By Eamon Hickey
Since I have a bit of an insider background in the camera industry, I thought I'd pick up a few random threads from Mike's "What Will the Canon 5D Replacement Cost" post and the responses to it. But I'll get the bottom line out of the way right up front: I don't know either.
What do I mean by "a bit" of an insider background? I was a sales rep for Nikon Inc. (popularly known as Nikon USA) from mid-1994 to mid-1999 (and a Nikon tech rep before that as well as a camera store manager even further back). Sales reps in foreign subsidiaries do not attend product planning meetings in Japan, and upper management in the U.S., in their blindness, consistently failed to avail themselves of my wise counsel in their own planning sessions. But still, you learn things. Bosses talk over beers; friends get promoted into jobs with access to The Dark Secrets. (Since quitting Nikon, I've done a lot of writing about cameras and the camera business for various media outlets, and you pick up some scuttlebutt that way, too.)
Me, circa 1997, in my Nikon rep's costume sitting in a photo buyer's office just prior to begging for an order and then taking him out to abuse my expense account. (Photo taken with a Nikon Coolpix 300.)
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First, I'm certain that Canon has had in mind a moderately firm target retail price for the 5D replacement (let's call it the 5D Mk II since that's depressingly likely to be its real name) since they first sat down at the drawing board...er...CAD workstation. You can't really design a camera without knowing what you want to charge for it since the projected price influences every choice you make about features, materials, performance, production methods and much else. Well, really, price target and product specification are inseparably linked; they exist as functions of each other.
On the other hand, I know for certain that the finalized price for each geographic market isn't determined until about 30 days before shipping in most cases. There can be some modest flexibility around the original target price to adjust for market conditions (mainly competition), which will have changed since you began to design the product lo' those many moons ago. (My experience is that sometimes the Japanese camera companies are quite well informed about future competition—when I worked at Nikon our product manager types sometimes could tell me almost exactly what Canon or Minolta or whoever were about to introduce—and other times they're largely in the dark, especially about what the other guy plans to charge for his new gadget, a really critical piece of information.) The regional distributor also has a little input on the final price; the Spanish distributor is the only person who really knows whether he needs to subtract 50 euros to compete in Madrid, or whether it's safe to add 50 euros and bank some extra margin.
A giant wrench in the cogs
In the U.S., there's a big wild card in these calculations, however, one
that was mentioned by a commenter on Mike's post who was channeling Thom
Hogan. The yen has gained 15–20% in value against the dollar in the last
year. That means Canon USA pays Canon Japan 15–20% more for every product it
imports; if an EOS 5D cost Canon USA, say, $1,600 a year ago, it costs them
as much as $2,000 now. The dollar's troubles are threatening to be by far
the biggest influence on the camera business over the next year or two.
Certainly that is true in the U.S., but Europe may feel it, too, even though
the Euro has been stable against the yen over the last year. The size and
importance of the U.S. market means that if currency issues are driving
prices up here, the camera companies often try to counteract that problem by
lowering their manufacturing costs. Hello, plastic.
In any case, I can picture economists in every corporation in Japan sitting
bleary-eyed and despondent in front of 40-page spreadsheets attempting to
understand the U.S. economy's recent dramatic perturbations and trying to
predict what the dollar will be worth over the next year or 18 months. And
whatever prediction Canon's guy makes will be a very important factor in the
5D Mk II's price in the U.S. and possibly elsewhere, too.Unforeseen revolution
I'll add to Mike's point on market research with my own experience. I joined
Nikon in 1991 and well remember the utter, incredulous dismay within the
company during the early 1990s as large numbers of professional
photographers switched to Canon for autofocus. At that time, Nikon was
paying a market research firm to periodically survey professional
photographers about their needs and desires. (I'm sure Nikon still does
this.) Consistently, the surveys done in the mid-to-late 1980s yielded a
resounding NO to autofocus in a pro SLR. They hated the idea, and Nikon did
not pursue AF technology all that aggressively. Well, what the pro photogs hated was the crummy autofocus that existed in 1987. When they
saw the really good autofocus that Canon unveiled in 1990, they went for it
like a slice of chocolate cake.
And then I clearly remember a day near Christmas in 1997 when an amazed
Olympus sales rep whispered to me, after looking both ways for
eavesdroppers, that he would probably sell $2 million worth of digital
cameras that year, something like 10X the volume that Olympus had originally
projected. To their utter surprise, they (along with Sony) had stumbled on
the biggest revolution in photographic history. (For contrast, Nikon had its
first digital cameras that year, two surpassingly goofy little
point-and-shoots (shown above and at right) and I probably did $20,000 worth of volume with them.)
There is no question that none of the camera companies, market research
notwithstanding, had the slightest inkling of how fast digital cameras would
overwhelm film and how huge the business would become.
Contra Mike, I don't think that Nikon is currently kicking itself for pricing the D3 too low. Nikon was in terrible shape in the photojournalist market and they needed a buzz-generating grand slam home run, even if they left some money on the table. Mindshare or buzz-share (might as well go whole hog on the marketing mumbo-jumbo!) was arguably more important than profit dollars in this case. The D3's low price ($3,000 less than the only other pro full-frame DSLR) helps create the notion that Nikon, simultaneously increasing performance and breaking price barriers, is now the pro digital train to be riding on.
And that brings me to Sony, which is in a similar position. To sell any decent number of units in the mid-to-upper end of the DSLR market, they have to displace two brands, Canon and Nikon, which together have completely dominated the mindshare, and consequently the spending, of serious 35mm-style photographers for almost 50 years. (Yes, yes, I've heard of Leica; my statement stands.) That will be no easy task, and Sony must certainly understand that. I'll be really surprised if the A900 isn't priced very aggressively—if, in other words, Sony doesn't sacrifice a lot of margin in hopes of carving out a meaningful foothold in the serious photographer segment. If Canon and Nikon are anticipating the same thing—and I bet they are—we will see some aggressive moves in the price/feature ratios of these presumed new cameras.
But again, currency exchange rates, wherever they end up going, could throw all these calculations off.
So rolling all those factors together and weighing the probabilities I come up with a price for the 5D Mk II of...still no idea.
Last word
On a last tangential note: a couple of commenters to Mike's post wondered
about support for discontinued cameras. When I was at Nikon, the company
policy was to continue providing spare parts for camera bodies for five
years after discontinuation (and service for however long parts were
available, which often ends up being longer than five years). For lenses,
the spare parts commitment was for ten years after discontinuation. I'm not
sure that's still true, and I don't know the specifics for other brands, but
I'd be willing to bet a slice of chocolate cake that they are very similar.
______________________
Eamon
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.
Posted by: Ken Tanaka | Saturday, 29 March 2008 at 12:03 AM
I still have my Coolpix 100 and it still works.
Slightly soft 500x500 images with a weak flash, but I love its simplicity.
Posted by: JohnO | Saturday, 29 March 2008 at 01:04 AM
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.
Posted by: michael | Saturday, 29 March 2008 at 08:26 AM
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.
Posted by: Michael | Saturday, 29 March 2008 at 09:25 AM
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.
Posted by: Carl Leonardi | Saturday, 29 March 2008 at 09:45 AM
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?
Posted by: mani | Saturday, 29 March 2008 at 10:44 AM
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.
Posted by: Greg Smith | Saturday, 29 March 2008 at 11:01 AM
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.
Posted by: Stephen Scharf | Saturday, 29 March 2008 at 01:24 PM
Ah, an easy to read and informative article.
Posted by: David Bennett | Saturday, 29 March 2008 at 01:35 PM
And, I would add: insightful. I love this blog.
Posted by: Erik Groomer | Saturday, 29 March 2008 at 04:36 PM
Dear Eamon,
WOW! What a fabulous and fascinating article!
You've inspired me to change topics for my next column [grin].
pax / Ctein
Posted by: Ctein | Saturday, 29 March 2008 at 05:02 PM
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
$1140 at B&H.
Posted by: Jay | Saturday, 29 March 2008 at 07:45 PM
Great articles, I only dare to give comment on the comments:)
To Ken: Companies can hedge against small and short time currency fluctuations, but hedging has costs and in the current situation they may be prohibitive.
To Greg: they not only do not compete directly on price, specifications don't go head-to-head either.
On D3 pricing: I think the price at introduction was the same as for the D2X (5000$). One of those anchor points Mike was talking about?
Posted by: Robert55 | Sunday, 30 March 2008 at 03:33 AM
Eamon--
Nice article, generous with your insight!
mani--
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.
Posted by: Howard Cornelsen | Sunday, 30 March 2008 at 03:42 AM
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.
Posted by: Peter Hovmand | Sunday, 30 March 2008 at 05:37 AM
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.
Posted by: Kevin McLoughlin | Sunday, 30 March 2008 at 06:00 AM
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.
Posted by: Antony Hands | Sunday, 30 March 2008 at 07:34 AM
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.
Posted by: Mike Johnston | Sunday, 30 March 2008 at 10:57 AM
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.
Posted by: Michael Eckstein | Sunday, 30 March 2008 at 11:17 AM
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.
Posted by: Eamon Hickey | Sunday, 30 March 2008 at 11:24 AM
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.
Posted by: Thom Hogan | Monday, 31 March 2008 at 08:34 AM
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.
Posted by: Darren Reed | Wednesday, 09 April 2008 at 06:24 AM