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[OM] Re: Home Run

Subject: [OM] Re: Home Run
From: ScottGee1 <scottgee1@xxxxxxxxx>
Date: Fri, 15 Sep 2006 23:22:04 -0400
This goes to the essence of my original question.

I really want to have a better understanding of how products get
priced.  Thanks for the details and insight.

Contax/Kyocera learned some hard lessons that eventually drove them
out of the camera business.  The 'G' system was originally offered at
Leica-like prices but very few folks ponied up the $$ so the prices
continued to fall.

Of course, Leica kept prices high and we know what happened there.

At this point, I'd say the M8 reads well, but then that has been true
of Leica's other digital offerings.  I've used a few and have been
impressed with none of them.  Of course those were Panasonics with
Leica badges.  No idea how much success Epson has had with the R-D1
but they apparently convinced Leica that the concept was viable.

ScottGee1


On 9/15/06, Moose <olymoose@xxxxxxxxx> wrote:
> ScottGee1 wrote:
> > $5600?
> >
> > A question for those of you familiar with manufacturing processes.
> >
> On the cost side, it's really research, development, tooling and
> manufacturing costs. On the accounting side, assumptions about product
> life and number of items produced are determinants.
> > Is there anything inherent to this new product that justifies the
> > asking price of the M8?
> >
> The previews say that, although it looks a lot like a modified M7, it is
> an entirely new product, designed and built from scratch. It also
> includes some entirely new technology, like the pixel lenses with
> varying offsets. That means huge R&D and tooling expenses that must be
> amortized over a relatively low number of bodies produced.
>
> Beyond that, planned volume of production has a significant impact on
> tooling and production design. If you are going to sell 10 million of
> something, $1 million spent on automation of production of some piece
> adds $0.10 per product cost. If production is 1 million, it adds $1 of
> cost. If production is planned at 100,000, it adds $10. If a skilled
> technician and non-automated equipment can turn the part out for $6
> apiece, that's how you set it up.
>
> So low volume specialty/niche manufacturers tend to have a lot of
> skilled labor component in their costs. This is to their advantage from
> a marketing standpoint, as they can advertise the hand made aspect of
> their product, even when it is that way for hard-nosed cost reasons.
>
> If Leica could realistically plan to sell 5 million M8s over 5 years,
> they could probably sell it for something like $700, maybe less. If it
> was an even greater success, and the first 5 million sold in 2 years,
> they could probably start selling them for $400 after that and make more
> profit per camera than on the initial run at $700 - or keep selling for
> $700 and smile all the way to the bank.
>
> The thing is, though, that there isn't a market for millions of M8s, at
> almost any price. Put in your local Costco at $500 and try to sell a
> camera where you have to squint through a little viewfinder and line up
> overlapping images by hand, and can't see what you are taking on the
> back before you take it, and you won't sell any.
>
> Then there's Leica's existing image, market and intentional market
> placement. Even if they could sell it for less than the M7, there is no
> way they would. But you only asked about non-marketing aspects of the
> cost to manufacture it.
>
> Moose

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