus on this idea of info imaging [on the B2B side]. It has tried to create this multibillion-dollar scene for the sake of the financial industry, and I think it’s playing to the wrong audience.

Bill Newbery, co-creative director, Arnold Worldwide, Toronto

The tagline ‘Share moments. Share life.’ feels like the old Kodak. As it moves into the digital world, it needs to be a bit hipper. The company has gone for warm, emotional moments, which has been its heritage.

I think Polaroid, which has also struggled, has done a better job of going after the younger market. Kodak should move away from that warm, family feeling, but with a caution, because if they go too far and too young and too hip, they can lose that whole market.

The struggle is that the Kodak name is so rooted in the old photographic world, but a lot of technology in the digital world isn’t really based in the photography world. There are a lot more players now. In the new digital world, there’s Sony and Canon. They seem to have a higher-end image. Kodak’s always been the lower-priced entry and as we get into the digital world that reputation might hurt them.

The older market is a bit scared of technology. Where Kodak can gain momentum and share is by going after ease of use. I know that some of its product is aimed that way. If they can get the 30- to 45-year-olds, those are the kinds of people who might go towards Kodak, because it is a friendly name for them.

The [digital product] advertising has really been based on the moment, which is great, but I don’t think it addresses the technology. In a way, they’re just talking about the need for a camera to take great pictures. They need to go more towards a straight ease-of-use strategy, as opposed to continuing to sell moments.