What's With the US$2000 Cameras?

US$2000 seems to be the go to enthusiast price point for the Japanese camera makers. D500, GH5, E-M1 Mark II, the list goes on, and in the last year it seems like every high-end enthusiast camera gets that pricing. Even cameras like the A6500 and X-T2 are sneaking up towards that point and bound to get there. 

Funny thing is, US$2000 was the original target point for a truly competent, non-consumer DSLR. Canon and Nikon both tried to make that point US$3000 in the early DSLR era, but the quants in the backrooms quickly figured out that this wasn't going to work. US$2000 is the price point that the D100 attempted to get to (and missed by a bit), as well as similar offerings from Canon and Fujifilm. Not that they quite got there on first release, but they were all aimed at the same point. 

Quite obviously, something in the economics of cameras has everyone targeting the price point at or near US$2000. The extra parts and manufacturing costs compared to the lower end consumer cameras isn't all that much more, so in all likelihood the GPM (gross profit margin) is very nicely high. On the other end, customers are obviously willing to pay that much and demand seems reasonably high at that price point. My guess is that—at least for the dedicated camera enthusaist—something near US$2000 is right at the sweet spot of the MBA-type calculations for supply/demand/price/volume/profit. 

When you look at gray market prices, sales prices, and end-of-life prices, the US$2000 type of cameras seem to get pretty hefty discounts at times. For a long while I kept a database of DSLR pricing in the US, and the average discount maxed out at 25% over the life span of the product. But with the US$2000 cameras lately I've been seeing something more like 40% maximum discounting, and I don't think that's the end of it. 

Some of that extra discount is the fact that the demand part of the equation is going down. The D300 sold many more units in its first year than the D500 did this past year, and held its price accordingly. But the other part of the equation that allows the higher discounting is most likely that the GPM is enough higher on these products to allow price drops to keep demand higher. More to the point, I'm sure that all these companies have a cadre of accountants that are predicting and measuring "how many buy at full price over what period" versus what the eventual maximization of profit at the end of the sales life for the camera should/could be. 

Back in 1979-1980 I had a protracted and long fight with Adam Osborne about the pricing of the Osborne 1. I lost that fight, despite many spreadsheets in my defense. My contention was (and still is), that pricing the Osborne 1 at US$1999 would have had zero effect on the number of units we sold. Adam was insistent on pricing the computer at US$1799. The problem with his price was there was no established price point at US$1799 for computers back then. Indeed, any comparison of what the Osborne 1 provided versus any consumer computer competitor at the time would still show the Osborne 1 as the lowest cost complete system at US$1999, and by far. 

Crossing the US$2000 barrier would have been a different thing. Because of the way people think about prices, they tend to start grouping anything in the two thousand range together. Drop that first digit to 1 instead of 2 and they think differently, now grouping that price will all the ones that start with 1. There weren't any complete personal computers at the Osborne level in the 1's at the time ;~). 

To Osborne, the difference in my pricing and Adam's would have resulted in US$130 more dollars to Osborne per unit. Over the first year of Osborne's sales, that would have amounted to US$7.5 million more in revenue if I was right. Considering that the real reason why Osborne went out of business was not as is stated all over the Internet, but rather lack of capitalization, that US$7.5 million might have made the difference. Maybe not. By my calculations, Osborne needed an additional US$8 million in capital above and beyond my extra US$7.5m to truly run up the sales ramp the way it did and survive the cash crunch rampant sales growth caused. 

So why an aside for a 37 year old computer story? Because within the Japanese camera companies there are teams of people trying to do the same sorts of calculations that I was doing back in 1979. Any time you have large sales increases or decreases, those calculations become critically important to corporate survival.

You'll note that we have most of the consumer camera gear priced in the US$500-1000 range, and have had it there for quite some time. Nikon executives themselves said they needed to be prepared for US$300 DSLRs almost a decade ago, but that hasn't really happened. Why? Because the Japanese companies are fearful of dropping below the US$499 threshold. It could trigger a real race to the bottom that no one would win. The Japanese consumer electronics (CE) product management scenarios only work if you can continue to innovate and advance at the top, collect as much money as you can there, then progress down into lower pricing levels that you tightly control. 

Thus, you see a D500 at US$2000 trying to maximize the extraction of enthusiast dollars. Meanwhile, you see the D3400 trying to keep it's head above the US$499 water line. 

I'm not sure how long the hull will hold on the camera ship, there seems to have been a fire and we just hit an iceberg. Through November, the CIPA numbers are mirrorless at 90.1% of last year, DSLRs at 85% of last year. We saw Nikon deeply discount the D500 at the end of the year, and I can attest to the fact that this moved the bar on D500 sales considerably just by looking at my eBook sales (I don't do any promotion or marketing of my books, so any sudden uptick in sales of a book can always be sourced to something else). Now NikonUSA has tried to move the D500 back to US$2000 from its calculated Christmas body implied price of something near US$1600. I predict the return to US$2000 will essentially slow D500 sales back down to a trickle (though the D500+16-80mm lens package still being discounted does net you a very nice lens for an implied US$600). 

There are some—and many in Tokyo—that are looking at the Q4 CIPA shipment numbers as indicating that we've hit a bottom in ILC camera sales. I'm not convinced of that. Note the heavy discounting that Nikon did during that quarter: a large percentage of the CIPA DSLR shipments in the quarter were those discounted cameras. So saying that "the bottom has been reached" when there was clear manipulation by Nikon to reach their own quarterly sales number goals is a mistake. The Q1 shipments may very well tell a different story for DSLRs. 

If you look at the 2016 shipment numbers, January and February were very weak for DSLRs. The same thing is likely to be true this year as nothing new has been launched and the prices have been reset upward. We're on track for total ILC unit shipments being significantly under 12m units (2015 was 13m). If I had to predict 2017 at this point, I can see that falling another 5% or more, which puts us into the 11m units range. 

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