Cornering the Market

What do you do when you are the recognized leader in a market, have high demand but cannot bring product to that market? You abandon some of your market, apparently.

Canon has teased us with some new product announcements over the past year, but in comparison to their typically prolific advertisements prior to Covid, the announcements have been like raindrops in a desert. Eagerly sought out, with immediate impact, but within a split second, evaporating into nothing.

It seems that camera manufacturers are rethinking what it means to be in this business. With raw materials unavailable, production lines decimated and even transportation options a mere shadow of years ago, it’s definitely time to rethink the business.

I don’t have any inside information. I’m just an observer of the universe, pondering what might be and what might not be.

Here’s what we do know. Camera sales overall were dropping precipitously even before Covid. I don’t really care about the specific stats, just the trends. We see lost volumes particularly in lower end cameras – those intended for the average hobbyist or family. Easy to explain – cellphones take that role now.

Then there’s the whole move to mirrorless and the loss of DSLR markets. Canon declared it would stop designing new DSLR’s a few months ago, but would keep producing existing products as long as there was demand. There is demand because the pricing of mirrorless is still not consumer-friendly. The manufacturers haven’t been able to keep up despite lower overall camera sales.

So Covid has introduced a whole new production strategy – out of necessity. Raw materials are less available, can’t be extracted or shipped. Production facilities can’t find staff or can’t fully staff due to health restrictions, illness or workers moving on to more lucrative opportunities. Finished products are stuck in port, unable to reach final destinations.

What’s an ambitious camera manufacturer to do? It’s interesting what has emerged.

If manufacturers can only produce 10% of the previous volume, then it makes sense to concentrate on markets that only have 10% of the previous level of demand. Instead of mass producing product, they are now releasing a smaller quantity of higher end products – products that would only typically go to an elite, selective market, at lower overall volumes, but higher unit prices.

It turns out that those selective markets are also the ones with the highest margins for manufacturers. So it makes sense to concentrate very limited resources on those and make more per unit in doing so.

Bottom line – and it literally is the bottom line – the new strategy is make less but charge more.

Over the past few months, we’ve seen announcements of new products from Canon and Nikon especially that exactly fit this business model. Lenses worth $7,000-$20,000 USD. Camera bodies worth $5,000-$8,000 USD. And they’ve also chosen to raise prices on similar items already in the stores.

Few entry level cameras are in the manufacturers’ warehouses or in the stores. Far from complaining, consumer-level customers seem to accept that more easily than a pro with a deadline would. Pros with deadlines keep calling in, keep following-up. Not sure how long that division of patience will last.

Some consumers still bravely place orders, then wait 6 months or more to receive their product. But this has led to one other undesirable outcome of the shortage: multiple orders for a single customer in multiple places, with the tactic to accept the first one that arrives and cancel the rest. This messes up the backlog and the pecking order even more, but I guess you can’t fault people for trying. Some companies have responded by requiring full-payment before an order is placed, which might lose the order all-together. It’s a Catch-22 for sure.

I went to business school in the early 1990’s and we studied competition and the strategic decisions that companies make to stay competitive. I can honestly say that we never predicted the scenario we are in now. But it is fascinating to watch and to imagine what the business graduates who are now corporate strategists are coming up with as they try to carve out a path in this new reality. Eventually, things will settle down again and we may see more predictability in purchases again, but the opposite may also be true. Companies have discovered new ways of serving customers and they may be here to stay.