[Leica] "A little less Leica" [long]

["Greg Bicket" <GBicket@email.msn.com>]

Hi Jim,

I won't pretend to know what others mean by this, but what I can relate to
is the immense, occasionally excessive "pride" takes in itself in terms of
the cost/value of their products.

I just attended the LHSA here in Denver, and marveled at the commitment and
the quality built into old and new Leica products.  It is exceptional, and I
know of very few companies which comes close in the craftsmanship of Leica.
I do place a value on owning equipment crafted at a company which deservedly
takes pride in its products, and further honors its products and itself by
servicing and supporting products it made decades ago.

At some point however, the law of diminishing returns kicks in, and that
last 10 or 15% of clear Leica superiority costs 50 or 100, or 200% more than
very good stuff.  I want that difference, that excellence.  And I get it
from Leica, albeit at a disproportionate premium in price.  At some
difficult-to-determine-price-arithmetic, Leica's pride in itself and its
products risks conceit.  Not that I disagree that the price between very
good and excellent is often disproportionate, Mercedes and BMW are other
good examples.  But these examples are only 20 to 50% higher than "good"
alternatives.  With Leica, that last measure of excellence sometimes costs
way too much.

I pay the difference because I insist on incremental, visible, tangible
quality delta Leica provides.  But I don't think it's a good buy, I don't
think it's a good value---I just can't get it any other way.  The reverse of
the formula, less quality [which is insufficient for only a small segment of
the market] for far less currency is just not a satisfying alternative to
me.

Anyway, that's what the comment about wanting a little less Leica means to
me.  Reducing prices, and bumping up the cost/value equation in Leica's
pricing will introduce it to a greater portion of the market who know of,
and believe in Leica quality, but cannot rationalize [or afford] the current
formula.  There is a larger group who will pay for Leica products at lower
prices.  The burden of Leica's growth obligation to its shareholders can be
borne by a larger segment of the photographic equipment marketplace.

There is a fine line between a manufacturer's pride and conceit in pricing
its products.  Leica has gone over this line more than once.  Not that it
had any choice; at its production volume levels, pricing had to be such that
it created enormous per unit profit margin.  This is where the cost/value
formula disproportion hits.  I believe the niche in the market willing to
buy the best regardless of price is dangerously small in the context of
Leica as a new public company with shareholders focused upon growth in price
per share.  Public companies per share price grows, or shareholders opt for
more rewarding alternatives.  When this happens, share prices fall, and cost
of capital rises, placing even greater pressure on profit margins and
pricing.  Growth is the essential survival element of public companies.  It
is enormously difficult to grow by serving such a tiny segment of the
photographic marketplace.  Customer unfriendly pricing is the direct
offspring of serving a small market segment.

My thought is not that Leica should compromise its products, but rather face
up to the realization that its changed financial structure demands growth,
and the way to get to that growth is through thinner per unit margins and
larger net cash flow produced by far greater volumes of products sold at
relatively lower prices, to a far larger market segment.

It can be argued that the art that Leica produces cannot be produced in
larger volumes while sustaining quality.  It can be argued that art cannot
be produced in volume, period.  In that case, Leica has made a potential
blunder by entering the arena of public ownership, should quickly
restructure itself financially, or face the prospects of takeover.  Even
this doesn't have to be fatal.  Ferrari has thrived under Fiat ownership.
It would not exist without Fiat's support.

But as currently configured, I believe Leica should quickly rethink its
pricing policies.  Leica should [must] remain at the high end of pricing
amongst similar, competitive products.  I think Leica can and should seek to
widen the market segment it serves through pricing which will appeal to more
buyers.  Advances in technology should focus on quality in the Leica context
and at costs and volumes which will appeal to a wider audience than Leica
has historically.  I believe Leica should sell to its wholesalers at one
worldwide price, and offer its Passport protection for all of its products.

Leica's most important asset is its quality.  Quality is a tremendous tool
in enlarging market share in a fashion which produces ample return on
investment, and shareholder value.  Leica's quality, if it can be sustained
at higher production volumes, could prove to be the deciding factor in its
survival as an independent entity.  Many complex factors are intertwined in
making all this happen, and lots of rethinking will have to happen fast.
And it's not the kind of thinking which produces a TTL camera with a 1/50th
of a second flash sync for more than U$2,000 retail.  Developmental, yes,
but not based in real world context, and with a sliver of a sliver for
target market.  This product should have been a working prototype, part of
developing and releasing an evolutionary next M camera.

Jim, didn't mean to be so long winded.  You have been a source of much
pleasant Leica learning, and this is an issue which Leica's new financial
structure requires it to address fully and quickly.  You have a voice with
them.  I want Leica to succeed, I believe it can.  But Leica has thrust
itself into an unforgiving new arena.  To survive, Leica must quickly
redirect its energies in the context of Leica's new financial realities.

I eagerly await signals that they are doing so.

Enjoy the light.

Greg Bicket