Why did Ilford lose out to Kodak in the photographic film industry? To what extent was it due to sunk costs?

The photographic film market represents a perfect example of  a high Alpha market. High Alpha markets are those in which there is only one technological trajectory or in which products produced along rival trajectories are close substitutes. When the mainstream photographic film market begins to move to colour in the early 1960s two separate processes existed with Ilford producing a water based film and Kodak an oil based one. The high costs involved for small firms to be able to process both types meant that only one could survive, this essay will argue that Ilford’s failure was due to the failure of its products and poor strategic decision making on the part of management rather than solely due to the high sunk costs in the industry.

Kodak and Ilford 35mm films

It is first worth outlining the magnitude of sunk costs in the industry and the argument that their role in Ilford’s failure was decisive before turning to more important culprits. Between 1927 and 1963 Kodak spent some $121m on colour film technology with half of this coming in the final 6 years of the period. The strain caused by these vast sunk costs in R+D in advertising are clear in Ilford’s 1959 annual report and necessitated a sequence of mergers in the 1960s which reduced Kodak’s six European competitors to two. Even with this increased scale and combined R+D capabilities, however, the magnitude of spending required to remain in the branded market was too high and in 1968 Ilford was forced to withdraw. This narrative, whilst true, is incomplete and ignores the fundamental realities of the market as well as a sequence of strategic errors.

Sunk Costs

The fundamental reason why Ilford was unable to continue competing with Kodak was that at their peak they held just 15% of the UK market (Kodak held 80%) and profits were insufficient to cover costs. It is notable that Ilfords 4.8% profit margins were significantly lower than Kodak’s which grew from 8% to 13% between 1953 and 1963. Ilford’s initial 1948 film was popular with professionals but failed to reach mass penetration due to the inability of photo shops to process the film. As well as this fundamental problem the company also suffered as a result of having to remove their 1960 release from shops due to problems which left Kodak’s improved 1961 release without significant competition.

A photo store which George Michael notoriously smashed into - Wham!

The decisive final blow to Ilford came when their ‘processing included’ solution was declared anti-competitive, because independents could not easily process Ilford film the firm was forced to withdraw from the colour market. As such one can convincingly argue that it was the unwillingness of Ilford to develop a film compatible with that of Kodak, which stood in contrast to Agfa, was a decision that meant Ilford was doomed to fail regardless of how much money it invested in advertising. Had Ilford’s initial film been of a better quality, released earlier or more successfully marketed, it is possible that it would have held more of the market and been selected by independent processing firms.

Ilford Processing Solution

Overall, although the magnitude of sunk costs in relation to the size of the market meant that only one process could never be sustained, the failure of Ilford’s process was not due to a lack of investment.