Is this the year Pentax makes or breaks your FF dream?

Started Jul 16, 2014 | Discussions thread
Leandros S Senior Member • Posts: 1,972
Re: lesson in manufacturing & marketing economics

John_A_G wrote:

Leandros S wrote:

John_A_G wrote:

zakaria wrote:

2 years to 5 this system will be as full frame price. I MO.
pentaxian .

Why do you think cost will come down so rapidly?

Larger sensor, requiring larger optics and very small production runs. No manufacturing competition for sensors. There is nothing driving the cost down on that platform.

That's the chicken and egg fallacy in a lot of people's thinking. As the price goes down, so do the manufacturing costs because demand increases. Manufacturing costs are only relatively high as long as demand is low. Additionally, there are diminishing returns - small suppliers can reduce their costs more effectively in response to added demand than large suppliers can. So as demand increases, the gap between high volume and low volume producers closes.

Manufacturing costs go down when:

1) raw material or vendor supplied prices go down

2) manufacturing process steps are reduced

That's not an exhaustive list by far. Labour costs are often a major component, and they go down rapidly when idle time is reduced. Having more workers on a line makes things more flexible in terms of individual downtime (vacation, illness), so situations where productivity is reduced due to absence of critical expertise (assessing anomalous outcomes, fixing machinery) occur less often.

Per unit costs go down when you have longer manufacturing runs. In other words you want full utilization of your manufacturing equipment.

That should have been point 3.

That's how manufacturing works in the real world. Now, without demand increase you aren't going to get more utilization out of your manufacturing lines. So, per unit cost isn't going down.

Again, you're seeing only one side of the coin, and taking a simplified view where something is produced and then sold at a price that is some function of its production costs. That's NOT how pricing works in the real world. In the real world, prices are set by management as part of an agenda that is expected to increase overall profit for the company. For instance, entering a new market, pricing will generally have to be aggressive at a time when prior market research is the only evidence of sales. By your logic, the price of every first unit sold would have to cover the cost of the entire production run, because there is no absolute certainty that a second unit will ever be sold.

So your "lesson in marketing" is an absolute failure because it does not take into account the role of market research, among other things.

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