Nikon's Full Frame Strategy

This is the time of year that most of the Japanese companies are doing "corporate" things: revealing fiscal year results, making management and structure changes, and outlining changes to short, medium, and long-term plans. 

Today Nikon reported on their medium term plan (they're in the middle of a three-stage process). Every Nikon user probably should take a gander at that document, as there are clear implications in it for photographers. In particular, page 17:

  • ILC expected to shrink by half, particularly in DSLR models
  • Focus on full flame [sic] products
  • Complete lineup of Z-mount system
  • Launch strategic mid and high-end DSLRs
  • Enhance coordination with social media/image apps (hey, didn't I first write that they should do that back in 2008?)

One thing: the chart on that page is a tiny bit misleading. The portions for "full-flame" [sic again] and "APS-C" represent both cameras and lenses. I know that some are going to jump to the conclusion that this shows how many full frame bodes are being sold compared to crop sensor. Nope. It shows the dollars taken in from full frame bodies and lenses compared to DX bodies and lenses. Not a ton of DX lenses, and DX bodies tend to sell for less. (And by the way, why is Nikon avoiding using FX and DX, their terms for full frame and APS-C?)

That said, it's clear that Nikon is going to prefer selling you a more expensive full frame body and lens than a crop sensor set in the future. Particularly when the overall goal is stated as a fixed value of operating profit. Nikon is not going to make it up with volume ;~).

So, taking each of the bullets I mentioned above, let's do some analysis:

  • If ILC volume is expected to shrink in half and profits have to stay the same or grow, there must be even more shift from cameras like the D3500/D5600 to ones more like the Z7/D850. This is not to say that entry level cameras will go away, but I think we're going to see them completely rethought. I'd guess that crop sensor ILC might become the new "compact" for Nikon.
  • We have seven full frame cameras right now (Df, D5, D610, D750, D850, Z6, Z7) and four crop sensor ones (D3500, D5600, D7500, D500). That might even shift more. I could see the crop sensor dropping to two or three models, while the full frame lineup adds models temporarily as Nikon navigates the balance shift from DSLR to mirrorless. The D6 is a given, and I've said for a long time a D750 successor is coming (at this point, it would have to be outright cancelled it's so far along in development). The D850 will get an update, I'm pretty sure. But I suspect that D610 will become a Z5, and that we'll get a Z8 sooner rather than later. There's also the question of lenses. This is really tricky. If Nikon is going to milk full frame DSLR for as much as they can get for as long as they can, they also have to continue with at least a few new F-mount lenses or updates. But they also need to more rapidly fill out the Z-mount lens lineup. Getting lenses right will determine just how well Nikon manages the two halves of their full frame lineup and whether they hit their goals.
  • I just mentioned both new Z cameras and lenses. It's interesting here that Nikon used the word "complete." I don't think that's what they meant (or the word "foundation" is missing after "lineup"). I think there's a translation hiccup here. What I take Nikon to mean is that they need to fully establish the Z line, with a full range of cameras and lens set foundation that is filled out. This is a no-brainer. Once the Z wheels set in motion, this was going to be a goal no matter what.
  • What "strategic" DSLRs are we're left to imagine. The D6 would be strategic, for sure. That's a small, but important part of the market that you don't walk away from, nor do you force those users to go mirrorless instantly, either. I think we can all agree on that. From there, though, we have to guess. The D850 is Nikon's most successful full frame DSLR, so I'd have to think they believe it's strategic. I would not be surprised if it got the usual two-year update on schedule. The D750 also seems strategic, though it is really locked into full-on competition with the Z6. Still, I could define a D760 that would be compelling, and I'm sure Nikon did, too. I expect the D750 update in the next nine months, and probably sooner rather than later. Since we're talking about "mid" and "high" models here, that really leaves just the D7500 and D500. I'd bet that those merge in some form. So, the DSLR lineup becomes D7600, D760, D860, D6 (hey, all sixes!). (And the mirrorless lineup probably Z1 (DX), Z2 (DX), Z5, Z6, Z7, Z8.) Maybe some other DSLRs stay in the lineup for awhile, but any "refresh" of them isn't going to be to add features or performance, it's going to be to reduce costs.
  • I'm amused by Nikon's slide devoted to coordinating with social media (page 18). Yes, they say that, but basically all their graphic does is try to rationalize what they've already done (e.g. SnapBridge, Nikon Image Space). The thing that's been missing is any clear emphasis and understanding of #4 ("provide services that include coordination with external apps"). #2 and #3 are actually in competition with that if you think about it a moment. Nikon adds the "AI" (artificial intelligence) button to a lot of stuff on that page, but here's the thing about AI: users define what they want as the end result of any feature, AI or non-AI. If you don't get the end result right, it doesn't matter what technology you used to achieve the results ;~). 

The bottom line is that things shifted for Nikon several years ago, and now we're deep in the middle of what that implies for users. The shift was from thinking that the Imaging business would grow in any meaningful way to thinking that it would be nice to just continue to generate a (relatively) fixed and stable level of profit from the group. 

I'd call that wrong thinking. Not that I believe that cameras are going to recover to the kinds of growth we've seen in the past, but rather that Nikon went from being an inward-thinker to even more of an inward-thinker. Customers aren't mentioned much in Nikon's planning and presentations. Ironically, they're mentioned most when it comes to the Precision group, which is really a business-to-business group, which by definition is customer based, but not in the one part of the company where Nikon actually has a broad and large number of customers (Imaging).

You can put any kind of goal you want on a group. The problem is that if you don't have the products customers want, you very well might not hit that goal. Nikon believes that you want high cost full frame. They might be right about that, but how much so? And are they seeing the right product mix for that group?

Finally, we've recently seen even worse issues with accessory availability with Nikon than ever before. I've harped on this before: any ILC platform is an ecosystem. The healthier the ecosystem, the more interesting the platform is to customers. Nikon's go-it-alone attitude has always held them back from how large they could have become. Put bluntly, they're control freaks, and they don't always realize just how much that control holds them back. They fight themselves more than they do competitors, it seems ;~).

I mention accessories and ecosystem for one reason: the only scary line to me in the whole management presentation is this: "reconsider production and marketing structure." We've already seen the China plant close, the various SE Asia supplementary plants are almost never mentioned now, and Z production moved to Sendai, Japan instead of being done in their big ILC factory in Thailand. I'm betting that the accessory issues all derive from adjustments Nikon is making to plants and personnel to keep costs down.

Given that Nikon is managing for a somewhat fixed profit number and not a sales number (which they imply they think will go down), we're going to see more and more little bits and pieces disappear, I think. Right-angle finders? Not necessary with tilting screens I'll bet Nikon is saying, for example. 

If Nikon struggles to make their profit number, we'll see more disruption in the overall ecosystem. If they manage to make their profit number, someone in the bean counting department will start asking for a bigger number to hit. If they knock it out of the park, we likely won't see them rebuild all those little bits that we've relied upon.

So I repeat: open the ecosystem. Push all the flash stuff to outside companies. Push all the power accessories to outside companies. Push more of the software bits—Capture NX-D comes to mind—to outside companies. License the mount communications. 

And one more: open NPS. Charge for services rendered, as do others, and make sure those services are good ones. You can still have a more exclusive level of NPS at the top for your big agency type clients, but the "we give you this modest free thing, but only if you can jump over the high qualifying gate" has to go. 

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