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Friday, 28 March 2008


Eamon: While currency fluctuations can add some complexity to international product planning it's not nearly as disruptive of an influence as you portray, at least not for large, multinational manufacturers such as Canon and Nikon. These companies have a variety of mechanisms to hedge these discrepancies through basic trading strategies (futures, options forwards, etc.) that help to normalize relative valuations.

The far greater, and non-hedgeable, product planning factors are:

(a) the consumer economic situations in key markets,
(b) energy costs, and
(c) precedence and competitive influences.

All of this chop suey aside the 5D successor will be in the $3,000 range.

I still have my Coolpix 100 and it still works.

Slightly soft 500x500 images with a weak flash, but I love its simplicity.

I'll stick my neck out: the 5DII will be $3300, and the Sony FF will be $2500-$3000; body for both.

At Photokina, we'll see how I did.

Price will not be a deciding factor in the success or otherwise of the 5D replacement it rarely is in the serious amateur/pro market segment for DSLRs. Brand loyalty due to expensive lens investments which most hobbyists/pros tend to have in the brand of their choice is a big factor followed by the degee of improvements [new features]in the replacement are the main influences and provided the market/sector has been happy with the 5D then unless the price for the upgrade is out of proportion to the suposed improvements offerred a successful launch is assured.

Back in the late 1960's I was in negotiations with Nikon (Erenerich? Bros) for a new light meter I was working on. It was sort of a 1 pixel digital camera, little did I know.
I was on the inside,the word was they were paying $45 for Nikon F1's and Pentax was paying $35. Nikon was selling the F1 for $100 dollars more then the Pentax. I think pricing has more to do with basic marketing then actual cost of the import. I think most of the R&D has been done at this point.
Working with companies for the last 30 years that import from china and that area--it's pennies not dollars they work with.

As someone who was rather hoping Leica would survive in the digital market, articles like this simply continue to sound death knells to my ears.
How can a niche company have any hope whatever of competing with these behemoths?

Thank you for a most illuminating perspective on this topic, it would seem to me that your flashlight is the only one with batteries in it in the group, even if what we're looking for is still under the cloth on the table in the closet.
I think it's interesting that, price-wise, Nikon has positioned itself so that nowhere does it go head to head with Canon. The two companies, dSLR price-wise, seem to fit like meshed teeth on two gears. Accident? Naw, can't be.....what's it mean? Well, I don't even have a flashlight, let alone batteries, so I dunno......
I look for the 5D MKII to be the same price as the 5D was at its intro, but minus $100
I also look for it to be another Benchmark in the camera universe.

What a great series of threads and articles. Many thanks to our chief bottle-washer Mike for initiating such interesting and thought-provoking threads, to Eamon for an insider's view.

Ah, an easy to read and informative article.

And, I would add: insightful. I love this blog.

Dear Eamon,

WOW! What a fabulous and fascinating article!

You've inspired me to change topics for my next column [grin].

pax / Ctein

I hate to disagree with many here but I believe that the 5DMKII will go head to head with the Nikon D300 and be the first DSLR full frame to break the $2000 barrier. Remember Canon was the one to break the $1000 barrier and the price of the 40D has dropped to
$1140 at B&H.

Great articles, I only dare to give comment on the comments:)

To Ken: Companies can hedge against small and short time currency fluctuations, but hedging has costs and in the current situation they may be prohibitive.

To Greg: they not only do not compete directly on price, specifications don't go head-to-head either.

On D3 pricing: I think the price at introduction was the same as for the D2X (5000$). One of those anchor points Mike was talking about?

Nice article, generous with your insight!

As to how Leica can survive in the digital marketplace--my suggestion is to try an M8. You're certainly right that Leica is not a player in the high-volume business of Nikon and Canon; but no one ever bought Leica as his/her first camera. Aside from some well-heeled collectors and one-uppers, people come to Leica after being disappointed in their previous brand. Niche product, for better or worse.

photokina will likely see new bodies from Leica as well as Nikon and Canon. I hope the Leica is as ground-breaking as the rumors have it.

You have a point there, Jay. I think Canon would also like to compete with the D300 pricewise. But, I am sorry, there is no way they can break the $2000 barrier in the near future. Talk about the Euro 2000 barrier instead. Talking economics, don't ever forget the economical crisis in this topic. The purchase of new cameras in US will be going down this year.

At the time of its introduction, I thought the 5D was pitched at a little too high a price, regardless of being full-frame etc. At the amounts being guessed at the higher end for the 5D MKII, here is one potential customer that will probably wait to purchase until the release of a MKIII is imminent.
I suspect that I am part of an extremely large body of photographers with a similar depth of pocket.

I believe that Canon will launch two new cameras - a 5D replacement that is pretty much just like the current model but with sensor clean, live view etc. This will be at around $2000 - $2200.

Then they will release a lets call it "3D" that is basically a souped up 5D - more MP, higher ISO, water resistance etc. This will be $3300 - $3500 on launch dropping to sub-$3000 within 6 months.

With considerable trepidation and appropriate humility, I have to disagree with Ken as well, and side with Eamon and Robert55 on the currency-exchange issue. Ken's a financial guy, and knows what he's talking about, and I'm not, and don't. All I have is anecdotal evidence. But, going on anecdotal evidence, I've been privy to several situations where American marketing arms of companies big and small were driven to distraction by currency fluctuations. The way many companies in the photography industry have it set up, the American arms are often basically separate companies that buy and import product from the parent company. Deciding how much to buy, at what price, and when, is like backing someone else to play poker for stock purchases...a multi-level game, fraught with risk.

Again, I only know this because I've heard the Presidents of American camera companies rant and moan about it over lunch or dinner on a few occasions. The impression I got was very clear--that it's an enormous headache for them, and very much an issue. I'll shut up now. Remember, I know nothing, personally.

Mike J.

Having worked for a major manufacturer, I can tell you the cost of producing an item plays a small part in the retail price. The main factor is what the market will pay for an item.

Ken, re: hedging currency fluctuations:

We're probably talking about two different aspects of a larger concept. Hedging lets companies protect themselves against their own mistakes in their projections about future exchange rates. But hedging cannot change the fact that if the dollar loses 20% of its value against the yen and stays that low for any length of time, camera prices (indeed, the prices of all Japanese products) in the U.S. must rise or the camera companies must cut 20% out of their costs, or some combination of the two.

I was working for Nikon the last time the dollar went from 120 to 95 yen, in 1995. It was wrenching for the camera industry. Nikon USA raised prices 3 times in 15 months, closed 2 warehouses, laid off scores of people, and still dragged Nikon Corp's (Nikon Japan's) camera division into the red. Other camera companies went through similar gyrations. I can't now remember the source of the info, but somewhere I learned that for a couple of year running around that time, Canon was the only Japanese manufacturer able to squeeze even a small profit out of its camera division (a testament to Canon's unquestionably superior management).

Anyway, bottom line is that I'm fairly sure the Japanese have not been planning for a sub-100-yen dollar, and if it stays that way for any length of time, significant changes are afoot, at least in the U.S.

A couple of comments about the comments:

"The main factor is what the market will pay for an item."

Partly true. It's true in the short-term sense. If you feel you're being non-competitive in an area, you may price a product lower than your target margin (this is, I believe, the case for the current 5D). If you feel you have no competition, you may price a product higher than your target margin (this is, I believe, the case for the current 1DsIII). And remember, Japanese companies act differently than US companies in this respect (US companies--other than perhaps Web sites with no business plan ;~)--don't tolerate lower-than-desired PM for long while Japanese companies often do.

"These companies have a variety of mechanisms to hedge these [currency] discrepancies."

Yes, they do, but as Eamon points out, when currency STAYS shifted for any length of period it results in price changes. Nikon, for instance, IIRC has a 113 yen->dollar target for it's current year (ends today). The dollar has been under that for some time now, and you can't hedge successfully for long periods of time. At some point, you have to change your target valuation. I expect Nikon will do so when they announce their results next month. That will effectively be a either a price change for consumers or a profit loss for Nikon. Which do you think it will choose?

"Price will not be a deciding factor in the success or otherwise of the 5D replacement."

Not true. Within nine months of its introduction it will have at least two direct competitors, possibly three. This is tricky for pricing. Let's say you price at US$3995 and then your competitors come in at US$2995. Suddenly you have to lower your price significantly and make your early purchasers upset. Or vice versa: you price at US$2995 and the competitors price at US$3995 (the more likely case, I believe; not those numbers, but the pricing disparity I expect): now you've left profit on the table though you do get added volume.

"Nikon has positioned itself so that nowhere does it go head to head with Canon."

True. These two companies march to slightly different drummers and always have. Long term, though, you'll see less differentiation, I think. That has to do with the need for volume, and volume eventually dictates commonalities. Neither Nikon nor Canon can afford to spend too much time and energy doing specialty or unique cameras, as they are now hooked on DSLR volume, profits, and growth, and have plenty of players waiting for them to make mistakes.

There's one comment in your analysis of the cost makeup of a camera that you might want to give some thought to and that is the move to using plastic as a cheaper manufacturing material.

The reason I have uncertainty about that move is that plastic comes from oil and the price of oil - at least in USD - has been rising. It may be that for the Japanese, the change in oil price has been offset by moves in the exchange rate...

But I would nonetheless be interested to know at what point plastic is cheaper than some kind of metal here. Oh, I should add that commodity prices for metals have been on the increase too so who knows what the numbers look like now.

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