K-amps said:
A lot of times, people setting the prices are not rocket scientists (surprise surprise). They do not create sophisticated price elasticity models... I implement financial package (ERP) applications in Fortune 500 companies, and it amazes me how rudimentary their cost allocation models are. Most of the time, R&D is considered a period cost and allocated based as a percentage of selling price or product cost, then a margin is added on top of that.
If one went purely with R&D allocation, it would not inflate the prices of the higher end models as much, what does inflate those costs is the % of Mark-up tacked on. Herein comes the art of pricing, the mark-up.
A product manager for lets say a rebel line will work on what he has to work with given his product range and not worry about pricing for the pro series, he will have sales targets (the smarter companies will have profitability targets): These Targets at times are not always set to maximize profitability, but at times are set to mantain market share and customer base till the next model comes along. The real money is made from the higher margin products, therefore for consumers, the higher end models do "rightly" seem over priced, and they are.
I agree that the people who set the prices probably aren't that sophisticated. I notice for example that the refurbished prices are uniformly 20% discounted from new price, even though on high end items this has them undercutting street prices on used items.
However, at some level, demand driven pricing kicks in. They at least understand the need to price their items "competitively" and that they could lose a lot of sales if they don't. They fine tune their prices as necessary as demand slacks through rebate programs. It might seem simplistic, but if you were to go and deploy a sophisticated model, you usually need a human being to step in at some point and update the model inputs.
Whether or not the manufacturer allocates R&D proportionately to revenue for different products or uses some other mechanism is somewhat orthogonal to my point -- which is that you can't meaningfully choose any per-unit allocation of R&D costs, because the marginal R&D cost per unit is 0.
So it makes perfect sense for them to crank out the cheaper models as long as the marginal revenues exceed the marginal costs. That is, they don't have to pay the R&D bills with their point and shoots for it to be worth it to produce them. But they do this understanding that these units aren't going to be cash cows for them.
The cheaper models do have something in common with more expensive models -- they are subject to the laws of supply and demand. The big difference is that the demand curve looks quite a bit different -- they are dealing with a very price sensitive market.
So whether you attribute it to R&D allocation or "markup" or whatever, the fact remains that they can't jack up prices on cheap models very much without killing sales. So pricing is very much dependent on demand.
A $500-600 differential between a 7D to 5D class camera (other things being the same) might be justified, the rest is fluff and mark-up!
If that's the case, why doesn't someone get out there and corner the market with a sub $2000 full frame camera ? If you're right and a less expensive smaller sensor camera is good enough to keep the lights on, then why is it that Olympus and Panasonic let standard 4/3 die, Pentax (APS-C and medium format only) were bought out, while the full frame models are still going strong ?
It seems to me we're talking about the same thing -- prices are driven by demand (and not the "demands" of forum posters)
Canon's very greedy...we all know that! We have seen it with the 5Dmk2 launch. I think they are getting into a product cycle that's like Intel's "tick-tock". MP/Sensor --> Features --> MP/Sensor --> Features.....
