Revisiting the Leica M9 vs the Leica M 262 at overgaard.dk

[A miller]

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You really lost me here.

The M240 is end of production and the price is what it is. Expect some cashback scheme in the near future, that is what Leica has always done to clear remaining stock.

As a continuing cheaper 240 type camera we will have the 262 for the coming years, and we will have a new model, at a pricepoint which will possibly be similar to the current M240, but that is obviously not yet known.

I am just very simply drawing a comparison to the M-E, which was the same exact camera as the M9 and $2K cheaper.

So we are saying that it is only there stripped features that justify the lower price?  What about the M60? 

[gpwhite]

My take was that Thorsten was commenting on using the cameras to take pictures, in general.

If you have ever worked with him, it is readily apparent that Thorsten does not represent himself as a trusty megapixel inquisitor, . He is a photographer (with an artistic weakness for hats)!

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[jaapv]

I am just very simply drawing a comparison to the M-E, which was the same exact camera as the M9 and $2K cheaper.

So we are saying that it is only there stripped features that justify the lower price?  What about the M60? 

Limited editions have nothing to do with this.

The stripped versions probably cost the same to build as the fully featured ones.

This about selling cameras. Take a camera model where the R&D has been fully amortized - put it on the market more cheaply to boost sales, but make it lower specified to protect the value of the main model.

 

The 262 is very intelligently done as it does not only appeal by its lower price, but also caters to a wish for "simplicity" by a group of customers.

[lm_user]

I do not understand the references to Leica's costs and price. Some think R&D has been amortized - so now they can lower the price.... Or costly features have been removed so now they can lower the price.... I hardly think Leica uses a cost plus pricing strategy.

 

Leica prices their products at whatever the market will bear to maximize profits.

[Exodies]

If that was the case, the price would fluctuate with demand but it's actually very stable.

[Bill Livingston]

I often wonder why people think that if R&D has been amortised then the product is generating only profit.

 

The total sales of Leica has to pay for the total overhead of EVERYTHING the company does, from R&D, design, manufacturing, staff, salaries, production costs, light and water... I could go on almost forever... and then on top of that you have investment for the future, both in terms of product development and even pure research with no 'end product' yet defined and then there is contingency and so on...

 

Manufacturing and selling is not as simple as paying for the materials and the initial investment... and all successful products effectively subsidise those that are either less successful or are clearly aimed at a very small, but very necessary, customer base. Success for a product is measured against its sales forecast, and cannot be purely return on investment... so for one product the target could be 500 sales per year and another, several or even tens of thousands... with both products being important to the company in terms of market sector or profile.

[jaapv]

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Yes - but the things that were removed from the specifications cannot make more than a few dollars difference in the price of the 262. The aluminium top, that could be cheaper to produce than the brass one, but again, the difference cannot be more than say 100$.

The only thing that does make a difference is indeed the R&D, and for small-run products for a company like Leica that is a considerable part of the overhead per product. The production runs are clearly calculated for only a few years, the expected sales are usually set low, so yes, after R&D has been written off it can be taken out of the cost per unit. (Which, as you rightly point out, consists of many components)

[Bill Livingston]

Yes, but very few companies actually log direct R&D costs to a project (some do, for some direct and unique elements, especially if they have ISO 9001:2000 certification, which is basically a quality management system). But R&D costs are rarely calculated for a project individually, especially as the R&D involved will be across many different projects and products. Especially so in the case of a small company like Leica.

 

Simply removing R&D costs from the many costs that go into a product would be nigh on impossible and would be very small in percentage costs of BOM and direct manufacturing cost anyway.

 

There are many other ways of reducing both BOM and manufacturing costs though, R&D elements are probably the least efficient.

 

It makes a simple and attractive story, but it is naive in the extreme.

 

Far more likely to be a ROI calculation of the entire project and then a marketing input on sales v sustainable internal margin reduction.

 

It is a very simple process, if sales start to decline from the conventional bell curve, which they inevitably do, you either add variation, or reduce simple materials cost and use that as an excuse for a lower price point far in excess of the actual saving in real terms, in order to extend the sales life prior to the launch of the replacement product.

 

In other words, its a marketing initiative with the thinking being that increased sales with a smaller internal margin is better than declining sales with the original (higher) internal margin.

 

Standard practice. We are doing precisely that with a product due for replacement later this year. Sales have increased worldwide, but at a lower internal margin, but revenue on the product is up, as are the numbers of end user customers who will hopefully become long time users of other of our products in the future.

 

By doing it this way, you generate extra sales, can have a price reduction greater than the actual real saving and just run the end of the product life cycle on reduced margin until the new product appears.

 

If you get it right, you gain sales and enhance the company's credibility and produce a product that potential customers who either couldn't afford the original iteration (small number at this level) or who chose not to buy it because there were elements they did not like or find a use for (in this case, a potentially higher number). 

 

Overall, you get a product that looks like exceptional value... nothing better than that to increase end of life sales.

 

I think the 262 is an almost perfect example of the ideal EOL cycle for the original M240. Great camera and will meet the needs of most, more conservative M users, and likely to send a useful message to Leica marketing on future products too...

Edited December 29, 2015 by Bill Livingston

[lm_user]

Yes - but the things that were removed from the specifications cannot make more than a few dollars difference in the price of the 262. The aluminium top, that could be cheaper to produce than the brass one, but again, the difference cannot be more than say 100$.

The only thing that does make a difference is indeed the R&D, and for small-run products for a company like Leica that is a considerable part of the overhead per product. The production runs are clearly calculated for only a few years, the expected sales are usually set low, so yes, after R&D has been written off it can be taken out of the cost per unit. (Which, as you rightly point out, consists of many components)

 

 

Your response is consistent with my position - the real marginal cost to produce the M262 is almost the same as the M240.   The market will not bear the price of the M240 ( they can't sell enough at current prices ) so they created a lower cost model at a lower price point.   This is pricing / marketing 101.   This has nothing to do with amortizing costs!  

 

If Leica could run the factory at full capacity and sell M240s or M262s for $10,000 each they would do it - regardless of whether the cost were amortized or not!

[jaapv]

Leica is known to work on a per-project basis and is a compartmentalized company. Furthermore  production runs are small, the S was expected to sell 1000 units per year on introduction, the R was dropped because R&D would drive the price per unit too high to be competitive.

I don't think business models of large firms can be applied to a firm that is to all intents and purposes, little more than a cottage industry.

[lm_user]

Leica is known to work on a per-project basis and is a compartmentalized company. Furthermore  production runs are small, the S was expected to sell 1000 units per year on introduction, the R was dropped because R&D would drive the price per unit too high to be competitive.

I don't think business models of large firms can be applied to a firm that is to all intents and purposes, little more than a cottage industry.

 

 

Jaap - I have no argument with your inside knowledge of Leica.  It is certainly better than mine.   I also know that Leica has one of the best marketing departments in industry - be it large or small...

 

Happy New Year  

[pico]

Aside: I was tempted to write that a good thing about old film cameras is that nothing has really changed the way digital products change BUT film has changed! How depressing that the original Tri-X is no longer.

[lm_user]

Aside: I was tempted to write that a good thing about old film cameras is that nothing has really changed the way digital products change BUT film has changed! How depressing that the original Tri-X is no longer.

 

 

I never had the privilege of using the original Tri-X.  I like the current product - but many respected photographers share your view...

[Overgaard]

I've added a video from Jim Arnold and a link to his blog where he compares M-E and M 262 and offers sample photos from both. 

 

It's very interesting and well made. He expect Leica to sell a lot of the M 262. And he might be right. I expect they will not. And I think that is the exact point of the M 262 and why it hits the right audience, no matter how little or much we feel it is similar to other models: For some it is the dream camera, and I have met especially MM users who like the concept a lot (and who never made the step to M240; or did but never liked the camera). 

 

I expected the Leica M9 to sell a lot but don't think it did. In retrospect I would expect most to get a second-hand M9 if they wanted a M-E. Maybe they did, I don't see a lot of M-E cameras around. 

 

http://www.overgaard.dk/leica-M9-digital-rangefinder-camera-page-19-The-Leica-M8-Leica-M9-Leica-M9P-Leica-M-E-Leica-Type-262-revisited.html

[jaapv]

Jaap - I have no argument with your inside knowledge of Leica.  It is certainly better than mine.   I also know that Leica has one of the best marketing departments in industry - be it large or small...

 

Happy New Year  

Well, I am not privy to their financial structure at all, but I have observed the company for a long time.

[A miller]

The 262 is very intelligently done as it does not only appeal by its lower price, but also caters to a wish for "simplicity" by a group of customers.

Jaap - So on the on hand you have said that the average non-LUF member Leica customer is so oblivious to the nuances of digital sensors that the differences b/n a CCD and CMOS sensors are lost on them; and on the other hand you are saying that there is a (seemingly meaningful) pool of Leica customers who care about the nuances of their digital camera so much that they are willing to overpay to have a camera with less features.  Hmm, you are a good Leica advocate

 

. He expect Leica to sell a lot of the M 262. And he might be right.

Ok, but why will it sell.  Because of its lower price or b/c of the stripped features??

Jaap has already advised us that the 240 and 262 probably cost the same to make.

In which case, I would submit that they would sell more and thus optimize their profit by just reducing the price of the 240. 

[jaapv]

A miller, on 29 Dec 2015 - 17:00, said:

Jaap - So on the on hand you have said that the average non-LUF member Leica customer is so oblivious to the nuances of digital sensors that the differences b/n a CCD and CMOS sensors are lost on them; and on the other hand you are saying that there is a (seemingly meaningful) pool of Leica customers who care about the nuances of their digital camera so much that they are willing to overpay to have a camera with less features.  Hmm, you are a good Leica advocate

 

Is it so strange to cater to two separate groups of potential customers?

[jaapv]

 

 

Ok, but why will it sell.  Because of its lower price or b/c of the stripped features??

Jaap has already advised us that the 240 and 262 probably cost the same to make.

In which case, I would submit that they would sell more and thus optimize their profit by just reducing the price of the 240. 

Upsetting existing customers is never a good idea. One can sell lower if one desires, but the models must be differentiated.

[A miller]

Is it so strange to cater to two separate groups of potential customers?

of course not.  Just like going to Starbucks and listening to people order their coffee...

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Hallo,

Look here: Leica M

[A miller]

Upsetting existing customers is never a good idea. One can sell lower if one desires, but the models must be differentiated.

hmm, but didn't Leica do that with the M-E, which is hardly differentiated from the M9?