Olympus abdicating entry level ILS market?

Sergey Borachev wrote:

It's been going on for some time already, the silent war between the dominent DSLR makers and the small MILC makers. While it is true that MILCs can be made cheaper, that relies on everything else being the same, especially on volume of sales or economy of scale. Olympus, and also Panasonic, do not have enough volume and therefore find it tough to recover costs of development. They have to maintain a certain volume even knowing it means over-production and then they have had to resort to fire sales in a shrinking market as a result. So, selling old mid-level models cheap as "entry level" models is killing 2 birds with 1 stone, to clear stock and to reduce development cost and more of the same overstock problem.

Canikon also suffer in a shrinking market but they can with their lower cost of goods sold (due to a larger volume) afford to undercut Olympus and Panasonic with abnormally low prices for their entry level cameras, making sure that the smaller fish to die first if conditions should continue like this. I believe they are doing exactly this, cutting their own profit to make Olympus and Panasonic unprofitable and hence less able to compete with frequent new models all the time like previous years. Market share first. Those entry level DSLR prices are unbelievable and are clearly a strategic move. It's war.

It is important to have entry level models to let the user base grow and let them become enthusiasts later. However the companies have to first survive and at this time, it seems they are trying to drag their feet and hope to wait until the market bottoms out before getting entry level models out.

Sergey --

Your comments are the only ones in this thread that i resonate with, though i would express it slightly differently.  There is no one "cost" for a product from the producer's point of view:  there are two costs.  The fixed cost to develop the product as well as that part of the enterprise costs that are insensitive to scale.  Those costs must be spread over the production volume; the more yah sell, the lower they are.  Then there is the marginal cost of production which is largely, in this market, dependent on parts count.

Mirrorless/m4/3 wins on the latter; its parts counts are from five to eight times less than dSLRs.  But mirrorless sellers -- Fuji, Oly, Panny, almost certainly Sony -- all generally lose money (Oly's recent claim to break even notwithstanding) in their imagine divisions in recent years.  The volumes simply can't cover the pro rata fixed costs, even with dramatically lower marginal per unit costs.  This will hold true as long as Canikon volumes are so dramatically higher than mirrorless.  Thom Hogan points out that he has been surprised at how LOW mirrorless sales are fully five years into the m4/3 "revolution."

So as long as dSLR sales hold up mirrorless in general loses in this cruel arithmetic, and Canikon will continue to be able to profitably sell dSLRs at much closer to marginal cost while undercutting m4/3 prices.  Life isn't fair; poor Oly.

But dSLR sales will hit household saturation shortly; it has happened multiple times in camera business history.  The younger generation isn't all that impressed with dSLRs either.  And there is that huge marginal cost advantage to mirrorless.  So it is understandable that the players will stay in the game.  But it seems inevitable that some will drop out.  I expect Panny to buy Oly for example.  Sony's corporate strategy is a cipher to me; that is one reason i have avoided buying one.  Fuji may be able to keep their botique marque.  We shall see.  Good fun.