Product Mix and Profitability

As camera manufacturers release their quarterly financial reports it is instructive to look for comments about product mix and profitability. Shifting a company’s product mix is an important strategy to increase average per unit contribution margin and potentially increase related profitability.

NOTE: Click on images to enlarge. Photographs have been added to serve as visual breaks.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 300 mm, efov 600 mm, f/6.3, 1/2000, ISO-500, Pro Capture H, subject distance 2.2 metres

In its latest financial report covering its Second Quarter 2021 Nikon Corporation made some interesting comments on pages 4, 24 and 25 about its imaging division. Specifically on page 4 the following three comments were made…

  • Sales strategy focusing on profitability. Increase profitability by improving product mix and reviewing sales policies.
  • Direction for product planning and development. Focus on high-end models for pro/hobbyist. Differentiate with large mount lenses.
  • Enter new fields including BtoB. Actively leverage image processing, sensing technology etc.
OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 194 mm, efov 388 mm, f/7.1, 1/3200, ISO-1250, Pro Capture H, cropped to 4326 on the width, subject distance 2.5 metres

As the camera market continues to contract these are prudent strategies for Nikon to pursue in order to create a sustainable business model for its imaging products business. We can expect to see other camera manufacturers also adjust their strategies in a similar manner. For example, OM Digital Solutions has already made similar statements about their intentions with regards to its future product mix and product development strategy once it takes over the Olympus Imaging division.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 300 mm, efov 600 mm, f/7.1, 1/3200, ISO-1600, Pro Capture H, cropped to 4304 pixels on the width, subject distance 4.7 metres

The implications of these strategic shifts will have some predictable impacts on photographers. The most obvious one will be that the number of low priced, entry level camera models will be reduced. In some cases manufacturers may decide to eliminate their lowest priced cameras from their product mix altogether. The mid-range cameras of today, may be the lowest priced cameras of the future.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 300 mm, efov 600 mm, f/7.1, 1/3200, ISO-3200, Pro Capture H, cropped to 4457 pixels on the width, subject distance 4.7 metres

It is likely that the suggested list prices of cameras and lenses will continue to rise as manufacturers try to squeeze as much contribution margin as possible from each unit sold. Should promotions be needed to periodically stimulate demand, higher suggested list prices would form a new price baseline from which discounts would be offered. This may help mask rising retail pricing to some degree.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 300 mm, efov 600 mm, f/7.1, 1/3200, ISO-2000, Pro Capture H, cropped to 3817 pixels on the width, subject distance 6.6 metres

Research and development funding will be directed to more expensive, higher margin products. This would logically lead to some rationalization of products.  Low volume, low margin camera models will likely disappear. Whether this shift in R&D would also lead to specific manufacturers discontinuing product categories such as DSLR models, or focusing on one sensor size camera system like full frame, remains to be seen.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 300 mm, efov 600 mm, f/7.1, 1/3200, ISO-3200, Pro Capture H, cropped to 4196 pixels on the width, subject distance 6.4 metres

It will be interesting to see if individual camera manufacturers will be able to profitably sustain their multiple product lines that are based on the use of different sensor sizes. As camera market volumes continue to fall, the customer mix will look like the 1970’s again (i.e. professionals and enthusiasts with discretionary money to spend). As this reality takes hold some tough business decisions will need to be made in terms of which products to maintain into the future.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 300 mm, efov 600 mm, f/7.1, 1/3200, ISO-2000, Pro Capture H, cropped to 4112 pixels on the width, subject distance 4 metres

Product differentiation often goes hand-in-hand with a strategic shift in product mix towards higher end products. This could benefit photographers as camera manufacturers ramp up their R&D efforts to cater to the needs of niche market buyers and bring out more innovative products for them. There is a corresponding downside as these more specialized cameras will likely cost more.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 164 mm, efov 328 mm, f/7.1, 1/3200, ISO-2500, Pro Capture H, cropped to 4886 pixels on the width, subject distance 2.5 metres

From a business sustainability perspective shifting the product mix towards higher end cameras and lenses will be a strategy that most companies will need to employ. They will need higher contribution margins per unit sold in order to cover their fixed costs when selling fewer cameras and lenses overall.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 300 mm, efov 600 mm, f/7.1, 1/3200, ISO-1600, Pro Capture H, cropped to 3863 pixels on the width, subject distance 4.7 metres

One can speculate how this shift towards a higher-end product mix will impact the camera market. Worst case, will it serve to drive more photographers out of the market? Will the replacement cycles of camera gear lengthen as buyers stretch out the time frame of their photographic investments? Will folks who are still buying dedicated cameras be willing to spend more money to purchase higher end products that offer them more features and better performance? The answers to those questions will be revealed over time.

Technical Note

Photographs were captured hand-held using camera gear as noted in the EXIF data. Images were produced from RAW files using my standard process. Crops are noted where applicable.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-20 teleconverter @ 164 mm, efov 328 mm, f/7.1, 1/3200, ISO-2500, Pro Capture H, cropped to 4886 pixels on the width, subject distance 2.5 metres

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4 thoughts on “Product Mix and Profitability”

  1. I wonder how much computational photographic capability OMD can put into their machines without infringing on copyrights or having to pay royalties? I doubt that Oly will develop a software department.

    1. Hi Lewsh,

      It would appear that the Olympus Imaging division is already leading the industry with internal camera processing with features such as Pro Capture, Live Composite, Live ND, Handheld Hi Res, AI subject recognition of motor sports/trains/planes and soon to be added bird recognition. I think this is a core competency that can be leveraged into the future.

      Tom

  2. As you note, dedicated cameras, as distinct from smartphone cameras, have become a declining “niche” market. I suspect that stand-alone cameras will become like vinyl in the music industry and like typewriters in the office equipment arena. The only positive I see is that new sensor technology will become a consideration separating camera companies — but only if Sony doesn’t come to monopolize the sensor market. As for Olympus, like the Nikon One, it’s dead. It will survive, like Vaio (from Sony, which JIP owns), only as a couple of OM-D offerings exclusive to the Japanese market.

    1. Hi Bill,

      We have different perspectives of the future… but that’s life! 🙂

      As far as VAIO goes, my understanding is that it was repositioned as a business-to-business brand and apparently is profitable. The company also has a custom design and engineering service called EMS which does custom work for a range of B2B manufacturers. Some of the engineering and design expertise at VIAO may be able to be leveraged by OMDS.

      If my memory serves the largest global market for Olympus gear is Europe, followed by Japan, Asia, and then North America. So, I don’t see OM-D and M.Zuiko products retreating to just Japan.

      As far as OM Digital Solutions is concerned I have a more optimistic perspective. I think there are some niche markets like birding, nature, motorsports, and travel that are very well suited to the computational technology, weather-sealing and IBIS performance that OM-D cameras bring to the market. These are also markets where sensor size is less of a point of differentiation. There is a growing number of professional wildlife photographers of note who have switched to Olympus gear. Award winning nature photographers like Andy Rouse and Petr Bambousek to name a couple of very high profile pros.

      As OMDS develops more computational photography capabilities I think sensor size will become less relevant as a point of differentiation. I also think that smaller lighter gear will become more popular as the average age of photographers increases. 🙂 Time will tell how all of this plays out.

      OMDS is taking some immediate steps to shed some fixed costs as seen with the recent closing of Olympus Malaysia and the appointment of a dedicated distributor owned by the leading camera retailer in the country. I think we will see OMDS move forward on a number of fronts to ‘right size’ the camera business and dramatically reduce its fixed costs.

      On a personal basis, I’m waiting for my M.Zuiko 100-400 to arrive which will complete our Olympus kit. At that point our camera gear needs we will be met for as long as we stay in the business. For what we need for our business and personal work, there is nothing that comes even remotely close to meeting our needs better than Olympus.

      Tom

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