March, 2008 – The Canon 5D is currently $2,200 at B&H. Are the new "5D Class" cameras going to be in that price range?
The answer is, I don't know. It would be interesting if we could get the real inside skinny on pricing; I suspect it's far more of a "black art" than people realize.
The goal is first to make your investment back, and then to make a profit. To do this you have to take into account the R&D costs of the product as well as what each item costs to manufacture. You also have to factor in some percentage of soft costs and overhead. Most companies have pretty well-established formulas for these kinds of things, although they're probably constantly being scrutinized.
Ceilings and perceptions
Probably the biggest wild card in pricing is that if you price something higher, you might sell fewer units; if you price it lower, you might make back your investment too slowly.
When I was at the last magazine I worked for, we had come up against a "perception ceiling." A subscription cost $19.95 and raising it at all would put it above the $20 threshold (in base ten, multiples of ten can be perceptual sticking points). Since a little bit over the threshold is as bad a lot over the threshold, we tested a price of $21.95, by sending out a circulation mailing to non-subscribers offering that price. Previous mailings had given us a baseline for the kind of return we could expect.
In doing this, we needed to account for that percentage of mailing recipients who did their research and realized that the same subscription was still available elsewhere for $19.95. Once that group was (presumably) controlled for, we had to analyze whether the extra income from the higher price offset the reduction in income due to the fact that fewer people subscribed at the higher price. When we did that, it was easy to see that the higher price was hurting more than it was helping, so we abandoned the price hike and stuck with the old number.
Then, you've got to consider the market and the competition. What we describe when we note that the Canon 5D costs $2200 is called (I think—bear in mind I'm not an economist) an "anchor"—an already-existing baseline for peoples' expectations. If you can price something below pre-existing anchors, peoples' perception is that it's good value. But in digital, with prices going down so dramatically for the past ten years while capabilities are going up, anchors are volatile. It's possible that pricing a Canon 5D replacement at $2200 would not be seen as a good value, even though the new camera would be considerably more capable than the older model. We've seen a number of instances in DSLRs of products missing their pricing window (e.g. the Contax 6-MP pro camera that contributed so heavily to Contax exiting from the camera business) or of cameras having to be priced too far above the competition (e.g. the Fuji S5).
If a product proves popular and sells well, you still have a lot of the same dilemmas, because high-profit items need to be milked for profit to help with the overall corporate bottom line and to help make up for products that lost money. A good-selling product might have made back its investment, and might still be profitable at a price much closer to its production cost, but the company still has to try to maximize its return.
Another issue with cameras is that demand can be controlled with
supply. Most cameras are made in "runs," i.e., batches. While a camera
is selling well, production might be continuous. From what I hear, for
example, the plant where Nikon makes the D3 is at full capacity because
the model has been such a torrid seller, and production capacity might
actually be limiting sales. But once sales cool off, a model might be
made in "a run here, a run there," so to speak. When a camera is
"discontinued," it usually means that NOS (new old supply, which refers
to selling out of an already-manufactured, warehoused supply) ran out,
and a decision had to be made as to whether to do another run.
Discontinuation simply means that that decision was negative. Note that
this can happen to a camera that is still selling decently well. The company
might simply realize that a new run would be costlier than the old one, and, since
it can see the rate at which demand is tailing off, the judgment might be that the then-current demand would not extend to the sales life of a whole new run. I've also actually seen instances where a company decides against a further run and announces the discontinuation of a product, only to face a clamor of protest from customers and dealers, and reverse itself.
But before any decision about discontinuance has to be made, a company can actually control when the NOS of a certain model runs out by controlling pricing. If it sees demand evaporating, it can close out the NOS by offering very low pricing. (It can also do so if it has a replacement on the way, which might account for the current pricing of the 5D.) If it needs to keep the model in the product lineup, however (it knows a new run will be problematic, and wants NOS to last), it can do this by keeping the price high, thereby putting a damper on demand. We saw this with the Nikon F3 many moons ago. Nikon wanted to keep the F3 in the lineup well past the introduction of the F4 (probably to give it an answer to buyers who balked at a pro F with AF and built-in motors) so it just raised the price of the F3 again and again as the supply dwindled, giving a "long tail" to its ability to catalog and supply new F3's.
I suppose you've noticed that digital products tend to be priced higher when they come out and then usually fall somewhat after a few months or a year. One reason for this is to take advantage of the "latest toy" phenomenon, the fact that a small part of the target market is simply not price-conscious and/or will pay a premium to be the first to own a prestigious new product. But I would guess that it's also a form of price-testing. A company can't easily raise the price of a new product if it guesses market demand wrongly. So it's better to err on the high side at first, and reassess as some hard data on demand is gathered.
Even this can backfire sometimes, as we saw with the Apple
iPhone—demand was extremely strong for the product, and Apple quickly
realized it had priced the product too high initially, so the price was
quickly dropped by a large amount (I think it was $300). But this so
angered early adopters of the iPhone that Apple ended up having to
give rebates to early purchasers to keep them from getting alienated
from its brand.
In the case of the Canon 5D "class"—both Canon's 5D replacement and its coming competitors—I suspect that pricing is more problematic than it is with DSLRs on either extreme of the scale. Canon probably has a very good idea what prices pros and pro-camera consumers will put up with (although it's possible that Nikon is currently kicking itself for pricing the D3 too low—notice that the price hasn't come down so much as a nickel, and the product is frequently backordered), and it probably has a very good idea of what's what at the bottom end of the market (where prices are more closely controlled by real costs anyway). But the middle ground might well be (appropriately) a sort of "gray area."
- (Continued below the break)
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It's probably difficult not only to price a premium middle-tier camera like the 5D, but also to target it in the first place! In the planning stages, targets are selected not only for what can be offered (the engineering aspect of the problem) but also what should be offered from a perception and market-appeal standpoint (the marketing aspect of the problem). Some features that are present on less-expensive cameras (anti-dust measures or buffer-clearing rates, for instance) need to be incorporated in a higher-class model, or the better model will be seen as being "crippled"; however, some features present in lesser cameras should not be incorporated because they're seen as being typical of "amateur" cameras and their presence on the better camera would be seen as a turn-off by the target market—for instance, scene modes, and perhaps pop-up flash.
This targeting is growing ever more complex as DSLRs of various makes and models begin to offer unique or distinctive features in order to differentiate them from the competition. One problem Canon no doubt faces is whether to make a 5D replacement with sensor (in-camera) image stabilization. The company has gone with in-lens IS so far. Initially, when it had that feature all to itself, putting it in the lenses was probably much more profitable, as well as being more feasible. But now, some of its competitors are scoring points and sales with sensor IS, and Canon knows that at least one of its competitors (the A900) will be offering the feature. That creates a thorny problem. Would the lack of sensor IS in a 5D replacement be a drag to sales? Would its presence help sales? Would it be too expensive to implement? And, once that decision has been made, what about live view in its various forms, or an articulated LCD, or weather sealing, or any of a half-dozen other possible features in a feature mix? These are all essentially targeting problems, and they require intelligent guesswork.
The pitfalls of asking in advance
Market research can help with this, but, for a number of reasons, market research is a less-than-perfect tool. The two biggest reasons are that, first, what people tell you they want might not actually be what they will buy. (Research subject guy: "Only if it has x, y, and z would I consider buying it." And, later, Potential customer guy: "It's beautiful, but since it has x, y, and z, it's too expensive and I can't afford it." And they're the same guy.) And second, people can only base their needs and desires on what they already know. Canon might be able, from an engineering standpoint, to offer several surprise new capabilities in a new camera. Market-research subjects often don't know in advance whether they will like surprise new features or not, because they basically like what they're used to. Maybe some new feature has low "thought appeal" but will have high actual appeal when the product is realized and photographers start trying it out and comparing notes.
A couple of examples: autofocus tested poorly before its introduction (and we all know how that went for the companies that decided against it on that basis). And the APS system was perhaps the most well-researched new product in photo-industry history—it consistently did very well among focus groups and in all kinds of market research. But it flopped pretty decisively when it was actually brought to market.
And back to our question
So, what would you guess would be the price of a Canon 5D replacement? It really depends on what Canon is planning the replacement to be. If it's essentially a "Mark II" version of the 5D, with more or less the same body, operability brought more or less up to date, and the same to half-again as many pixels, then the price could well be within a stone's throw of the current discount prices of the 5D—maybe $2,400 to $2,800 to start, maybe even $2,000. But none of us know what Canon is planning. Maybe the project is for an all-new, from-the-ground-up camera with a dazzling feature set and double or more the pixel count. If that's the case, then initial pricing at the level of the current pricing of the 5D is unrealistic.
A better gauge of upcoming pricing can be made if you have a pretty good idea what the proposed product's feature set will be. What, for instance, would be your guess as to the pricing of the Sony "flagship" A900? We don't know anything close to all the facts, but consider just a few of the facts we do know:
• It will have more megapixels than any other DSLR, ever.*
• It will be among a small, elite handful of full-frame DSLRs.
• It will be the only camera anywhere near its market position to have sensor IS.
• Nikon is selling all the D3's it can assemble priced at $5,000.
If the A900 were brought to market this minute, it could probably justify initial pricing (before adjustment) of at least $3k and possibly $4k. For it to cost $2k, just a couple of hundred more than the D300 and lower than the current price of the aging 5D, would be seen as a screaming bargain, so it probably won't be that low.
But now consider the very same camera if, before the A900 ships, both Canon and Nikon were to announce, and show prototypes of, their own new 5D-class cameras, with full-frame sensors, mid-sized bodies, and high pixel counts. And say one or both of them were aggressively priced. That would put considerable price-pressure on the A900, and rob it of that crucial "honeymoon period" during which it stands more or less alone in the marketplace. (This is a major cause of "aggressive announcing," where a company announces a product way in advance of its actual ship date—a strategy which can also easily turn around and bite it on the katuschka.)
Last one to go home, turn out the lights
In any event, pricing is probably one of the very last decisions made by a camera company before a new camera is announced. (I'm just guessing when I say that—I've never worked for a camera company and I'm not an industry insider.) I would venture to guess that it's also very serious business, especially with more major products, and I would guess that many heads, including some very high up in the company hierarchies, have to come together and burn the midnight oil in the run-up to new product launches in order to arrive at the magic numbers. So it's quite possible that when online forumers are happily predicting future prices of postulated but unconfirmed future cameras, the CEO and the CFO of the companies that are going to build them don't even know yet!
All of this is a pretty long-winded answer to the question, "what will the Canon 5D replacement cost?" The shorter answer, of course, is the first one: I don't know.
*Yes, I'm aware that more pixels doesn't necessarily translate to better image quality. But that message hasn't yet trickled down to the market a whole.
Copyright 2008 by Michael C. Johnston—All Rights Reserved
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