Four critical management beliefs created the framing lock-in that drove the company’s demise in digital imaging. First, Polaroid’s culture did not value market research as an input to product development; instead, it was believed with a passion that Polaroid’s technology and products would create markets. Second, there was a firmly held belief that customers valued physical instant prints. As a result, products such as video camcorders were not seen as competition. Third, there was an obsession with matching the quality of traditional 35 mm prints, driven by a belief that customers required ‘photographic’ quality.
Finally, and most importantly, there was a strong belief in the razor/blade business model pursued to-date. While Polaroid had initially made money on both camera hardware and film, a decision was eventually made to adopt a razor/blade pricing strategy. The firm dropped prices on cameras to stimulate adoption and demand for film. Film prices and margins were increased, and the strategy was extremely successful. Over time a fundamental belief developed: Polaroid could not make money on hardware, only software (i.e., film).
These deeply held management biases also meant that important areas were not invested in. To compete successfully in hardware using a business model different from the traditional razor/blade approach, Polaroid would have to have developed low-cost electronics manufacturing capability and rapid product development capability—two areas that remained weak. And the firm never invested in developing any sales or marketing capability specific to digital imaging or new distribution channels.
Polaroid’s fatal management decision-making limitations can be felt acutely when a then new Polaroid Digital Imaging hire from outside the company described top management’s struggles:
“The catch [to our product concept] was that you had to be in the hardware business to make money. ‘How could you say that? Where’s the film? There’s no film?’ So what we had was a constant fight with the senior executive management in Polaroid for five years … We constantly challenged the notion of the current business model, the core business, as being old, antiquated and unable to go forward … What was fascinating to me was that these guys used to turn their noses up at 38 percent margins … But that was their big argument, ‘Why 38 percent? I can get 70 percent on film. Why do I want to do this?’...”
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