Leica USA Policy -- July 1

[steve_york1]

I've heard through the grape vine that starting July 1 Leica USA

products, at least, bodies and lenses, but I suspect everything, will

only be sold at MSP. That means the bodies which are now advertised

at anywhere from $2650 to $2900 will cost $3300.

 

I can't understand the purpose behind this move. The effective

higher prices will further kill sales. It will not stimulate sales

with local dealers, because users will more likely buy out of state

to avoid sales tax. And it will further promote the transactions in

grey market goods.

 

I know one of you out there knows the answer to why Leica USA is

doing this.

[ronald_moravec1]

Years ago there were fair trade laws whick allowed the manufacturer to set retail pricing. Central Camera in Chicago sold some equipment for les and Leica came in and picked up all the stock, scrapped the decal off the door, and pulled the franchise. In the 1960`s if you bought something, you got a less than sticker price, but the receipt showed a fictious trade-in that did not exist.

 

 

Please read the partial E mail I sent this AM. This is highly illegal and the Leica Historical Society will intervene just as they did with the replacement parts business to independent repair people about a year ago.

[eric friedemann]

Leica execs have always competely ignored the basic economic concept of the price elasticity of demand, instead taking the position that, as Hemmingway said of pheasant hunting, Leica gear is worth what you have to pay for it:

 

 

http://www.quickmba.com/econ/micro/elas/ped.shtml

 

 

Leica should be cutting prices and demanding wage and benefit reductions from its workers. If Leica does raise its prices it will be going further in the direction that has helped run the company to the verge of ruin.

[steve_york1]

Yes, I wondered if it was illegal. It may be that Leica USA will prohibit "advertising" below MSP, which I know is a practise used by many manufacturers.

 

Sorry, did not know there was already a thread on this issue.

[steve_york1]

But the advertising limitation would also probably run afoul of legality absence a contractual agreement with the retailer.

[la]

Talked to a Leica rep at Samy's in LA Thursday, May 26 and he told me to buy before July 1

as there will be a price increase.

[zeos_386sx]

Mr. York,

 

How reliable is your grapevine? This rumor doesn't make sense.

[gene_e._mccluney]

Leica might possibly impose a MAP (Minimum Advertised Price), as most Japanese makers

do on their hottest selling products, but it is against the law here in the USA for a

manufacturer to force a retailer to sell at a fixed price.

 

You all have seen the camera ads where they say "call for best price". This is the way

around the MAP. Perfectly legal. If I were a "Spudflex" dealer and the "Delux Spudflex"

sold at wholesale for $899.00, and I chose to sell them at retail at a loss for $599. There

is no legal reason why I couldn't do so, even though I might not be able to legally advertise

in print my sale price.

[bobatkins]

I'm sure it's just a way for Leica to make the end come faster. Why suffer more than you have to? However I can't quite see why they'd just shoot themselves in the foot. In the head would be quicker and ultimately less painful.

 

The only possible explanation (other than lunacy) might be that they are going after the sucker market who think that anything more expensive and harder to get is better. Maybe they'll ramp up the price steadily until they hit the break even point. Ultimately it's less expensive to sell 100 cameras for $10,000 each than to sell 1,000 cameras for $1000 each assuming they are the same cameras.

[john_shriver]

Yes, "Fair Trade" was declared illegal in the US years ago, by the Supreme Court. (I have literature from Charles Beseler Co. to dealers from that era, about what they were doing to try and "solve" the demise of "Fair Trade", and protect the dealers from competition.)

 

But, large manufacturers have since found a way around it. Ever notice how consistent "street prices" are for things like Epson scanners? Or ink cartridges?

 

If, as a retailer, if you want "cooperative marketing dollars", you can't advertise a price below the street price the manufacturer sets. This money is used to advertise the "brand" (say, Epson), through the retailers advertisements. Ads are pretty darned expensive, so US "big box" retailers like Best Buy, Circuit City, and the like, honor the street prices, and get the cooperative marketing dollars.

 

Amazon is often willing to forego cooperative marketing payments, so they sell lots of items below the street prices. Some prices are low enough that they still play games, and you have to put the item in your cart to see the price.

 

Leica, of course, doesn't have diddly money to pay for cooperative marketing dollars. So they really don't have a very strong stick. Dealers avoid their rules anyways by declaring "new in box" items as "demos".

[stuart_richardson]

I also heard this from a reliable source. I guess it just means more business for the parallel

importers...Tony Rose, Joseph Yao, Adorama and B&H etc. It seems insane to me, since it

is only going to hurt the regular stores and the uninformed buyer. To be honest though,

with the internet so easily accessible and these purchases being so large, I am at a loss as

to who would be willing to pay over a 1000 dollars extra on a lens or a body just so they

can get it from a local dealer. It boggles the mind. The service that the national dealers

and parallel importers give is top notch, and it is easy to return if there is a problem. Even

people who could theoretically afford the difference have no real incentive to ignore it. I

mean, even Bill Gates wouldn't flush 1000 bucks down the toilet for no reason! I really

think Leica USA is making a huge mistake here. They are marginalizing their market even

more. The only people who will be buying at full retail will be either deluded or

uninformed.

[wai_leong_lee]

There is one and only one reason-- the weak US$.

 

On a more general note, I see nothing wrong for a company to increase price per se, whether it makes economic sense depends on how Leica has read the market.

 

Elasticity for Leica products is not a straight line, you will not get a 20% rise in sales by a 20% drop in price. In fact, you may get anything from a drop in sales to maybe a slight increase. Luxury goods create demand around their high prices and high perceived quality-- if you drop the price too much, the quality image suffers immediately and bang!-- you're off the buying radar of the rich and famous and you may never come back. Who ever heard of a cheap Prada bag? Or a cheap Tiffany diamond?

 

We are so used to declining real prices, eg prices of PC's that drop every three months, that we think it is the norm for prices to drop over time. Well, that applies to some goods where productivity and scale economies increase over time, but it doesn't apply in many cases (eg legal services, property prices, etc) and certainly not when labour content is high for hand made items (like Leica cameras).

 

I also can't imagine Leica selling $1,000 M7's, and I'm sure all those who bought M7's won't want their resale values to be compromised either.

 

Anyway, the market will decide whether to pay $1,600 for the ZI or $2400 for an M7.

 

What Leica does need is a line of lower priced products-- budget Leicas under $1,000-- that can expand their market presence without compromising their entire luxury image. Sort of like the CL, or the R2/R3a equivalent-- more plastic, more automation in manufacturing, less capability than their top of the line products. They are leaving a lot of $$ on the table for ZI and Cosina to grab, and that's not a good thing.

[Alex_Es]

Could it be that the inflated Euro has something to do with this?

[steve_york1]

But even if Leica dropped their prices, even significantly, they would still be, for the majority of users, very expensive. So I don't think the "raise price to maintain perceived quality" theory applies here, although I understand and appreciate the theory well enough.

 

I believe there is a market out there of people, like myself, who are largely using older Leica products who may be inclined to upgrade if prices were somewhat lower.

[david j.lee]

wai-leong: i am not an expert, but i think you make perfect sense. ( what is

your line of work,by the way...?)

[mark_theken]

Leica USA is making a unilateral move to survive. Every Leica user in America benefits from the presence of Leica USA including every person that has never supported Leica USA through the purchase of products imported by Leica USA.

[icuneko]

<$2650 to $2900 will cost $3300. I can't understand the purpose behind this move.>

 

 

It's similar to addiction mentality: Just a little more can't hurt me. Then

comes the OD.

[thomas_majevszky]

no answer, but maybe good to know:

now the price of mp/m7 in europe (e.g. germany) is 3.250 euros, which is the equivalent

of something like 3.900 us-dollars. a la cartes start from 3.450 euros (ca. 4.100 euros)

that means current us prices are making ms really a bargain...

[bill_thorlin]

It is either a form of reverse logic that I am unable to comprehend or the inmates are running the asylum or it is "Deathwish 2005".

 

I thought I had some idea of economics and the business world but if this report is true then I am obviously way out of touch.

[michael s.]

Sorry, but the legalities surrounding minimum resale price policies in the US are nowhere near as cut and dried as some comments above have suggested.<p><p>

 

On the contrary, I believe it is possible for a manufacturer (such as Leica) to develop and enforce a minimum resale price policy without running afoul of US antitrust laws. It is also possible for a manufacturer to create and/or enforce such a pricing policy in such a way as to violate US antitrust laws. As is often the case, the devil is in the details.<p><p>

 

Those interested in a detailed discussion of the question could have a look at <a href=http://www.freebornpeters.com/docs/publication/DFD4AFF1-F509-4715-A828-BA99492DB562_document.pdf#search='minimum%20resale%20price'>this article</a>. It's a reprint of a Summer 2003 article that appeared in "Antitrust," a publication of the American Bar Association Section of Antitrust Law. (I have no connection to the authors of the article.)

[eliot_rosen1]

They may try to enforce a policy that just won't be enforceable. In fact, all Leica USA can do to a dealer that does not comply (and there have been many over the years) is to remove them from the list of Leica USA dealers. Since dealers make relatively likely money on new Leica anyway, it probably would not have a big impact. Dealers basically need to move merchandise quickly to survive, so they are willing to reduce the price if an item isn't moving at the higher price, even if it means a reduced profit.

 

The pity of it is that most Leica dealers make much larger and sustainable profits on used Leica, where they don't have to worry about running afoul of Solms or Leica USA.

[kevin_mcdonald1]

Sounds like an MAP move to me, and actually makes some sense from a Hermes/luxury goods perspective; make the internet discount less obvious and get the customer to the local dealer for the full luxury purchasing experience.

 

Simply a product placement decision.

[gib]

apparently the votes against the EU constitution in France and the Netherlands are driving

down the Euro's value.....would this have any effect on Leica pricing in the US.

[socke]

Just a minute, I'm a mere BScEcon so may not understand that fully.

 

Leica sells cameras at a loss, so they should reduce the price to sell more and thus reduce the loss?

 

So far so good, but economies of scale won't work on a Leica. This works with a polyurethan body on a dicast alloy frame assembled in Taiwan or mainland china.

 

Even DaimlerChrysler realized that production numbers aren't everything and a name alone doesn't sell crap at a high price!

[socke]

"Leica should be cutting prices and demanding wage and benefit reductions from its workers."

 

Eric, they could outsource to mainland china where the great seagull cameras were produced.