Case #6 -0007

Polaroid 2001: The i-Zone Brand

Introduction

Alison Corcoran (T86) sat in her office at the Cambridge, Massachusetts corporate headquarters thinking about Polaroids February 22 announcement of a massive restructuring. The Company faces serious financial challenges and is being punished by the stock market for weaker than expected sales. However, Alison knew Polaroid wellshe knew that the Company had faced financial difficulties in the past and that every time it had faced such conditions, it shocked the market by introducing new products and strengthening existing product lines, organically growing out of its slump. Repeatedly, Polaroid had proven its resilience, and Alison was certain that the current situation would prove to be no exception if the right actions were taken. (See Exhibit 1 for Alisons bio). Alison has been asked to present the CEO with her recommendations for the Polaroid i-Zone brand at the end of April 2001. The brand, which targets the teen category, or Generation i, (i = Internet), encompasses the fast-growing family of new products that Polaroid launched less than a year and a half ago (see Exhibit 2: i-Zone Product Summary). The original productsthe Instant Pocket Camera and Pocket Filmwere instant successes upon their introduction in the third quarter of 1999. The camera quickly became the numberone selling camera in the United States and continued to be one of the few bright spots in the Companys product line, boosting otherwise sagging profits. In the context of the financial and market difficulties that Polaroid faces, it is especially important to keep i-Zones growth trajectory as steep as possible. Forming a recommendation for the brand is by no means an easy task, given the major challenges that Alison believes that the brand faces:
This case was prepared by W. Andrew Mims (T'02) of the Tuck School of Business at Dartmouth under the supervision of Professor Richard A. DAveni The assistance of Alison Corcoran (T86), Jeff Walker (T98) and Polaroid Corporation is gratefully acknowledged The case was written as a basis for class discussion and not to illustrate effective or ineffective strategic management Some of the data presented herein has been disguised and is intended for case use only. The authors gratefully acknowledge the support of the Glassmeyer/McNamee Center for Digital Strategies, which funded the development of this case. Version: April, 2001. 2001 Trustees of Dartmouth College. All rights reserved. For permission to reprint, contact the Center for Digital Strategies at 603-646-0899.

Polaroid

no. 6-0007
Remaining hip with the traditionally fickle teen market Staying relevant in light of emerging digital imaging technologies Gaining and maintaining attractiveness of the i-Zone.com site in light of other Internet imaging destinations
Finding a strategy that best addresses these goals is critical to the health of the i-Zone brand and to the overall health of Polaroid. For these reasons, choosing the right recommendation could prove to be one of the most critical decisions of Alisons career.
Challenges to Polaroids Core Business
In the mid-1990s, Polaroid faced imposing challenges to their core instant photography businessgrowth of their traditional instant cameras and film was slowing, digital photography was gaining momentum and the overall competitive landscape was becoming increasingly hostile. The Company could continue to leverage strong brand equity, but its consumer base was growing older and less active. Lacking new products to re-energize the current markets or open up new ones, Polaroid began a process of revitalizing its core imaging business. In a 1997 conference call, chairman and chief executive Gary DiCamillo announced Polaroids goal of introducing between 20 and 25 new products or product line extensions per year. Polaroid quickly delivered on DiCamillos promise. Praised by the analyst community for becoming more in touch with its consumers than many of its competitors, Polaroid translated its efforts into financial success by 1999, accelerating top-line growth. Combined with restructuring efforts, sales growth boosted profit performance, erasing operating losses generated in the previous years.
Tuck School of Business at DartmouthGlassmeyer/McNamee Center for Digital Strategies
Figure 1: Polaroid Corporation as of March 26, 2001
Unfortunately, this financial turnaround was not sustainable(See Figure 1). By the first quarter of 2001, the Company again faced very serious problems with its overall product line. Following repeated earnings shortfalls due to weak sales and a cyclical downturn in the economy, the analyst community downgraded the stock and the market price tumbled. Credit agencies responded as wellStandard & Poors lowered its overall corporate credit rating to double B-minus, from double-B and Fitch lowered its rating from stable to negative. As a result, DiCamillo announced suspension of the $0.15 quarterly dividendthe first such suspension in over 30 yearsa move expected to save $27 million. The Company also announced plans to lay off 11% of its workforce, or 950 employeesincluding approximately 475 from Massachusettsaimed at saving $30 million annually. The stock price, which had exceeded $50 a share in 1997, was trading around $5.00. The Company also faced takeover rumors, similar to the mid-1990s when the stock price took a similar hit.

New Corporate Strategy Announced
Again, DiCamillo publicly announced Polaroids new corporate strategy in a February 2001 conference call and press release. He reiterated the traditional Polaroid mantra, stressing the need for the Company to revitalize its core instant imaging business with technological innovations. He also emphasized the critical importance of accelerating growth by linking instant imaging expertise with digital imaging. DiCamillo explained the Companys efforts: We are taking aggressive structural and financial steps to make Polaroid more competitive and to take a quantum leap into the important digital marketplace. Our focus, he continued, is to generate strong, positive cash flow and invest in specific market opportunities.
The restructuring plan included a promise to trim approximately $100 million from the firms heavy debt load by the end of the year. However, Polaroid warned that these efforts might not be enough to satisfy all of its lenders, as the Companys reduced cash flows put it in danger of violating its debt covenants. This made short-term earnings improvements as important as long-term planning, again heightening the significance of the decision Alison faced. According to the Company, the plan to implement this two-fold strategy of revitalizing instant while linking instant to digital includes: Utilizing its position as the worldwide leader in instant imaging products, its widely recognized brand name, its global distribution network and its technical expertise Leveraging its core instant picture technology platform in the digital marketplace Staking out a position in the mobile, digital, wireless market via fast, easy and affordable input and output solutions in areas where Polaroid has a competitive advantage Utilizing the internet and other value-added features and services to enhance customer relationships, particularly with the younger Generation i and with commercial users
Polaroids product push will largely be built on six platforms, each based on the size and type of instant film. Three of these platforms are traditional or legacy platformsthe Spectra, 600 and pull-apart films for older cameras. Two are new platformspocket film for i-Zone cameras and 500 film for the JoyCam. The sixth, called new media, represents the largely undeveloped marriage of digital photography and instant output. The Company has taken actions in recent years to alter the way it conducts business, including reducing the cost of developing, manufacturing and distributing products. Polaroid has also rationalized manufacturing operations and upgraded centralized information systems, enabling it to deliver products more efficiently.

The Rise of Digital Photography1
Many analysts consider digital imaging the death of traditional instant photography, citing the coupling of a digital camera with a printer as the modern replacement of the instant camera and film. With the successful introduction of digital photography and rapid shift to related technologies, Polaroid obviously has been forced to address questions concerning its long-term strategy. The growing popularity of digital technology has pressured the Companys top line and will likely continue to erode margins. Just a few years ago, professionals like police officers, insurance adjusters and real estate agents would exclusively use Polaroid cameras at work. The rise of digital cameras has slashed this usein 1995, the Company received half of its revenue from business customers; its now under 40%. Digital technologies have also cut
For a basic tutorial in digital photography, see megapixel.nets article what is digital imaging? or Digital Photography Review. Tuck School of Business at DartmouthGlassmeyer/McNamee Center for Digital Strategies 4
into film use, decreasing annual film burn ratesthe rate at which instant photographers buy and use film. This represents one of Polaroids most serious challenges, as film sales have always been higher-margin products than their cameras, and thus a strong source of profit for the Company. Despite the obvious challenges that digital photography presents, it also opens up new opportunities and new markets for Polaroid. With its instant film business, the Company has only captured 3% of the total photography market, including both personal and professional photography. In response, Polaroid has already introduced several lower-end digital cameras, which have enjoyed tremendous success, as stated on their website: In 1999, the Company sold more than 400,000 digital cameras - a tenfold increase over the previous year. Polaroid commands about a 40 percent share of all digital cameras sold in the food, drug and mass-market channel making Polaroid the number-one brand in stores (e.g., WalMart, K-Mart and Target) that account for more than two-thirds of digital camera sales (in units) in the United States.
In addition to efforts to capture share of the digital camera market, Polaroid is also focusing on digital output, partnering with camera companies such as Olympus, to create digital/instant hybrids that create digital images and print instant photos. Polaroid is also working on a wireless, mobile device that will print digital photographs onto film, which, although similar to instant film in some respects, is a much higher-performance medium. These efforts are aimed at alleviating the strain that digital photography is putting on film sales. By late 2000, roughly 90% of Polaroids core revenues were derived from instant-based technologies, with the remaining 10% coming from digital. That mix should change dramatically, with digital sales projected to grow at an annual clip of 30% or more, representing 25-30% of total revenue by 2005. However, gaining and protecting a significant share of this hyper-competitive market will not be an easy task. Although Polaroid has already sold more digital cameras than even Kodak (see Exhibit 5: Digital Camera Sales), the digital arena is extremely crowded. As more and more players enter the digital market, continual product innovations are being introduced while prices drop.

Polaroid i-Zone

Getting into the Kids Market
Following the 1997 announcement of plans to introduce between 20 and 25 new products or product line extensions per year, Polaroid began to conduct extensive market research in hopes of finding untapped, potential consumer segments. As a result, the Company began exploring the youth market. This Generation i (or Gen-i) market includes boys and girls in the 6-12 and 12-18 age groups. Having identified and targeted this new growth market, the Company embarked on a strategy to revitalize the core instant business by building its share in this promising segment. In an effort to attract kids to the magic of instant film, Polaroid first reworked traditional instant cameras, such as the 600 line. By 1998, these cameras were redesigned to look more attractive to kids, with bright colors and new shapes added. Additionally, Polaroid licensed pop icons and images, such as Barbie, LEGO and the Spice Girls, including them in packaging and advertising. This marked a strong entry into the kids market, as the cameras enjoyed increased retail
success. The Company also worked to enhance film burn by creating film for kids, such as Wild Slides writeable film that kids could write messages on while the image was developing, greeting card kits and film with pre-exposed borders. As the Company built on the success of its new marketing efforts within the kids market in the United States, Polaroid executives in Japan were witnessing the amazing popularity of puri-kuras (print clubs), or photo-sticker booths, among kids and young adults. These kiosks, which take instant photos and print 16 to 20 mini-photos on sticker film for approximately $2.00 to $5.00, are similar to traditional instant photo booths in size. They are typically found inside stores, at delis or in video arcades. Polaroid executives wanted to begin working on a personal-sized camera and film system that could produce images similar to the photo booth-sized stickersan idea that represented a radical shift for the Company. Skeptics at the Company originally scoffed at the idea, calling it nothing more than a toy with a cheap lens that would produce fuzzy, thumbnail-sized photographs. They argued that such a low-quality camera would tarnish Polaroids reputation, built over years and years of technological innovation by company founder Edwin Land and his teams of scientists and inventors, for creating elegant products built on high technology. However, in 1998, the Company partnered with a Japanese customertoy manufacturer Tomy Corp.to create the miniphoto camera. Within 18 months, an entirely new camera and film system was developed and launched in Osaka. The toylooking, basic black camera, which was dual brandedTomy and Polaroidand named Xiao (Mandarin for small or smile) had a picture-taking distance of four feet and produced mini-photos based on the silver halide instant developing technology. Upon launch, the camera was an instant blockbuster, selling out immediately. As popularity intensified, the Company faced manufacturing constraints and could not produce cameras or film fast enough to meet demand. The next step of product development occurred in 1999, as Polaroids marketing department continued its research on kids and photography in developed markets worldwide. Continuing to focus on Gen-i, research revealed that the sweet spot within this market was the teenage girls market. Additionally, the Company found that girls were very interested in those activities that allowed them to both make connections with their friends and cohorts while expressing their individuality and creativity. The Japanese toy-like instant camera appeared to be the right fit because it provided girls with an opportunity to achieve these social goals.

The i-Zone Brand

Polaroid responded to its marketing research by developing the i-Zone brand. In so doing, the Company decided to separate the new brand from the parent brand Polaroid. Playing down the parent name would help guard it against the possible failure of the new, radical camera. More importantly, although Polaroid had significant brand equity, the younger target audience could potentially view it as an adult brand. (Prior to the launch of the i-Zone, the average age of a Polaroid camera owner was 42.) Differentiation would help make the i-Zone more directly relevant to kids. The separate i-Zone brand name was chosen to help identify with the target market and communicate the individuality and community-building aspects of the products: i = me, individuality, internet Zone = my area, my space, my community
Polaroid planned to use an integrated marketing campaign to create equity in the i-Zone brand amongst the target market. As a result, the i-Zone brand became Polaroids extendible sub-brand dedicated to all Gen-i products and activities.
i-Zone Instant Pocket Camera2
In the fourth quarter of 1999, the i-Zone Instant Pocket Camera was launched in the U.S. and immediately met success similar to the Xiao. A slightly improved version of the Japanese product, the camera was marketed by the Company in its press release as an ultra-portable instant camera and a must-have item: Polaroid's new i-Zone Instant Pocket Camera is the latest go everywhere, must-have item that will let you express yourself. The Pocket Camera is not about taking picturesit's about what you decide to do with them, because this nifty little camera takes mini photos. You can collect, trade and wear these neat little instant photosor use them as calling cards
See the i-Zone Instant Pocket Camera user guide for details about functionality. 9
The Instant Pocket Camera kit, which includes batteries and a trial pack of Instant Pocket Film, carries a suggested retail price of $24.99 and is distributed through mass-merchandise channels where teens are likely to shopeither with their parents or alone. The channels include Seven-Eleven, CVS Pharmacy, Target, Wal-Mart and Tower Records. At launch, Polaroid also began an aggressive marketing campaign, with worldwide television and regional print advertisements and major sponsorships, including designer Todd Oldham and teen favorites, Britney Spears and the BackStreet Boys. The initial results of the Instant Pocket Camera have been overwhelming (see Exhibit 6 for financial data and Exhibit 7 for market penetration information): #1 selling camera in the world 97% incremental [or first-time] Polaroid users 95% of purchasers plan to continue buying film after three months 10% increase in shelf space at retail outlets
According the Company, awareness of the i-Zone Pocket Camera has reached 72%, equal to that of the Nokia cell phone:

Table 1: Awareness of the i-Zone Pocket Camera
Kodak Max Disposable Camera

Nokia Cell Phone

Polaroid I-Zone Camera (with sticky film)

Polaroid JoyCam Camera

Palm Pilot Personal Organizer

Jamcam Digital Camera

Agfa E-Photo Smile Digital Camera
In order to help keep the camera fresh in the eyes of the target market, Polaroid has begun to periodically introduce new colors. In addition to the original colors (radical red, bright breezy blue and cool lime green), newly added colors include Phat Blue, Wasabi Green, Sorbet and Silver.
i-Zone Instant Sticker Film
The i-Zone Instant Pocket Camera uses Instant Pocket Film, which instantly develops approximately 1 x 1 prints. The original Instant Pocket Film sold in packs of 12 exposures and had a suggested retail price of $6.99. Following the successful launch of the camera and the introduction of new colors, the Company noticed that teens were buying new camera kits altogether, rather than buying packets of film. While having users collect the camera is not altogether bad, it does not enhance film burn rates or the sale of higher margin film. In response, Polaroid developed Instant Sticker Film, encouraging users to stick pictures on book covers, lockers, walls, refrigeratorsalmost anywhere. The Sticker Film also sold in packs of 12 exposures and carried a suggested retail price of $6.99. Upon introduction, nonsticker film was re-priced at $5.99. The Company is currently working on other film ideas, including a super-sticky film, which has stronger adhesion, and fortune cookie film, which tells a fortune that disappears as the image develops. (See Exhibit 8 for historical and projected film burn data.)
i-Zone Convertible Instant Pocket Camera with Changeable Faceplates
In another effort to stay fresh and hip with the target market and attract new users, Polaroid recently launched a single collectible camerathe Convertible Instant Pocket Camera with Changeable Faceplates. This version of the Instant Pocket Camera lets teens match their cameras to their moods or outfits, using snap-on faceplates in a variety of colors. The camera is available for a suggested retail price of $29.99 and comes with two sets of faceplates, batteries and a free photo tree for displaying pictures. Additional faceplates are sold for $2.99. Both the camera and the faceplates are sold through the same distribution channels as the original Instant Pocket Camera.

i-Zone Brand Extensions and Merchandise
Leveraging the growing strength of the i-Zone brand, Polaroid now offers branded accessories and merchandise. These include mini-photo albums, magnetic and inflatable mini-photo frames and a t-shirt that holds and displays mini-photos. Polaroid has entered into multiple trademark license agreements whereby the Company receives roughly an 8%
royalty on all wholesale revenues generated through the sale of i-Zone branded merchandise.3 Polaroid has also considered entering into the single use, disposable 35mm camera market. According to Company research, the disposable 35 mm remains the preferred camera for teens, as it allows users to take, develop and have real pictures. Polaroid conservatively estimates that it could capture 1% of this large, international market, yielding approximately $3.3 million in gross margin4 (see Exhibit 9: Economics of the 35mm Single Use Camera). The major problem with the 35mm disposable camera, however, is film sales, as such a camera would not have a film, or output component. Polaroid has considered different ways to address this issue, including bundling an Instant Pocket Camera with a 35mm disposable camera in an i-Zone branded photo kit.
i-Zone Digital Imaging Strategy
Following the success of the original i-Zone Instant Pocket Camera and Film, Polaroid began working on the second component of its corporate strategy: linking digital and instant. Marketing research indicated that i-Zones target audience was already digital-savvy and ready for digital product introductions: 14% of teens own or use a digital camera regularly. --Jupiter Research Children revel in the digital technology that surrounds them. --Forrester Research In the case of digital cameras, kids and teens are a natural market because they are adopting the technology more quickly than their parents. --Mattel Media Teens are probably more comfortable with technologically advanced products and services than is any other age group this savviness has often enabled teens to become the techies of their households. --Teen Research Unlimitied As a result of these findings, Polaroid developed a digital imaging strategy for the i-Zone, based on two main principles:
Source: Company documents. Data has been disguised and is intended for case use only. Source: Company documents. Data has been disguised and is intended for case use only. 12
the i-Zone franchise is extendible and leverageable for digital imaging; the best approach to the digital imaging market is a complete solution that spans image capture, uploading to the Internet and printing (the so-called C-I-O model of Capture, Internet and Output)

i-Zone Digital & Instant Combo Camera
The first digital i-Zone product was the Digital and Instant Combo camera, which was introduced September 1, 2000 and made available October 1, 2000. Claiming to propel the number one selling Polaroid iZone Instant Pocket Camera into the digital domain, the Combo is a 2-in-1 camera that takes instant pocket miniphotos (using Instant Pocket Film or Instant Sticker Film) or higher quality digital photos. Marketed to teens as giving unprecedented flexibilitythe fun and spontaneity of instant photos and the Web- friendly format of digital photography, the camera provides a solution to the growing popularity of digital that avoids cannibalizing film sales. The Combo Camera kit, which includes the camera itself, a PC-compatible serial cable, PhotoImpression 2000 software, batteries and a trial pack of Instant Pocket Sticker Film, carries a suggested retail price of $99.99. The camera is sold at mass market, photo specialty and select toy stores across the United States. (See Exhibit 10: i-Zone Combo Camera PreLaunch Projections.) The Combo Camera has enjoyed tremendous success since its launch in the forth quarter of 2000. In addition to strong retail sales through traditional retail outlets, the camera made Amazon.coms top 25 list of electronic orders during the holidays.

i-Zone.com

Simultaneous to the launch of the Combo Camera, Polaroid launched i-Zone.com, a website designed to foster a community for teens. As described in the press release, i-Zone.com is: an online photo community, combining i-Zone picture-taking with favorite online activitiessuch as e-mail, chat and instant messagingto provide the coolest and easiest way for teens to be creative and be together with their friends online. Using proprietary technology, the site entices visitors into the world of photoplay, a concept that focuses more on the social interaction of the picture-taking process than the picture itself. Modeled after successful digital photography destinations, the i-Zone.com website is divided into zones, or sub-sections: my zone: Your own private place on the web. Upload photos, save and store pictures or create a photo albumfor your eyes only.
crew zone: play zone: real zone:
A place for you and your friends to chat, email or instant message with pictures. Its invitation onlyyou choose whos in. The place to have fun with your pictures. Make collages and photo movies, create greeting cards, or stretch, warp and morph your photos. Real world meets virtual worldcheck out the latest i-Zone commercials, events and news online. Win free stuff, play games or hang out with i-Zone guy.
i-Zone.com also has an e-commerce component. Polaroid currently does not sell products directly though the site or intend to generate significant revenues through e-commerce. However, the shop zone allows i-Zone.com users to see new products and experience virtual demonstrations of products, click-through to companies that sell i-Zone cameras, film and other i-Zone branded merchandise online, or find nearby stores that carry the products. The goal of the site is to create and enhance a total i-Zone experience (see Exhibit 11: iZone.com Business Strategy). And, although Polaroid currently is not looking to earn incremental sales through the site, the Company continues to explore potential partnership opportunities with established Internet destination sites. i-Zone.com also gives Polaroid the ability to conduct marketing research on its users, who are encouraged to register in order to become members (membership is free). Three months after the initial launch of the site, the following data was collected from the site: Key web traffic statistics: Total visitors: Total registered members: Average time online: 483,922 (+75% average monthly growth) 28,420 (+ 55% average monthly growth) 0:12:35 (+ 20% average monthly growth)

Targeting customers: Demographics: Product ownership: Feedback: 15 years old, 75% girls 60% pocket camera owners 90+% raves in the comment corner
E-commerce and business efficiencies: Total click-throughs: Total dealer locator: Customer support: 8,374 click-throughs to e-tailers 5,930 clicks to search function 7,490 customers using FAQ service

i-Zone Webster

Another important product in i-Zones digital platform is the Webstera lightweight, ergonomically crafted mini-photographic scanner designed to scan and store i-Zone miniphotos anytime, anywhere, without the need for a computer connection or outside power source. Powered by four AAA batteries, the Webster has 2MB of memory and has a holding capacity of 20 mini-photos. With a cable connection to a PC, images are easily uploaded and stored. Once uploaded, images can then be manipulated, cropped and/or cleaned using Websters 30-program PhotoImpressions software. In addition to the Combo Camera, the Webster gives i-Zone users another way to access the online community. Additionally, the Webster allows for digitization without cannibalizing film sales, as the Webster actually promotes film burn by requiring that users first take a photo using Pocket Film before digitizing the image. Packaged with software, a serial cable, batteries and instructions, Webster was launched in the fourth quarter of 2000 and carries a suggested retail price of $49.99.

Alisons Decision

Alison is encouraged by the current strength of the i-Zone brand, stating: There is way too much positive momentum going right now for us to turn this into a cash cow. We need to strengthen our marketing programs to increase camera sales and film burn while continuing to introduce new, innovative products. According to internal projections, the growth potential for the brand remains strong. However, Alison needed to consider the difficult state of Polaroids entire business in making her recommendation to the CEO. Bearing in mind the major challenges that the i-Zone brand faces (as described in the introduction), Alison is considering five options. But she also knows that there are many more potential directions the Company could choose for the successful brand. Her initial five options are: Remaining focused on the current i-Zone product platform Developing an i-Zone branded 35mm disposable camera Developing a complete digital i-Zone system (Capture, Internet and Output) Seeking an i-Zone Internet-based business model Focusing efforts on finding the next line of hit products for Polaroid

Her recommendation needed to represent a profitable and sustainable business strategy using a combination of these options.

Case Questions

Discuss the following questions with your study groups and be prepared to present your answers in class. Please be sure to MAKE FULL USE OF ALL EXHIBITS to support your answers. 1. What are the pros and cons of each of the five options Alison is considering? Which one(s) best address(es) Polaroids strategic goals? How would you implement each of the options? 2. For each of the five options, which of Slywotskys profit models is being employed? Which of Slywotskys profit models should Polaroid adopt for the i-Zone brand? Which is best? Why? 3. What are the other options available to Alison?
Exhibit 1: Alison Corcoran Biography
Alison Corcoran, Vice President and General Manager, Generation i, Global Youth Business, runs a new business at Polaroid targeted at 11-24 year olds. Her areas of responsibility include new product development, global marketing and coordination of operations. Products include the Polaroid i-Zone (for ages 6-18) and JoyCam instant cameras and film (for ages 18-24), licensed cameras, digital/instant cameras and i-Zone.com. i-Zone pocket camera and JoyCam are currently #1 and #4 best-selling cameras in the world. Previous assignments in Polaroid include Vice President and General Manger of Professional Imaging, Division Vice President of North American Marketing and Senior Director of Strategy. Prior to Joining Polaroid in 1995, Ms. Corcoran was a Director at Braxton Associates, a division of Deloitte & Touche where she led the Food and Consumer Products practice specializing in business and marketing strategy. Ms. Corcoran received her MBA from the Amos Tuck School at Dartmouth College and her BA from Williams College.
Exhibit 2: i-Zone Product Summary
Suggested Product Name Retail Price Launch Date
Instant Pocket Camera Instant Pocket Film Instant Sticker Film Combo Camera i-Zone.com Webster Convertible Pocket Camera
$24.99 $5.99 $6.99 $99.99 no fee $49.99 $29.99
4Q 1999 4Q 1999 1Q 2000 3Q 2000 3Q 2000 4Q 2000 3Q 2001
Exhibit 3: Polaroid Corp. Facts and Figures5
Polaroid maintains an international base of business with total sales of $1.98 billion spread across three global regions: $1.23 billion in the Americas; $428 million in Europe; and $321 million in Asia Pacific. Polaroid sold a company record of 9.7 million cameras in 1999. The total represented a 106% increase over 1998. In addition to its well-known products for consumers, Polaroid markets a full line of commercial imaging products that account for 45 percent of company sales in the United States. The Polaroid ID Systems division currently produces driver licenses in 37 U.S. states. Internationally, Polaroid produces identification documents for governments in more than 60 countries including Brazil, the United Kingdom, the Philippines, Russia and China. Polaroid ID Systems division creates some 300 million ID cards (both photographic and digital) around the world each year. Polaroid products are sold in more than 150 countries worldwide. The company has manufacturing, sales and marketing facilities and distributors around the world.

Source: http://www.polaroid.com/. 18
Exhibit 4: Polaroid Corp. Historical Financial Summary6
(data in millions, except per share data) Income Statement Net sales Cost of goods sold Marketing, research, engineering and administrative Restructuring and other Total costs and expenses Interest expense Other charges Pre-tax income Income taxes Net income Primary EPS Dividends per common share
1999 $1,978.6 $1,170.5 700.5 1,871.0 77.4 16.8 13.4 4.7 8.7 $0.20 0.6
1998 $1,845.9 $1,108.4 736.5 50.0 1,894.9 57.6 (67.7) (38.9) 12.1 (51.0) ($1.15) 0.6
1997 $2,146.4 $1,229.8 752.2 323.5 2,305.5 47.8 (15.0) (191.9) (65.2) (126.7) ($2.81) 0.6
1996 $2,275.2 $1,283.8 796.6 143.0 2,223.4 47.4 (26.8) 31.2 16.2 15.0 $0.33 0.6
1995 $2,236.9 $1,298.6 849.1 247.0 2,394.7 52.1 8.5 (201.4) (61.2) (140.2) ($3.09) 0.6
Balance Sheet Working capital Net PPE Total assets Long-term debt Common shareholders' equity
$366.7 599.2 2,040.0 573.0 370.5
$360.4 566.5 2,197.0 497.4 389.9
$572.8 512.5 2,132.7 496.6 484.4
$623.3 666.2 2,201.6 489.9 658.2
$730.3 691.0 2,261.8 526.7 717.7
Other statistical data Number of employees Return on average common equity

8,784 2.4%

9,274 (11.4%)

10,011 (19.7%)

10,046 (6.2%)

11,662 (17.8%)

Source: Polaroid Corp. 1999 Annual Report. 19
Exhibit 5: Digital Camera Sales7
Unit Share of top 25 13.1% 8.9% 8.8% 5.7% 5.6% 4.9% 4.2% 4.2% 4.0% 3.9% 3.8% 2.9% 2.8% 2.7% 2.6% 2.5% 2.5% 2.4% 2.2% 2.1% 2.0% 2.0% 2.0% 2.0% 1.9% 100.0% Cummulative Unit Share of top 25 13.1% 22.1% 30.9% 36.5% 42.2% 47.1% 51.3% 55.5% 59.4% 63.3% 67.2% 70.1% 72.9% 75.7% 78.3% 80.9% 83.4% 85.8% 88.0% 90.1% 92.1% 94.1% 96.1% 98.1% 100.0%
Model Sony MVCFD73 Kodak DC215 Olympus D360L Olympus D460 Polaroid PDC320 Sony MVCFD83 Sony MVCFD90 Sony DSCS70 Sony MVCFD88 Nikon COOLPIX990 HP C200 PHOTOSMART Polaroid PDC640PLUS Sony DSCS50 Kodak DC280 Sony MVCFD85 Nikon COOLPIX950 HP C215 PHOTOSMART Kodak DC240 Olympus C3000Z Polaroid PHOTOMAXFUNFL Olympus C3030Z Olympus D450Z Sony DSCS30 Olympus D490 Canon POWERSHOTS100 Total top 25
Unit Sales 255,861 173,832 171,365 110,180 109,886 95,357 82,019 81,071 77,671 75,659 74,536 56,981 55,365 53,524 51,388 49,576 49,277 46,118 43,413 40,823 39,841 38,782 38,237 38,224 37,854 1,946,840
Dollar Sales $124,238,700 52,043,560 50,979,260 47,123,240 6,089,202 56,947,870 64,631,080 64,016,170 58,022,700 73,684,060 19,936,920 9,621,550 32,602,730 31,519,450 34,709,390 41,339,000 8,199,291 21,422,990 34,490,960 4,180,436 39,563,660 17,908,220 18,950,610 18,817,680 21,150,580 $952,189,309
Dollar Share 13.0% 5.5% 5.4% 4.9% 0.6% 6.0% 6.8% 6.7% 6.1% 7.7% 2.1% 1.0% 3.4% 3.3% 3.6% 4.3% 0.9% 2.2% 3.6% 0.4% 4.2% 1.9% 2.0% 2.0% 2.2% 100.0%

Average Price $559 $559

Source: Company documents. Data is year-to-date through November 2000. 20
Exhibit 6: i-Zone Historical and Projected Financial Data8

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00 ,=RQH 2SWLFDO

,=RQH 'LJLWDO

Source: Company documents. Data has been disguised and is intended for case use only. 1998-2000 results are actual. 2001 projections are as of 1Q 2001. 21
Exhibit 7: Historical and Projected Instant Pocket Camera Penetration9
Pocket Camera Penetration
60% 50% 40% 30% 20% 10% 0% 2003 NA E u ro p e Jap an AP T o tal
Overall pocket camera penetration will reach 29% of our target market by 2003, and as high as 49% in North America ---------------------------------------------------------------------------------------------------------------80% 70% 60% 50% 40% 30% 20% 10% 0%
er es tv an it a it a am ye ye er o n at cm b ig o am ig ee la la sk td d is p p /b o p eo cd o rg tr o n ic o C a 3 r an m g h iz p er l a l e x e r r
72% 63% 62% 57% 49% 43% 34% 27% 22% 19% 18% 12% 10%

m el ec

By 2003 in North America, pocket camera penetration will be comparable to many other key teen purchases
Source: Company documents. 22

Penetration Comparisons

Exhibit 8: Historical and Projected i-Zone Film Burn10
The following historical and projected data represents sale (in units) of the i-Zone Instant Pocket Camera and the corresponding sale of i-Zone Pocket Film (in units) in North America.
(all data in 000's units) Gross i-Zone Instant Pocket Camera sales Net i-Zone Pocket Film sales

1999 1,493.8 1,856.6

2000 4,864.2 11,862.1

2001 5,415.3 18,196.0

Exhibit 9: Projected Economics of the 35mm Single Use Camera (data in millions, except per unit data)
North America 150 1.0% 1.5 $6.0 ($4.5) $1.5 Latin America 27 1.0% 0.27 $1.1 ($0.8) $0.3
Total market (units) Assumed i-Zone share i-Zone volume (units) Total revenue generated (@ $3.99/unit) Total cost of goods sold (@ $3.02/unit) Gross margin (@ $0.97/unit)
Europe 52 1.0% 0.52 $2.1 ($1.6) $0.5
Asia 114 1.0% 1.14 $4.5 ($3.4) $1.1

TOTAL 343

3.43 $13.7 ($10.4) $3.3
Source: Company documents. Data has been disguised and is intended for case use only. 23
Exhibit 10: i-Zone Combo Camera Pre-Launch Projections11

The Combo Camera has the potential to sell between 63,000 units and 134,000 units, depending on advertising spending.* Marketing Plans* 3 Ad Spending Scenarios (directed at teens) - $0.4mm Print campaign - $1.1mm TV campaign - $5.0mm TV campaign Sales Distribution Estimates: - Mass Merchandisers - Electronics/Camera Specialty Stores - Drug Stores - Other

35% 35% 10% 20%

Forecast Scenarios (cameras sold (units) in first 12 months after launch) - $0.4mm Print campaign 63,000 units - $1.1mm TV campaign 71,000 units - $5.0mm TV campaign 134,000 units *The volume forecast is based on these ad spending and distribution estimates. If ad spending or distribution falls short of or exceeds these estimates, the volume forecast will change.Note: Each forecast scenario is independent. In other words, to get to 134,000 camera sold in the 12 months after launch, Polaroid would have to spend $5.0 million in T.V. advertising. Additionally, the forecasts are not additive, meaning that if the Company was to spend $5.0 million in T.V. advertising and an additional $0.4 million on print advertising, it would not necessarily sell 134,000 + 63,000 units.
Source: Company documents. Data has been disguised and is intended for case use only. 24
Exhibit 11: i-Zone.com Business Strategy12

,QWHUQHW

$IILOLDWHV L]RQHFRP JHDU GLUHFWUR\DOW\ SURJUDP

&DSWXUH

,QGLUHFW 'RXEOH7DNH :HEVWHU &RPER &RPER ,, ,PDJLQJ $SSV %XVLQHVV (IILFLHQFLHV SURGXFW VDOHV WR QHZ FXVWRPHUV &URVV VHOO XS VHOO DQG LQVSLUH LQFUHPHQWDO SURGXFW XVDJH WR H[LVWLQJ L=RQH FXVWRPHUV ,PDJLQJ VHUYLFHV

2XWSXW

,PDJHV RQ WKH JR 'LJLWDO PP SULQWV 3KRWR QRYHOWLHV

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Source: Company documents. 25
Appendix 1: Polaroid Corporation
Polaroid Corporation (PRD) is the worlds leading instant imaging company and the only manufacturer of chemical-based instant cameras and film in the United States, with annual sales of approximately $2 billion. Throughout its sixty-year history, Polaroid has been one of the greatest technological innovators in the world. Scientifically driven, the Company owns a portfolio of over 1,000 patents and generates millions of dollars annually by licensing its intellectual property. The Companys core product offerings have evolved from lightpolarizing lenses to include instant and digital cameras, instant film, digital peripherals, secure identification systems and software as well as system solutions. See Exhibit 3 for more facts and figures and Exhibit 4 for summary financial information on Polaroid.

Take picture

Instant Pocket Camera

Select

28 ft (.6 m 2.4 m) 2 ft (.6 m ) 2 ft (.6 m )

Indoors

Outdoor: Sunny

Outdoor: Cloudy

Load Film

Press button.

Use Polaroid I-Zone instant pocket lms. Save this sheet for reference Wait. Ready light glows.
Aim. Best pictures from 28 ft. (.62.4 m).
Load lm. Press the button.
Pull tab straight, rmly, and quickly. Do not stop.
Close door. Make sure its closed.
Shade from bright sun and pull tab straight, rmly, and quickly. Do not stop.
Have Fun! DO NOT CUT INTO PHOTOS. To prevent exposure to caustic paste, cut where indicated.

Load batteries

Use two AA alkaline batteries. Change the batteries when the ready light does not glow, or if it takes longer than 20 seconds to glow. To save battery power, the camera shuts off after each picture.
Limited Warranty: Polaroid will, at our option, repair or replace any camera found defective in manufacture within the warranty period (12 months). The warranty period is determined by the date of camera purchase. Keep the receipt as proof of purchase. Otherwise the warranty period is determined by the date of manufacture. This warranty does not apply to damage caused by accident, misuse or tampering and excludes all consequential damages except in jurisdictions not allowing such exclusions or limitations. Polaroid will replace any lm that is defective in manufacture, labeling or packaging, provided representative samples are returned to a Polaroid dealer or ofce. This warranty excludes all consequential damages except in jurisdictions not allowing such exclusions or limitations. Caution: This camera is battery operated. Closely supervise children when they are operating the camera or when you are using it in their presence. To prevent electrical shock, the camera should not be exposed to or immersed in water or other uids, disassembled, or operated if dropped and damaged. Follow local legal requirements for disposing of or recycling the non-hazardous, AA alkaline batteries.
Light blue blotches or marks on the photo Shade camera from bright sunlight. When pulling tab, pull straight and rmly. Do not stop. Picture too dark Too far from subject or wrong setting. Picture too light Too close to subject or wrong setting.
Film Caution: This process uses a caustic paste. If any paste appears, avoid contact with skin, eyes and mouth and keep away from children and animals. If you get some paste on your skin, wipe it off immediately and wash with water to avoid an alkali burn. If eye or mouth contact occurs, quickly wash the area with plenty of water and see a doctor. Copyright 1999 Polaroid Corporation, Cambridge, MA 02139 U.S.A., owner of the trademarks Polaroid and Polaroid I-Zone (and design).
If you need information or help, please call Polaroid Customer service or visit us at www.polaroid.com or izone.polaroid.com. USA Toll Free 1-800-343-5000 Australia 643 (02) (if in Sydney metropolitan area) New Zealand (09) 303 1479