What Is Lexar’s Main Strength in Digital Photography? What External Development Within the Environment Made This Strength Particularly Important and Relevant?

Question 1: What is Lexar’s main strength in digital photography? What external development within the environment made this strength particularly important and relevant?

Lexar’s strategy in digital photography was differentiation focused on the market. Being certified for “Digital Film Compliance” was one of Lexar’s differentiation practices which guaranteed to work reliably with any camera on the market. However, the most important differentiation factor and Lexar’s main strength was its speed advantage. Lexar’s proprietary technology made its digital film up to three times faster than that of competitors, enabling a ‘click to click’ time when taking successive pictures. Professional photographers in particular valued Lexar’s speed, and the company boasted that it was the leading brand in the professional segment.

Improvements in digital image resolution, which increased the size of the image file to be stored, made Lexar’s speed strength particularly important and relevant. Sales of higher resolution cameras grew rapidly, demanding high capacity storage and high performance flash cards to deal with large files. Having consistently made significant investment in R&D, which consumed 14% and 8% of sales in 1999 and 2000 respectively, and developed a unique design for its programmable controller which gave Lexar’s digital film its speed advantage, Lexar could succeed to be pioneer in meeting this demand to high performance.

Question 2: What actions did Lexar take to make this strength more relevant within the digital photography market?

To make its speed strength more relevant Lexar primarily targeted professional photographers and provided them unique services, educated salesperson and the consumer about the importance of speed, became the only company to speed-rate its CompactFlash cards, and demonstrated an extremely aggressive approach about publicly defending its speed advantage.

The rationale behind targeting and serving primarily to professionals was that the professionals were in the best position to appreciate and value Lexar’s speed advantage since they used cameras with higher resolution and thus larger files, and also often took pictures in rapid succession. The role of the professionals in this strategy was to provide a halo for Lexar’s brand and act like a bridge to reach out to average camera users who inspire from professional photographers. To serve the professional photographers, Lexar engaged in a number of marketing programs. Lexar launched a “3 C’s” campaign: “Capacity, Click-to-Click and Compatibility” through advertising in photography magazines. The company also established a group of Lexar-using elite photographers who supported Lexar products and helped to promote the brand. Another service that Lexar offered to customers who purchases its high-end products was a free data recovery service which helped retrieve images could not be extracted due to corrupted files at no cost to the user. Lexar provided platforms and services to further expand its services to professional photographers. One example of this is the Printroom Professional Studios, an extension service to Printroom.com platform, where professional photographers could post their pictures online and let their customers order prints from the website. This platform was important because not only it attracted professionals but also allowed amateurs to inspire from professionals and recognize Lexar products. SayCheese.com was another platform service where users could find how-to-tips and product reviews, and Shoot & Share was a very useful image management software which was bundled for free with Lexar’s high capacity digital film and had a link to Printroom.com.

Lexar educated both the sales person and the customer about the importance of speed. They provided in-store sales personnel with a web-based training program and followed that up by distributing laminated cards with summary information at the point of purchase.

In order to emphasize the importance of speed and increase recognition Lexar became the only company to “speed-rate” its CompactFlash cards using the same standards as CD-ROM drives. Lexar also worked with independent laboratories to establish a measure of the ‘click to click’ speed.

Lexar was extremely aggressive about publicly defending its speed advantage and filed a lawsuit against SanDisk who claimed to have faster speeds than Lexar. Winning the lawsuit reinforced Lexar’s strength and increased public awareness.

Question 3: What explains Lexar’s low profit margin around 2000-2001, despite the aforementioned strength?

Despite its speed advantage Lexar had low profit margin around 2000-2001 because of declined average selling price, sales to Original Equipment Manufacturer (OEM), licensing and royalty payments, manufacturing costs, and patent litigation fights.

The main reason of the low profit margin is the declined average selling price per megabyte for flash cards due to lowering flash memory prices. Since Lexar was using only NAND types flash memories almost all of which was controlled by three suppliers – Toshiba, Samsung, and Hitachi – it was depended upon the their innovations. Flash memories made up 70% to 80% of the total card cost and lowering the prices, so lower flash prices were reflected in card prices. This effect can be seen in the wholesale average selling price per megabyte for cards which dropped steadily, from $9.18 in 1997 to $1.33 in 2001.