Kodak vs. Fuji: It's one of the classic battles in global marketing. But despite decades of slugging it out in the worldwide film market, neither has made much headway on the other's home turf. In Japan, where Fuji Photo Film Co. sells 70% of all consumer film, Eastman Kodak Co. has clawed its way to just 9% of the market. In the U.S., it's a near mirror image, with Kodak just over 70% and Fuji at about 11%.
Nationalistic consumer loyalty at work? Kodak doesn't think so. On May 18, it launched a trade complaint against Japan, hoping to get the U.S. government to help pry open the Japanese market. Most observers think that by early July, U.S. Trade Representative Mickey Kantor will decide to pursue Kodak's case--setting in motion yet another U.S.-Japan trade dispute.
PRICE-FIXING? A close look at how the two giants dominate their markets shows that the case isn't cut-and-dried. Kodak's marketing in Japan hasn't always been on target. And Kodak berates Fuji for using some of the same tactics in Japan that Kodak itself employs in the U.S.
Kodak's primary complaint, though, is compelling: that Fuji has an almost viselike grip on Japanese film distribution. In Japan, film is sold in a multitiered system, with a few dozen distributors at the top, hundreds of secondary wholesalers, and nearly 400,000 mostly mom-and-pop retailers at the bottom. Fuji has locked up the four biggest distributors that together account for 70% of film sales.
Kodak CEO George M.C. Fisher claims that Fuji and the Japanese government constructed this cozy system in the 1970s to keep Kodak at bay as tariffs were dismantled. He also says that Fuji now effectively controls the four distributors through banking and other financial relationships--and rigidly fixes prices.
Fuji counters that it has done business with its distributors for years and doesn't prevent them from selling rivals' products. Plus, Japan's market is far from closed. There are no tariffs on imported film, and fast-growing discounters and supermarket chains are open to newcomers. By making private-label film for big retailers, Germany's Agfa has grabbed 5% of Japan's film sales since reentering the market in 1990. "If you want to make a strong effort, you can succeed," says Walter Stork, president of Agfa-Gevaert Japan Ltd.
Kodak execs privately concede they've made some marketing errors in Japan. But, they say, that doesn't account for Kodak's lack of Japanese distribution: Its film is sold in just 15% of retail outlets, mostly in big cities. "I'm not asking for dictated market shares or retaliation," says Fisher. "Let's just find out what free and open competition will allow."
The U.S. market, by contrast, comes closer to being truly open. Film is distributed directly by manufacturers, and Kodak places its yellow boxes virtually everywhere. But Fuji, which entered the country in 1970, now sells its film in outlets that account for roughly two-thirds of U.S. film sales, including such giants as Wal-Mart, Kmart, and Walgreen.
Kodak keeps its 70% market share mainly through a powerful brand name and hard-nosed marketing. In a recent survey of U.S. perceptions of brand quality by Total Research Corp., Kodak was No.1, besting such icons as Walt Disney and Mercedes-Benz. Plus, says David M. Ritz, president of the 510-store Ritz Camera Centers Inc. chain, "Kodak has done a better marketing job by far than Fuji."
RETAIL SWEETENER. It also throws its weight around. Take its Volume Incentive Program, which gives many retailers a 3% rebate if they match their previous year's film sales. Paul E. Gordon, Konica USA Inc.'s marketing director, says the program "makes it difficult for the retailer to try an off brand" since that might cut Kodak sales, risking a loss of the rebate. Indeed, Kodak has accused Fuji of controlling distribution in Japan, in part through secret rebates and other financial ties. But, says consultant Don Becker, "some of Fuji's marketing practices in Japan aren't all that different from what Kodak does here."
Another seeming inconsistency: Kodak alleges that Fuji unfairly controls 56% of Japan's photographic paper business. But rivals note that Kodak itself has snapped up a raft of U.S. wholesale photofinishers into its Qualex Inc. unit, controlling 70% of U.S. wholesale photofinishing. And Qualex labs use--guess what--Kodak paper and chemicals.
Tough tactics, to be sure. But at least U.S. retailers and consumers can pick products from many companies. If Japan's distribution opened up, Fisher believes, Kodak could eventually win up to 40% of its market. That's probably wildly optimistic. But he may soon get a chance to try.
Kodak and Fuji each have about 70% of their domestic film markets. Here are their respective challenges in trying to crack the other's home stronghold:
KODAK IN JAPAN
DISTRIBUTION Unable to gain access to the four major Fuji distributors that control 70% of the market, Kodak is selling through discounters
MARKETING Despite sponsoring sumo wrestling and soccer, Kodak can't match Fuji's $190 million in annual ad spending
ETC. Kodak is starting to sell its own private-label film this year but is way behind Germany's Agfa
FUJI IN THE U.S.
DISTRIBUTION Fuji is sold in most high-volume outlets, including Wal-Mart, Kmart, and Walgreen, but Kodak gets better shelf space
MARKETING Fuji's lower price has won it the value-conscious consumers it targeted, but Kodak has maintained high-margin pricing
ETC. Fuji was locked out of color paper by Kodak's dumping complaint, so it's building a factory in South Carolina