[Leica] Price and quality

[lrzeitlin at gmail.com (Lawrence Zeitlin)]

Frank writes:

Now Garrard priced everything on a cost plus profit basis, unlike the
competition which sold on the "what can we get for it after a favourable
review" basis ;-).

The assembly was re-costed and a new retail price calculated about 70% IIRC
more than it had been. Orders surged at the new price.

This taught me that often a higher price makes things more attractive even
with no change in the product.

BTW the production cost of these and other mass produced items, like cars,
tends to be about 10-20% of retail BTW.

- - - - -

Frank gives a good example of what is known as negative price elasticity in
the marketing community. Normally when you reduce the price of a product
sales increase. But for some luxury products like jewelry, cosmetics,
cameras and, in this case, hi-fi gear, the reverse is true. People see price
as a cue to quality. Therefore the higher the price, within reason, the
better the quality and the more desirable the product. The best example of
this is cosmetics. The manufacturing cost of most cosmetic products varies
within a range of 3 to 1 yet the sales prices range from 50 to 1. The higher
the price the more desirable the product and the greater the sales. One of
the best cosmetics advertizing slogans of the last several decades was "It
costs more but I'm worth it."

Leica, as a luxury product, has often touted its meticulous hands on
production by Black Forest elves as a justification for higher price when,
in fact the main reason for reason for hand assembly is that the volume is
insufficient to support modern automated equipment. Hand assembly and
adjustment in an expensive labor market invariably means higher prices.

One of my wife's friends, a New York art dealer specializing in French
Impressionist art, has a winning strategy for selling paintings. If it
doesn't sell within a few months of being shown in her gallery, she simply
raises the price. Every few months she boosts it again. Eventually her
customers, mostly psychiatrists wives, notice that the painting is
increasing in price, obviously indicating higher quality, and hasten to buy
it before the price gets beyond reach. Does that remind you of a $7000 M9?

I'm not going to argue the question of ultimate German vs. Japanese vs.
Chinese vs. Korean quality. Optics is a mature art. Computer calculation and
specialty glass makers have leveled the field. Electronics firms provide
components for all. Good, even exceptional, products are made in all
countries. One of my clients in the USA made some of the highest quality
optical products ever produced for use in spy satellites. But it stands to
reason that if you are going to make a product with a considerable labor
component in an expensive labor market the market price will be higher.
Leica has managed to convince many photographers that high price invariably
means high quality. It's simply good marketing taking advantage of negative
price elasticity. It costs more, but we Luggers are worth it.

Larry Z