Canon is Suing “Get It Digital” and Others to Stop Gray Market DSLR Sales

[Barry_Green]

the manufacturing cost of a product is not it's final cost to the company. It may only cost $100 to manufacture a widget, but once you include the overhead, marketing, support, and R&D costs to take that widget to market successfully the final cost could be closer to $200. My point is that the retail price minus manufacturing cost does not equal profit.

Sometimes it can be incredibly difficult for people to grasp this concept.

I try to describe it this way: say you spent a year writing a screenplay, take it to an agent, they love it, they take it to a studio, the studio wants to buy it, they make you an offer, and it's for $3.00. Now, you were expecting an offer of at least half a million dollars, but they only offered you $3? And when you ask why, they say "well, the paper you printed it out on cost about $2, so we put in another 50% for profit, you're making a 50% profit, you should be happy."

The point being, the physical cost of manufacturing something may have absolutely zero bearing on what it actually costs the manufacturer to produce that product, nor does it give you any indication of how much actual profit there is in any given transaction.

 

[DLD]

Sometimes it can be incredibly difficult for people to grasp this concept...

As an ex-accounting major (from a semi-reputable college too), that's why I linked to Canon's financials. IIRC, their operating margins were around 7% ... however, the Japan based manufacturers have notoriously high overhead.

PS. The Petapixel guy, with his corporate background, was on the side of the online dealers. IMO, the legal case is far more subtle because Canon would have to prove damage to the brand and their greatest point would be the accessory replacement (if that is indeed the case and can be proven). The defendant would then probably argue that the accessories are clearly labeled and are made to work with Canon units and they have no responsibility for the quality of the third party products, aside of their legal responsibilities under the UCC. Where I might agree with the Petapixel guy is that Canon just wants to make the economic burden of fighting this suit too prohibitive and thus either force the retailer out of business or settle for a "cease and desist" type of a deal. To minimize these costs, the retailer would obviously file for a quick dismissal because Canon can afford an army of lawyers and a small fry cannot.

PS. Screenplays are intellectual property. In this instance, Canon isn't alleging any sort of intellectual theft - contraband, etc.

 

[Run&Gun]

As an ex-accounting major (from a semi-reputable college too), that's why I linked to Canon's financials. IIRC, their operating margins were around 7% ... however, the Japan based manufacturers have notoriously high overhead.

PS. The Petapixel guy, with his corporate background, was on the side of the online dealers. IMO, the legal case is far more subtle because Canon would have to prove damage to the brand and their greatest point would be the accessory replacement (if that is indeed the case and can be proven). The defendant would then probably argue that the accessories are clearly labeled and are made to work with Canon units and they have no responsibility for the quality of the third party products, aside of their legal responsibilities under the UCC. Where I might agree with the Petapixel guy is that Canon just wants to make the economic burden of fighting this suit too prohibitive and thus either force the retailer out of business or settle for a "cease and desist" type of a deal. To minimize these costs, the retailer would obviously file for a quick dismissal because Canon can afford an army of lawyers and a small fry cannot.

PS. Screenplays are intellectual property. In this instance, Canon isn't alleging any sort of intellectual theft - contraband, etc.

He's not saying there was any intellectual theft, he's trying to illustrate the point that there is more to the cost of a product than simply the cost of the materials it's made of.

 

[DLD]

He's not saying there was any intellectual theft, he's trying to illustrate the point that there is more to the cost of a product than simply the cost of the materials it's made of.

That's why I linked to the financials on Canon's own site. They, unfortunately, do not break down the cost-of-goods by division, as everything is lumped together.

This is their annual report for the year ending December 31, 2014.

http://www.canon.com/ir/annual/2014/canon-annual-report-2014.pdf

Operating profit is 9.8%; gross profit 49.9% (on goods sold, before the fixed expenses); 44% global share of the ILC's, 22% on P&S; 40% of manufacturing is done in Japan, down from 60% in 2007; the Imaging Division (including all the photo-video, plus printers and calculators) is 36% of their total sales; 7.3% decrease in sales due to the decline in P&S, R&D expeses across all industries over 300 billion yen (~ $3B); Europe and the US are roughly equal in sales (28% and 29% respectively), cameras represent ~ 65% of their Imaging Division.

... went through all 92 pages ... there's probably a more comprehensive report available to those with the financial broker accounts.

 

[Andrius Simutis]

...The main reason a Countries dealers get waspy is simply protectivism. Perfectly understandable, because the dealer network is important to them, but unreasonable to consumers who see the same product at different prices in different countries because the market supports them.

Just a little personal experience having worked with a foreign distributor once upon a time. The distributors have wildly different costs depending on the market they're in. You have to advertise, support the product, pay sales staff, keep a margin for the retailers, pay import tax, and in most cases you're doing all this and supporting it with a much smaller market for that same product making it even harder to recoup those costs. Of course it's going to cost more in another market, and in most cases it's not because the distributor is gouging the customers.
This isn't to say that anyone who doesn't happily pay the local retail price is a bad bad person, it's just an explanation of why things can cost more in some countries vs others.

 

[Samuel H]

I completely understand that explanation, but, to me, "we have higher costs than in other countries, so we have to charge more" often sounds dubious. I get import taxes, regulations, mandatory warranties, etc. But all the other "overhead costs" just sound like "we are more inefficient so we compensate by charging more". I live in Europe but I buy most of my gear abroad.

 

[Andrius Simutis]

I completely understand that explanation, but, to me, "we have higher costs than in other countries, so we have to charge more" often sounds dubious. I get import taxes, regulations, mandatory warranties, etc. But all the other "overhead costs" just sound like "we are more inefficient so we compensate by charging more". I live in Europe but I buy most of my gear abroad.

Well think about it. Running any business is expensive so the cost of the product has to reflect that but also needs to be competitive so there's not always the room to drop the price charged to the distributor. Now add on the costs of running another business on top of those and the product is way more expensive. Now add on a margin for the retailer to make a small profit. Now, add to that the fact that you have a much smaller pool of potential customers to sell that more expensive product to and you can see how the price goes up. The company I used to work for had a product that cost double overseas and trust me, nobody was gouging anyone or getting rich in that scenario.

 

[Samuel H]

But then: why does it go up by more in some countries than in others? In part it's because of local legislation (VAT, mandatory warranty, etc), but after that, it's just lack of competition, or inefficiency (probably driven by lack of competition).

 

[Barry_Green]

But then: why does it go up by more in some countries than in others? In part it's because of local legislation (VAT, mandatory warranty, etc), but after that, it's just lack of competition, or inefficiency (probably driven by lack of competition).

Depends on the country and many variables. As you said, VAT and mandatory warranty can be issues. Minimum wage laws can be issues. Population, market penetration, and geographic size are definitely issues. As a hypothetical example: Australia and Canada are both approximately the same size as the USA. The USA market has 15x as many people as Australia, and 10x as many as Canada. So Australian company reps have to travel just as far, and do just as much work, but reach 1/15th as many people for their same efforts, as a USA company representative does. As an example, the state of New York has nearly as many people as the entire continent of Australia. Not surprisingly, the same cameras are generally much less expensive in the USA than they are in Canada or, especially, Australia. The city of Houston has more population than the entire country of New Zealand, or of Ireland. Obviously it's much more efficient to market to one densely-packed city, taking out ads in one newspaper etc., than it is to travel between Auckland, Wellington, Christchurch, and Manukau. You can have one office, one service center, and on and on.

Then there can be market size... how popular is the brand there? If your brand reaches 5% of the population in one country, but only 1% of the population in another, then obviously it's going to be more expensive to operate in the 1% country. Compound that by if the 1% country is smaller... you'd be doing equivalent work but making a much smaller number of sales based on it.

Then there's always a country's relative economic strength, which obviously changes with time, but ... y'know, there's probably not a lot of camcorder sales happening in, for example, Greece right now. Certainly not as many as were happening before the debt crisis and unemployment hit. And lack of sales may make it prohibitively expensive to operate in that country; you either charge enough to make it worth it, or you abandon the market.

So country size, overall population, taxation, import fees, wage laws, travel costs, currency relative strength, market size (as measured by # of customers, regardless of population), local economy strength, these all have a very real and very significant impact on product pricing in any given country.

 

[bluesgeek]

... say you spent a year writing a screenplay, take it to an agent, they love it, they take it to a studio, the studio wants to buy it, they make you an offer, and it's for $3.00. Now, you were expecting an offer of at least half a million dollars, but they only offered you $3? And when you ask why, they say "well, the paper you printed it out on cost about $2, so we put in another 50% for profit, you're making a 50% profit, you should be happy."

And that was after negotiations that started out with "That's not worth the cost of the paper it was printed on."

 

[HunterAK]

...or their retailers are getting annoyed.

I'd say this must be playing at least a partial role. I've overheard conversations in camera stores where a customer says they can get it cheaper online. No matter what the store says about gray market and that they are actually selling genuine USA cameras at market price as dictated by the manufacturer, the customer doesn't understand and just assumes that the store is trying to rip them off. If i was someone adhering to the rules laid out by canon as a retailer I'd be pretty annoyed also.

 

[DLD]

... So country size, overall population, taxation, import fees, wage laws, travel costs, currency relative strength, market size (as measured by # of customers, regardless of population), local economy strength, these all have a very real and very significant impact on product pricing in any given country.

All true but I think these differences are the greatest on the retail, not the wholesale, end.

And, from memory, there are two most common paths for goods - from a low Purchasing Power Parity region to the higher and from a smaller retailer to the online volume buyer within the same region.

As to Australia vs. the US, maybe the DVXUser posters from down under can chime in on the debate. I believe that, after accounting for the currency exchange and VAT, prices are pretty close.

And that was after negotiations that started out with "That's not worth the cost of the paper it was printed on."

It can be worse. "This isn't worth the electrons wasted in emailing it".

 

[DLD]

Since we were wondering how much a camera might cost in different places, here's an Australian based securities firm that makes an iPad Index (a sincere copy of the Economist's Big Mac Index), which sums up the retail prices of the same iPad model across the globe. This is from 2013 but gives a solid idea how much an identical piece might run in absolute dollars.

http://www.businessinsider.com/how-much-an-ipad-costs-in-46-countries-2013-9

 

[DLD]

A detailed analysis of the defendants riposte --- from Photography Bay.

http://www.photographybay.com/2015/12/14/canon-v-gray-market-retailers-get-it-digital-responds/

http://www.photographybay.com/2016/01/12/canon-v-gray-market-retailers-update-f-e-trading-responds/

 

[DLD]

And now Fuji is launching their own action.

http://www.digitaltrends.com/photography/fujifilm-sues-fro-gray-market-cameras/

 

[Bubble]

case got dismissed for now.

http://www.photographybay.com/2016/10/10/canon-usa-v-get-it-digital-case-dismissed/

 

[DLD]

case got dismissed for now.

http://www.photographybay.com/2016/10/10/canon-usa-v-get-it-digital-case-dismissed/

Canon got what it wanted, though it's still unknown whether this was for legal reasons or purely financial (i.e., the cost of litigation).

IMO, what will happen is that these gray good retailers will get consolidated into oen or two major outlets that would, at least, be able to drag it out in courts. Smaller shops have no chance. They can't afford the lawyer fees.

 

[DLD]

Or there'll be a lot of one-nighter type sellers. Here today, gone tomorrow and no one to sue.

 

[Mike Krumlauf]

for the record, i've never cared much for Canon equipment other then their XL2 camera which was one of my all time favorite Mini DV cameras. Panasonic & Sony have always been my 2 favs