[Leica] Re: Negative price elasticity

[Frank.Dernie at btinternet.com (Frank Dernie)]

Hi Larry,
I am pretty familiar with the strangeness of the art market and the  
effectiveness of raising prices in tempting punters. I think most of  
Leica's high price is down to production volume rather than boutique  
marketing though. Canon sell so much product that the R&D design and  
production costs are close to negligible per item. Leica sell so few  
that even though the manufacturing method is so relatively costly a  
large proportion of the price will be a share of the R&D and design  
cost.
It is not the ideal comparison but it is data I have which puts the  
numbers in perspective. Leica made a total of 5000 DMR modules during  
its production run (and I wish I had bought one) Canon produce over  
250,000 EOS 350Ds per month. I know an EOS 1D* quantity would be more  
appropriate but I don't have it.
cheers,
Frank

On 31 Aug, 2007, at 17:59, Lawrence Zeitlin wrote:

>
> On Aug 31, 2007, at 7:29 AM, Didier wrote:
>
>> I dont think much about those inexpensive and slow kit zooms, if  
>> from Panaleica, Olympus, Nikon, Canon or whoever. If the body  
>> costs only $100 less without kit-zoom, one may imagine at which  
>> cost these lenses are produced. You get what you pay for.
>
> Don't buy into the "You get what you pay for" canard. The price of  
> a product has relatively little to do with its cost of production,  
> save only that the product not sell for too much of a loss. In  
> general, the actual production cost of most manufactured items,  
> cars, cameras, or cookies, averages about 20% of the retail price.  
> What you pay is dependent primarily on the distribution system, the  
> number of markups prior to reaching your hands, and the actually  
> demand for the product. For products whose actual performance can  
> only be judged by experts (i.e. Leica lenses), consumers often use  
> price as a surrogate cue to quality, believing, as you do, that  
> "you get what you pay for." The less certain you are in your  
> judgment, the more likely you are to regard price as an index of  
> quality.
>
> 'Taint so. Leica branded lenses on Panasonic products cost just as  
> little to make as lenses on competing brands that don't carry a  
> distinguished German name. In film camera days, Canon and Nikon  
> both supplied normal lenses at one tenth the price of competing  
> Leica lenses. Were the Leica lenses any better? Perhaps, but not  
> ten times better. Some fairly rigorous reseach at the time showed  
> that quality difference were almost inconsequential in normal use.  
> Leica kept their prices at the high end even after they were well  
> into the learning curve and production equipment had been fully  
> amortized to bolster the brand's image.
>
> Indeed, marketers are so sure that the public regards price as an  
> index of quality on luxury items that they often increase the price  
> to raise the brand image in the public psyche. Loreal's "It costs  
> more but I'm worth it" was lauded as one of the most effective  
> marketing campaign slogans in the cosmetics industry. For most  
> necessary items, lower prices mean greater sales. For luxury items,  
> raising the price often increases sales. Negative price elasticity  
> reigns.
>
> Case in point. My wife and I are friends of the owner of a major  
> art gallery in NYC. The gallery specializes in "psychiatrist  
> modern" paintings - the type that a wealthy psychiatrist's wife  
> buys to hand on her husband's office walls. These run in the  
> $10,000 to $20,000 range. If a painting doesn't sell in a few  
> weeks, the owner of the gallery raises the price by $5000. A  
> visitor to the gallery often says "That painting was only $15,000  
> last week. Today it's $20,000. I'd better buy it before the price  
> rises again." Every one is happy. The owner because the painting  
> was sold. The buyer because she got an item that she felt would  
> appreciate in value. The artist because he or she got a few  
> thousand extra.
>
> Remember only that the price of most luxury products, lens, camera,  
> or Tilly hat, depends on the buyer's willingness to pay. It has  
> very little to do with inherent quality.
> Sorry about that.
>
> Larry Z
>
>
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