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Kodak says, “We offer incentives, but retailers are free to carr

July 31, 1995

Kodak says, ``We offer incentives, but retailers are free to carry other brands if they wish. These relationships are completely voluntary.″

But they can leave scant shelf space for second-tier players such as Polaroid Corp., which, though prominent in instant photography, has just 2 percent of the 35mm film market in the U.S. Kodak’s program ``essentially built a fence around the industry as far as Polaroid’s ability to gain distribution,″ a Polaroid executive testified at the federal-court hearing in Rochester.

That court was considering, at Kodak’s request, whether to free the company from two consent decrees designed to keep it from monopolizing the U.S. market: the 1921 order saying Kodak couldn’t try to prevent dealers from selling competitors’ film products, and a 1954 decree barring Kodak from including photofinishing costs in film prices to get a captive market for paper and chemicals. The official question before the court was whether the decrees were still necessary in 1994, not whether Kodak had violated them _ as Fuji now says Kodak ``arguably″ did.

Kodak, which is based in Rochester, says it has never violated the decrees because retailers ``never have been coerced,″ and the Justice Department has never accused it of a violation.

The court freed Kodak from the decrees. The judge, in fact, observed that he found ``Kodak’s exclusive supply arrangements are pro-competitive.″ Mr. Fisher, the chairman, says that ``one of the major conclusions of the case was that Kodak did not enjoy market power in its home market.″ The Justice Department is appealing, arguing that Kodak’s 70 percent U.S. market share indeed gives it such power.

Kodak has about a 9 percent share in Japan and Fuji about a 12 percent share in the U.S., industry analysts say _ in each case after spending hundreds of millions of dollars to develop those markets. Kodak says the issue isn’t market share but market access.

Nonetheless, Kodak’s share is extraordinary for a consumer-products maker operating in the American market. ``There’s no one left that enjoys such a high market share in the U.S.,″ says Burt Flickinger, a retail marketing consultant in New York.

He says that while he doesn’t believe Kodak ``bullies″ retailers, the company is unusual in the way it achieved its market position: through rebates and other payments to capture customers. Other big consumer players command shelf space by sharing advertising resources and marketing data with retailers, ``but they don’t take out a check and write big numbers for real estate in stores,″ he says.

Some U.S. photofinishers, retailers and other customers complain about how forceful Kodak can be. Charles Pool, president of Natural Color Lab Inc. in Stoughton, Mass., says Kodak and Fuji both bid for his business. He says Kodak told him it might ``take away our dealership to sell film″ if he didn’t use solely Kodak paper. When he chose Fuji, he says, Kodak didn’t pull his dealership, but later it offered him a $20,000 black-and-white paper processor if he signed a contract to use only Kodak’s color photographic paper. He says he accepted and bought $15,000 worth of paper, but later switched back to Fuji because his customers complained.

Kodak says that ``the film dealership was never threatened.″ It didn’t respond to a question about the processor.

John Abbiuso tells of a different sort of pressure. When he switched from Kodak’s paper at his Tech Professional Imaging lab in Hudson, N.H., he says, a Kodak vice president told him that ``Kodak wouldn’t be as quick fixing any Kodak equipment that broke.″ When a key photofinishing computer broke soon after, Mr. Abbiuso says, Kodak made him wait days before showing up. Kodak says, ``This is not a practice sanctioned by Kodak management and we cannot comment on Mr. Abbiuso’s characterization. We also have continued to service equipment for others who have switched.″

Kodak once had a marketing program called Times of Your Life, which provided advertising and promotional support to photographers and labs, among other benefits. Mr. Craig, the Dexter, Mo., photographer, says Kodak dropped him from it four years ago when he began printing half of his portraits on Fuji paper, even though he was still spending about $20,000 a year on Kodak film and paper. He says he was told he had to use Kodak exclusively to be in the program.

Photofinisher Wayne Haub of Raytown, Mo., feels Kodak was unduly rough with him in ousting him from the same program when he switched to Fuji paper. He says Kodak wrote letters to all of his nearly 800 photographer customers telling them he had switched and saying they would be cut from the Times of Your Life program if they didn’t patronize a lab that qualified for it _ meaning one that used Kodak paper exclusively. ``It was simply a company used to having an entire market to themselves,″ Mr. Haub says.

Replies Kodak: ``It has not been our practice to reward individuals to use competing products. This was a voluntary program. In return for using Kodak products, participating professional photographers benefited from extensive advertising and promotional support.″

Over the next few months, the U.S. plans to begin talks with Japan about Kodak’s complaint about market access. If they fail, the U.S. can impose prohibitive tariffs on Fuji imports or ask the new World Trade Organization for a broad ruling condemning Japanese-style protection. But it is possible the Clinton administration would back off if it came to the conclusion Kodak was acting hypocritically, especially since the administration was criticized for taking the world to the edge of a trade war with Japan over auto issues.

Perhaps the strangest aspect of the Kodak-Fuji spat is that even as the photo giants battle bitterly, they have a common project. It involves so-called smart film, a new system offering smaller cameras and film that can record information to improve the quality of processing. Fuji and Kodak are collaborating to introduce it.


Bob Davis contributed to this article.

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