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dilbert

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Speculation on why new lenses cost more...
« on: September 29, 2010, 01:17:47 AM »
On the subject of the price of lenses, I wonder how much the change in the exchange rate - vs manufacturing & the product itself - comes into play here.

Unlike the DSLRs that have an active product life span of no more than 3-4 years (professional) to 1-2 years (amateur), lenses stick around for a very long time.

Thus the pricing of the lens needs to be made in accordance with the expected exchange rate levels over (say) 5 to 10 years and for which the current outlook has to be for a weak US dollar (below 90yen.) That plus the increased costs in labor and raw materials.

Although there has been one price increase in Canon lenses during the last 5 years (possibly because of this), it was not very significant and almost immediately followed by rebates which makes me wonder if the market place (in general) finds it easier to stomach a higher price for new equipment than it does for prices to rise.

Thoughts?

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Speculation on why new lenses cost more...
« on: September 29, 2010, 01:17:47 AM »

GavinTing

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Re: Speculation on why new lenses cost more...
« Reply #1 on: September 29, 2010, 05:38:23 AM »
Actually, I believe it has more to do with inflation.

Other electronic goods such as computers (and perhaps even camera bodies) become cheaper to manufacture as time goes by, thus their prices seemingly drop.

However, despite advancements in technology, lenses still take alot of time and materials to manufacture. New lenses increase image quality, but also cost more (or the same) to manufacture.

If the real manufacturing cost remains the same, then inflation plays it's part to increase nominal prices.
If the real manufacturing cost increases, then likewise, the prices would increase.

If the real manufacturing cost decreases... it would still make sense to sell lenses at a higher price. Otherwise, what motivation would Canon have to roll out the new 70-200 2.8II if they couldn't make a higher profit? If they maintained the same profit, they would rather have just stuck with the mark I. Canon is, afterall, a listed company, and a listed company's number one objective is to increase shareholder wealth.
« Last Edit: September 29, 2010, 05:51:33 AM by GavinTing »

dilbert

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Re: Speculation on why new lenses cost more...
« Reply #2 on: September 29, 2010, 07:49:17 AM »
Actually, I believe it has more to do with inflation.

Other electronic goods such as computers (and perhaps even camera bodies) become cheaper to manufacture as time goes by, thus their prices seemingly drop.

However, despite advancements in technology, lenses still take alot of time and materials to manufacture. New lenses increase image quality, but also cost more (or the same) to manufacture.

If the real manufacturing cost remains the same, then inflation plays it's part to increase nominal prices.
If the real manufacturing cost increases, then likewise, the prices would increase.

If the real manufacturing cost decreases... it would still make sense to sell lenses at a higher price. Otherwise, what motivation would Canon have to roll out the new 70-200 2.8II if they couldn't make a higher profit? If they maintained the same profit, they would rather have just stuck with the mark I. Canon is, afterall, a listed company, and a listed company's number one objective is to increase shareholder wealth.

My take on the new lenses is that they're required for the delivery of extra resolution as Canon push the megapixel count further with EOS mount cameras in the next 5-10 years.

But otherwise, yes, I agree...

kubelik

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Re: Speculation on why new lenses cost more...
« Reply #3 on: September 29, 2010, 01:19:15 PM »
dilbert, you're certainly right on the last part (I have no idea about the rest, but I do think both exchange rates and inflation all have to do with it):  a lot of marketing is based on perceived value and expectations.  it's much easier to hike a new product's price beyond what people may think it costs, rather than continually bump up the cost for the same product over time.

while it may seem reasonable from a mathematics point of view, I'm sure consumers would throw a fit when they realize they are paying a higher sticker price today for the same thing they could have bought for less yesterday.  this gets exacerbated in light of the fact that price trends for almost all other consumer goods go the other way -- the longer an item is on market for, the cheaper it usually gets.

Edwin Herdman

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Re: Speculation on why new lenses cost more...
« Reply #4 on: September 29, 2010, 08:49:06 PM »
Other electronic goods such as computers (and perhaps even camera bodies) become cheaper to manufacture as time goes by, thus their prices seemingly drop.
Inflation has almost no impact on the big numbers of electronic goods production.  I'm sure that the staff of any given company looks into it, but you wouldn't price according to it because you've already sold your stock and repurposed the proceeds (dividends for stockholders, campaign donations, corporate junkets, possibly new factories, etc.) by the time inflation could start to take a toll of your sales.  The time frames are too short.  Exchange rates are a more common factor - a company might choose to ship more of its devices to a place where the exchange rate is to their advantage (Nintendo did this temporarily a few years ago; I forget the specifics).  The currently very strong yen helps Japanese importers (meaning, Japanese people who import things) because they buy more of many other currencies with their yen, meaning they get more goods; but the strong yen makes it less profitable to make something in Japan and sell it to a country where suddenly more dollars are needed to equal the same amount of yen from before.  The person overseas doesn't care about this difference, because their currency hasn't really changed value from one day to the next, but the manufacturer does (the purchaser has money to spend on a certain day - maybe they've saved it - but the manufacturer was planning that they'd be able to sell for a certain amount, so a change in exchange rates can be pretty big, bigger than inflation was to the purchaser).  Ultimately, you want to serve all markets, and I don't know of any big reputable company saying "gee, we aren't going to sell to you anymore / we are going to hike your price substantially, because the exchange rate is poopy."  Japanese (and many internationally-selling) companies will try to use diverse currencies, so that when the yen goes up or down they don't find it harder to turn a profit or buy things overseas.  They may take their money from overseas sales, and keep it in that currency, so that the "loss" on the exchange rate may turn into a profit later.  In the meantime the money is still useful, perhaps in arranging shipping or paying other costs in that country.  You get the idea - this is almost like an investment shell game, and if you are big enough, it shouldn't drive your business.  If a company is at all skillful, they will not let their customers even know it's an issue, because that would look unprofessional and bad.

Inflation again, then:

The simple rule for inflation is that when you buy the same exact good repeatedly, the price goes up because of inflation.  Eggs cost a few dollars per carton where they used to be only so many cents.  It's not that eggs are markedly more expensive to produce, or cheaper (though they may be), it's that the purchasing power of your jingle has decreased.  You know - the old saying "a million dollars, back when a dollar was still worth a dollar."  (Or Doctor Evil's grand extortion figure.)  If you bought eggs in 1929, 1935, and today, they would have been about as easy to procure in each era (assuming you had a similar source of income in each period, and especially if you didn't age, which kind of puts a crimp on things).  It usually takes long enough for inflation to affect things that you hope to be able to use your money before it's being affected.

In short cycles, the price of price of computers (and camera bodies - I'd suspect this is true of even film cameras, but certainly of digital bodies) does not drop, seemingly or otherwise, because you are not buying the exact same model.  Unless you are, but are Packard Bell and Compaq still out there selling 486/66MHz PCs and Luggables?  Or even 10-year-old computers?  No, and nobody else sells like models either - yes, Z-80 and 68000 CPUs have been made until at least very recently, and they're cheaper, similar to the eggs, but that's beside the point.  Instead, you are buying the new model which is priced to take the spot of the old one.  From one year to the next year, inflation does not make a major difference in pricing.  (Now, from 2008 There is no market for cameras that have identical specifications with those made ten years ago, partly because manufacturers won't make them, as I will mention below.

About what I called short cycles:  Yes, there's a pile of old computer magazines within my sight with ads inside for the original early 1980s PC / Apple generation, which as we all know were outrageously priced for what you got (just like Roberta Williams and her theory that PC owners were better edu-wait, let's not go there).  If you can wait 10 years between camera purchases, that's great.  This is not the cause of new lenses or cameras costing considerably more in a new cycle compared to recent models.  The prices of new, similarly-placed (entry, top of the line, HTPC and some other new-as-of-2001 categories) computers and cameras seem to me more or less stable in recent years.  Obviously, the industry is relatively stable and mature compared to the late '70s to early '80s.  The difference is most likely mostly in the placement of any product, or its cost.

Kind of a tangent:  Many computer equipment manufacturers have built up massive cash reserves by milking essentially the same production processes for years - as you suggest, they don't cost more (after inflation) to make something now than they made before.  This is not the same as it becoming cheaper, though (because of inflation).  New Intel or AMD CPUs still require a new production process, and they have to retool for that.  Hard drives are maybe five years (or more) from reaching the end of the projected lifespan (apparently recently extended) of the current recording technology, called PMR (heat-assisted recording is the next step apparently, and apparently it's at least five years away also).  Preparing to go to the new stuff is costing hard drive manufacturers a large fraction of their capital right now.  Intel and AMD processors, and especially camera sensor manufacturers, have a different setup because the lithography production technology is so widely spread throughout the industry.  Lots of people share in the cost.  But it doesn't become cheaper.

The moment that people stop using a particular production process in great quantities, it generally becomes more costly to use the old process than the new one, because there's fewer people to share in the cost.  Imagine how much it would cost to one-off make a Model T, or a 1980s computer, compared to making a new car or new computer, where you have machines that have belts of semiconductors to fire into circuit boards as fast as a machine gun, and where the time spent on any part may be measured in seconds, as opposed to making that Model T or 1980s computer, which would be a research project.  Even though we know a Model T could be rapidly made by modern technology, it's not being done.

So why aren't people making lots of Model Ts or Corvairs or 1980s computers or five year old camera models?  Aside from lawsuit issues, the making of such things means that you can't make other, better things.  That's opportunity cost.  And I'm even further off the original topic than before, but I thought you might like to know.

The reason cameras and computers get cheaper after being on the market is because people demand new features, more power, and so on, and newly developed cameras and computers supplant old ones in the market, naturally.  Manufacturers want to sell them to get some return on their investment.  They might still making the older cameras a while, as long as there is enough demand, and they are making enough money to profit, and they are not able to make something else that would make them more money with those same resources (i.e. would anybody buy a T1i at $1000 if only it had a magnesium alloy body?  Or does it make sense to crank out Model Ts when you don't have enough production capacity to make all your current models - okay, being from Michigan, this seems like a joke right now, but they have been shutting production lines down so it still applies). In the case of cameras it's a bit more complicated still because of product lines; old cameras tend to get priced down for a while so there isn't a "hole" in their lineup, which could lead somebody walking out with a competitor's camera because they have a specific price in mind.  This last bit we talk about here a good deal.

To convince people to buy the older models, the price is intentionally revised downward by manufacturers (and, if not them, by retailers; otherwise manufacturers end up taking in unsold merchandise).  I don't think inflation has much of a chance to effect DSLR camera pricing before the time they're liquidated - and of course steadily during that period they are losing value.  It's always fun to look at the prices Canon suggests on its website and compare those to the prices you can find online or at your local retail store.

Okay then, back to the original question:  How could inflation factor into a current camera model being more expensive than the old one in the same lineup?  Let's go to the Westegg.com inflation calculator, say the 5D Mark II came out in 2007 (because it only goes to 2009, not to this year) for $2600, and see what it would cost Canon to have the new (2009) model be worth as much, after inflation, as the old one was in 2007 dollars.  In 2009 dollars, the new one would have to be worth $2688.  Is Canon going to add roughly $100 to a new 5D?  Who knows.  There is more to marketing and to production costs than just "how much does it cost."  People in marketing talk about the "mental jump" going from $99 to $100 (from two to three) digits, but like most people realize $100 isn't worth a lot anymore, people also aren't likely to jump up and down about a small price jump from $2500 to $2600.  But it is more money, and the theory of $2500 being a heck of a lot of money, and even more being really expensive may still hold them back a bit.  And failing that, there's always competition.

dilbert

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Re: Speculation on why new lenses cost more...
« Reply #5 on: September 30, 2010, 12:43:39 AM »
Quote
Okay then, back to the original question:  How could inflation factor into a current camera model being more expensive than the old one in the same lineup?  Let's go to the Westegg.com inflation calculator, say the 5D Mark II came out in 2007 (because it only goes to 2009, not to this year) for $2600, and see what it would cost Canon to have the new (2009) model be worth as much, after inflation, as the old one was in 2007 dollars.  In 2009 dollars, the new one would have to be worth $2688.  Is Canon going to add roughly $100 to a new 5D?  Who knows.  There is more to marketing and to production costs than just "how much does it cost."  People in marketing talk about the "mental jump" going from $99 to $100 (from two to three) digits, but like most people realize $100 isn't worth a lot anymore, people also aren't likely to jump up and down about a small price jump from $2500 to $2600.  But it is more money, and the theory of $2500 being a heck of a lot of money, and even more being really expensive may still hold them back a bit.  And failing that, there's always competition.

Ummm, not to disappoint you, but the original question was about lenses, not cameras (or camera bodies) which have a life cycle that is a lot longer. For example, there are still current model lenses that date back to the mid 1990s (such as the 50/1.8mk2.) And there are others, like the recently announced new zooms, that have been refreshed twice, with price jumps and new tech (IS/glass.) The purpose of this thread was to analyse the reasons behind the somewhat significant increase in price of the refreshed 300/400.

tzalmagor

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Re: Speculation on why new lenses cost more...
« Reply #6 on: September 30, 2010, 02:42:57 AM »
Quote
Okay then, back to the original question:  How could inflation factor into a current camera model being more expensive than the old one in the same lineup?

[snip]

But it is more money, and the theory of $2500 being a heck of a lot of money, and even more being really expensive may still hold them back a bit.  And failing that, there's always competition.

Ummm, not to disappoint you, but the original question was about lenses, not cameras (or camera bodies) which have a life cycle that is a lot longer. For example, there are still current model lenses that date back to the mid 1990s (such as the 50/1.8mk2.) And there are others, like the recently announced new zooms, that have been refreshed twice, with price jumps and new tech (IS/glass.) The purpose of this thread was to analyse the reasons behind the somewhat significant increase in price of the refreshed 300/400.

I think the real question is whether Canon realizes that there is a gap in it's line of lenses, and whether it's going to do anything about it before the crowd stops buying Canon lenses.

As example, which I brought before, take the price of the 100-400/4.5-5.6 zoom.

For the price of that lens, one could buy a 7D with 55-250/4-5.6 (250mm on APS-C being equivalent to 400mm on FF), or 50D with 70-300/4-5.6 + change.

If Sigma can manufacture a 150-500mm for FF with a price tag between those options, so can Canon. Based on past behavior, Canon is more likely to upgrade the 100-400 lens & raise it's price even further, making the gap even bigger.

Eventually, one of the competitors will come in and fill that gap.

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Re: Speculation on why new lenses cost more...
« Reply #6 on: September 30, 2010, 02:42:57 AM »

dilbert

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Re: Speculation on why new lenses cost more...
« Reply #7 on: September 30, 2010, 04:31:28 AM »
Quote
Okay then, back to the original question:  How could inflation factor into a current camera model being more expensive than the old one in the same lineup?

[snip]

But it is more money, and the theory of $2500 being a heck of a lot of money, and even more being really expensive may still hold them back a bit.  And failing that, there's always competition.

Ummm, not to disappoint you, but the original question was about lenses, not cameras (or camera bodies) which have a life cycle that is a lot longer. For example, there are still current model lenses that date back to the mid 1990s (such as the 50/1.8mk2.) And there are others, like the recently announced new zooms, that have been refreshed twice, with price jumps and new tech (IS/glass.) The purpose of this thread was to analyse the reasons behind the somewhat significant increase in price of the refreshed 300/400.

I think the real question is whether Canon realizes that there is a gap in it's line of lenses, and whether it's going to do anything about it before the crowd stops buying Canon lenses.

As example, which I brought before, take the price of the 100-400/4.5-5.6 zoom.

For the price of that lens, one could buy a 7D with 55-250/4-5.6 (250mm on APS-C being equivalent to 400mm on FF), or 50D with 70-300/4-5.6 + change.

If Sigma can manufacture a 150-500mm for FF with a price tag between those options, so can Canon. Based on past behavior, Canon is more likely to upgrade the 100-400 lens & raise it's price even further, making the gap even bigger.

Eventually, one of the competitors will come in and fill that gap.

But will that necessarily harm Canon?

If the image quality and feature set of the gap filler were at least the equal of the 100-400 (or its replacement), then I could see you arguing yes. But so long as the 100-400 is perceived to be better than what's around it then I'd argue that a gap filler from a 3rd party will not necessarily threaten or harm Canon.

tzalmagor

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Re: Speculation on why new lenses cost more...
« Reply #8 on: September 30, 2010, 07:27:48 AM »
I think the real question is whether Canon realizes that there is a gap in it's line of lenses, and whether it's going to do anything about it before the crowd stops buying Canon lenses.

As example, which I brought before, take the price of the 100-400/4.5-5.6 zoom.

For the price of that lens, one could buy a 7D with 55-250/4-5.6 (250mm on APS-C being equivalent to 400mm on FF), or 50D with 70-300/4-5.6 + change.

If Sigma can manufacture a 150-500mm for FF with a price tag between those options, so can Canon. Based on past behavior, Canon is more likely to upgrade the 100-400 lens & raise it's price even further, making the gap even bigger.

Eventually, one of the competitors will come in and fill that gap.

But will that necessarily harm Canon?

If the image quality and feature set of the gap filler were at least the equal of the 100-400 (or its replacement), then I could see you arguing yes. But so long as the 100-400 is perceived to be better than what's around it then I'd argue that a gap filler from a 3rd party will not necessarily threaten or harm Canon.

It doesn't have to be as good as the 100-400, just good enough to justify it's lower price.

Let's talk about a 5DmkII body owner who wants a zoom lens longer than 300mm, but is not willing to spend $1,600 on it. Unless you would like to claim there are no such customers, they can:

* Buy an APS-C or 3/4 body with an appropriately shorter lens.

* Compromise on a cheaper lens from a third party, such as the Sigma 150-500mm.

[Note the compromise - he's not getting the same quality, but he's not paying the same price either.]

* Buy a Canon lens that costs about the same the third party lens, and is at least as good as said 3rd party lens.

As the third option doesn't exist, and the first option not likely (and a threat to Canon), the third party lens is a threat to Canon.

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Re: Speculation on why new lenses cost more...
« Reply #9 on: September 30, 2010, 08:35:42 AM »
Let's talk about a 5DmkII body owner who wants a zoom lens longer than 300mm, but is not willing to spend $1,600 on it. Unless you would like to claim there are no such customers, they can:

* Buy an APS-C or 3/4 body with an appropriately shorter lens.

* Compromise on a cheaper lens from a third party, such as the Sigma 150-500mm.

[Note the compromise - he's not getting the same quality, but he's not paying the same price either.]

* Buy a Canon lens that costs about the same the third party lens, and is at least as good as said 3rd party lens.

As the third option doesn't exist, and the first option not likely (and a threat to Canon), the third party lens is a threat to Canon.

Such a customer could also forego the flexibility of a zoom, and get the EF 400mm f/5.6L, which in fact has better IQ than the 100-400mm, for less money.
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kubelik

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Re: Speculation on why new lenses cost more...
« Reply #10 on: September 30, 2010, 09:08:33 AM »
I'm with tzalmagor, I don't think Sigma's gap-filling lenses hurt Canon at all; in fact, in can actually benefit both companies.  a lot of people buy Sigma lenses as a half-step while saving up to buy better Canon glass.  very few Sigma and Canon lenses are perceived as being in direct head-to-head competition with one another.  there usually exists a price gap, or a quality gap, or both.  which ultimately means they are targeting different buyers at different segments of the market.  it may seem like this cuts the market into very narrow segments ... but that's actually the reality of it.  lots of different consumers looking at lots of different variables every day.

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Re: Speculation on why new lenses cost more...
« Reply #11 on: October 01, 2010, 01:35:22 AM »
I'm with tzalmagor, I don't think Sigma's gap-filling lenses hurt Canon at all; in fact, in can actually benefit both companies.  a lot of people buy Sigma lenses as a half-step while saving up to buy better Canon glass.

You misunderstand me. I think there are people who would buy Sigma lenses, and will never upgrade to the more expensive Canon lenses, as in a crowd who buys FF cameras, yet is either unwilling or unable to buy all L glass.

In this case, either Canon will have EF non-L glass to cater to that crowd, or it will loose the sales to other companies.

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Re: Speculation on why new lenses cost more...
« Reply #12 on: October 01, 2010, 03:11:44 AM »
I'm with tzalmagor, I don't think Sigma's gap-filling lenses hurt Canon at all; in fact, in can actually benefit both companies.  a lot of people buy Sigma lenses as a half-step while saving up to buy better Canon glass.

You misunderstand me. I think there are people who would buy Sigma lenses, and will never upgrade to the more expensive Canon lenses, as in a crowd who buys FF cameras, yet is either unwilling or unable to buy all L glass.

In this case, either Canon will have EF non-L glass to cater to that crowd, or it will loose the sales to other companies.

tzalmagor, I think that's what kubelik is pointing out.

I agree with you that there are people who are unwilling/unable to upgrade to L lenses. But for them, the obvious solution is to choose from the current inventory of non-L glasses, or choose the products offered by Sigma, Tokina, etc.

The key, I believe, is how big this market is. If this group is BIG enough (compared to those who are willing to dump money on L-lens), Canon would probably invest more of the company's resources on developing non-L EF lenses.

I would suspect that's why Canon is willing to let companies like Tamron and Sigma share a piece of cake. They will not need to worry about the selection of cheaper lenses for EF mounts, since third parties would move in to fill in the gap with affordable options. In the mean time, they can concentrate their resources on the development of L lense (which probably yields more profit than their non-L counterparts).

Now, if the third party companies can make lenses that rival the L series, the story would be very different. However, that doesn't seem to be the case.
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Re: Speculation on why new lenses cost more...
« Reply #12 on: October 01, 2010, 03:11:44 AM »

tzalmagor

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Re: Speculation on why new lenses cost more...
« Reply #13 on: October 01, 2010, 07:42:33 AM »
I'm with tzalmagor, I don't think Sigma's gap-filling lenses hurt Canon at all; in fact, in can actually benefit both companies.  a lot of people buy Sigma lenses as a half-step while saving up to buy better Canon glass.

You misunderstand me. I think there are people who would buy Sigma lenses, and will never upgrade to the more expensive Canon lenses, as in a crowd who buys FF cameras, yet is either unwilling or unable to buy all L glass.

In this case, either Canon will have EF non-L glass to cater to that crowd, or it will loose the sales to other companies.

tzalmagor, I think that's what kubelik is pointing out.

I agree with you that there are people who are unwilling/unable to upgrade to L lenses. But for them, the obvious solution is to choose from the current inventory of non-L glasses, or choose the products offered by Sigma, Tokina, etc.

The key, I believe, is how big this market is. If this group is BIG enough (compared to those who are willing to dump money on L-lens), Canon would probably invest more of the company's resources on developing non-L EF lenses.

My point is that this market's size increases as Canon's L lenses' price tag rises, and at some point it would be too big for Canon's own good.

dilbert

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Re: Speculation on why new lenses cost more...
« Reply #14 on: October 01, 2010, 09:12:03 AM »
I'm with tzalmagor, I don't think Sigma's gap-filling lenses hurt Canon at all; in fact, in can actually benefit both companies.  a lot of people buy Sigma lenses as a half-step while saving up to buy better Canon glass.

You misunderstand me. I think there are people who would buy Sigma lenses, and will never upgrade to the more expensive Canon lenses, as in a crowd who buys FF cameras, yet is either unwilling or unable to buy all L glass.

In this case, either Canon will have EF non-L glass to cater to that crowd, or it will loose the sales to other companies.

tzalmagor, I think that's what kubelik is pointing out.

I agree with you that there are people who are unwilling/unable to upgrade to L lenses. But for them, the obvious solution is to choose from the current inventory of non-L glasses, or choose the products offered by Sigma, Tokina, etc.

The key, I believe, is how big this market is. If this group is BIG enough (compared to those who are willing to dump money on L-lens), Canon would probably invest more of the company's resources on developing non-L EF lenses.

I would suspect that's why Canon is willing to let companies like Tamron and Sigma share a piece of cake. They will not need to worry about the selection of cheaper lenses for EF mounts, since third parties would move in to fill in the gap with affordable options. In the mean time, they can concentrate their resources on the development of L lense (which probably yields more profit than their non-L counterparts).

Now, if the third party companies can make lenses that rival the L series, the story would be very different. However, that doesn't seem to be the case.

I agree and I think that there are areas where Canon sells its expensive and long lenses (such as to Reuters, Getty, professionals, etc) that are interested in getting everything from the one supplier. In the case of businesses, it is a single master contract. One company for service, supplies, parts, etc.

I'm tempted to say that I think Sigma and Tamron target amateurs and not professionals.

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Re: Speculation on why new lenses cost more...
« Reply #14 on: October 01, 2010, 09:12:03 AM »