Price Drifting

(commentary)

It’s time to update my old pricing advice. 

Long, long ago in a far off galaxy, the way digital camera pricing worked was like this:

  • At introduction and for some time after, full MAP (minimum advertised price) was the price.
  • At particular times when camera makers needed to move more units to make their quarterly numbers, an Instant Discount of US$50 to US$200 would get applied for a short period (typically a month, and typically the middle month of the quarter). 
  • Towards the end of life for the product, the MAP would slowly move down by as much as 25%.

So on a typical two-year product cycle for a US$2000 camera, most of the first year would have it priced at US$2000. Late in the year and early in the second year it might be priced at times at US$1800. And as it got close to the replacement point, the price might eventually hit US$1500. That 25% discounted price was usually about the maximum you’d see.

Since the peak of camera sales a few years back, that simple pattern has gotten much more complex and the maximum discount has increased. Now things work a bit like this:

  • Pre-orders are at full MAP. Popular cameras will stay at MAP until supplies begin to accumulate on dealer shelves. Our US$2000 example camera is US$2000 during this period.
  • Large organizations start offering 2% or 4% “future purchase” credits once they see any product lingering on the shelf. The implied price is now US$1960 or slightly less.
  • Camera makers are quick to put Instant Rebates on cameras once they see that dealers aren’t ordering them regularly. In other words, once the dealer pull goes down, the camera makers use price push to try to fix that. Our implied price is now US$1764 or lower (future purchase credit is typically still in effect). 
  • When the camera makers can’t push enough volume down through the dealers, they start unloading product on the gray market. It is not unusual for “first gray” to already be at the 25% off mark, so people start seeing US$1500 prices. This often causes the big retailers to start putting 10% “future purchase” credits in place to stay competitive. Our implied price is now US$1620 if the Instant Rebates are still in effect, which they usually are.
  • Once again we start to get to end of life of the product, and now both gray market and retail prices tend to drop by another 25%. So the gray is now at US$1125 and the official import is at an implied US$1350 (with 10% future purchase).
  • If the camera was oversupplied to demand, the new model may come out and the older model live on at discount. Depending upon how oversupplied it was, it may get additional temporary discounting above and beyond what I’ve suggested above. But in Nikon’s scenario, it usually goes up in price to live within the matrix of Nikon’s full line of products. From there it may have short term Instant Rebates to clear out inventory.

I’m using an averaging of best price scenarios I’ve seen in the past 18 months over a fairly broad array of enthusiast cameras. Obviously, each individual product has its own supply/demand curve, and that can be sort of difficult to predict, thus my generalization by averaging across a bunch of models. 

Still, there are things you need to pay attention to now:

  1. You’re paying full boat if you pre-order. At their introduction, very popular cameras will tend to stay at full price longer than less popular ones. I’d also tend to say that the higher the price initially is, the longer it stays at that price. Thus, a D5 isn’t likely to see much early price movement, nor will a D500 until pre-orders get filled.
  2. You can save substantially by buying near the end of product life. By substantially, I mean 30-40%, and sometimes 50%. I’ve even seen a couple of cameras go beyond that recently; the Fujifilm X-Pro1 was recently at almost 60% off its original price for a brief period as inventories were managed prior to the X-Pro2 shipments arriving. Some of these discounts—and some of the offers include one—is like getting a very good free lens in terms of their magnitude. 
  3. Clearly you have to pay attention to the intermediary pricing changes. I saw one camera move up and down within a 20% range several times in one year. Thus, you could buy high, or you could buy low, but only if you were paying close attention.
  4. It may pay to now consider gray market in some cases. I’d do so any time the discount is approaching 50% and you get a real warranty from a seller that can be trusted. Sure, you could accidentally drop your camera and it might not be repairable even by the few places that will touch it. But your home owners’ insurance might cover that, and more importantly, a big drop incident can be a US$800 repair bill. It’s almost gotten to the point where just buying a gray market product instead of repairing the old one is a consideration.

Just to be clear, I wrote “consider,” not “buy.” I still think gray market is highly problematic given that companies like Nikon are not honoring the warranty nor repairing gray market product under any circumstances*. There’s high risk in buying gray. But the reason I now write “consider” is that risk/reward is typically measured on a monetary scale, and that scale has moved considerably closer to something you should consider accepting the risk for.

* And yet: the Service Advisories for the D600 and D750 show that NikonUSA will repair a gray market product sometimes. How they justify that legally under the Magnuson-Moss provisions of US law I have no idea. 

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