Anyone been following this article/thread on Oly?

Started Feb 15, 2011 | Discussions thread
boggis the cat Veteran Member • Posts: 6,324
Re: selling cameras at 'competitive' pricing just cannot be done

Rriley wrote:

after thinking about this for some time, I cant see Woodford being able to make any decision outside of what he might understand is happening gleaning the books and accounts. If thats the way it runs 4/3rds has already gone.

If the focus is on quarterly profits, then the consumer imaging business is an obvious problem. We don't know the break down across segments, though, so we don't know how Micro or standard Four Thirds works out.

What hasnt been considered is this, that batch production can never compete on costs with volume producers (Like C&N), and hence cannot compete on price. For all those of you that have bitched about price in relationship to the competition what you are asking of them is impossible.

On body prices they have to accept a lesser profit margin than high volume producers. What they should have been aiming for is to make up the profits in lenses and other items that can be produced in larger volumes than bodies. Olympus have had a minimal turnover of lenses compared to Canon or Nikon over the same time frame -- they replaced the kit lenses with cheaper (but optically similar) versions, produced an SWD variant of the 50-200, and updated the 14-54 with CD-AF and a circular aperture. Every time a lens is redesigned the costs involved would be similar to those for a body.

A little earlier I had a bit of fun with Larry's idea that they should never have allowed themselves to sell cameras below cost. Ive come to realise Larry was exactly right,
http://forums.dpreview.com/forums/read.asp?forum=1022&message=37741197

but not for the same reasons. It would seem such an obvious thing, dont sell product below cost. The issues are 2 fold, thats hard to calculate, and for the products they offer customers need them to be price competitive. The constraint is the proficiency of the camera type, and where it is positioned in the market.

Profitability of the system -- the entire product range -- is more important than margin on individual items. If you sell bodies at a loss, but make a greater margin on lenses, it really doesn't matter.

What they seem to have been moving toward is even smaller scale specialised manufacturing -- cost effective production of very small quantities of components (hundreds of units per day rather than thousands). This would allow for rapid production of new or modified designs in small numbers at reduced cost.

The problem with what we are asking them, that of selling cameras at 'competitive' pricing just cannot be done, their plant isnt designed for it, and as a consequence, the products theyve developed are also unsuitable for that type of plant. This mistake has cost them the imaging business. I say this knowing that micro are in the same bag.

It is a mistake to go down the commodity route when you have a small market share. Four Thirds was always a "niche" product line and the likes of the E-5xx / E-4xx should always have been intended to draw people into trying the system, rather than generating profits. The profits are in the lenses and accessories, and to a lesser extent in the high-end bodies.

The cameras they offer are generally consumer items that are a good fit within the competitive sphere of cameras like Canons APSC bodies. The reality is in order to sell at a profit they would be entirely price uncompetitive. When what they should be selling are a smaller range of cameras that are more competitive technically that can therefore sustain a higher price.

There is probably a "sweet spot" for a small player like Olympus where the volume and costs deliver the best profitability.

Make the volume too small and the component costs become problematic and the prices rise into Leica territory, which becomes difficult to market (and we know Olympus isn't a marketing specialist). A Four Thirds sensor from another vendor will become hugely expensive in smaller quantities. The same applies for shutters, mirrors, and every other component. So if you move too far toward smaller sales volume you could become less competitive overall. (The change to manufacturing practices should be able to offset some of this, however.)

One solution for sensor costs would be to do a deal with FujiFilm such that they produce sensors for Olympus and for FujiFilm to use them in high-end compacts / bridge cameras with a non-compete agreement. The dual AF system that FujiFilm devised would fit nicely with making all lenses work on a high-end Micro-based body.

The combined juxtaposition of small sensor camera and batch production is the wrong mix. Put basically, their products cannot be competitive with the plant they have, the answer is to either change the plant for volume production which would reduce them to perhaps 1 camera, or change the camera type for something with a higher specification that can still sustain the necessarily higher pricing. IMO the latter is the only choice, that or get out of the business

If you only consider the production of bodies and "commodity" lenses, then yes. If you consider where their strength lies -- in optical design -- then the better strategy is to make higher end lens sales the goal, not body / kit sales. This effectively moves them out of the mass market in any case, but gives the company a clear focus on attaining a goal that is the most profitable for them.

Micro is off track, IMO, because they failed to focus on their strengths and produced a slew of mediocre low-end lenses with price tags that ensure they won't sell well. They should have allowed Panasonic to produce commodity lenses and concentrated on high-end and specialised optics that would sell at a good profit.

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