The Mystery of Leica Pricing Explained by J Shin

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This is an interesting guest post on Leica's products pricing by J Shin:

Every time there is any kind of a product-related announcement here and elsewhere, there are a number of invariable comments complaining about and/or defending Leica's price strategy. In making these comments, people make references to various economic and noneconomic reasons why Leicas are priced the way they are. This essay is an attempt to show that, basically, almost everybody is right, at least when it comes to Leica's profit motives. Rather than nefarious greed, devious psychological warfare, and, as some often mention, Dr. Kaufmann's ignorance of Leica fandom, Leica prices are basically a function of mathematical inevitability.

First, a disclaimer. I am not an economist or an accountant. I have worked in marketing, and I do have a PhD in political science, but, really, I know more about macroeconomics, the economics of whole nations, than microeconomics, the economics of individual corporations. Still, I think I have some handle on the concepts involved, and much of it is intuitive, at least to me, so here we are. Please feel free to post any objections you have, since I'm basically making it up as I go. Also, I am leaving a lot of little details out, and keeping things simple; if there is demand for it (har-har), I will supply further elaborations.

The Basics

Here is a diagram explaining the basics of how to set prices of a product.

Figure 1. Cost, revenue, and profit

Again, this is a simplified graph that does not truck with the finer points of "marginal cost" and "marginal revenue", which is difficult to understand for most people. It is also an illustration, rather than empirically accurate. If you want to be more accurate, be my guest; you can probably do a better job than I can.

First, the green line, the cost curve. This is the familiar "economy of scale" curve. To produce any product, there needs to be an initial investment, which I will call "capital". This acts more-or-less like a "one time expense", and it is fixed through the life cycle of the product. So, at quantity=0, your cost per unit is basically infinite, and at quantity=1, the cost of producing that one M9 is basically the price of the whole factory. Then, the more M9s you produce, the less "capital" you need to recoup in each unit of M9 you need to sell, forming a curve shaped like y = c/x, asymptotically approaching a limit as quantity (x axis) increases.

The lower limit is the on-going cost. This includes the cost of labor, parts, maintenance of equipment, sales, marketing, and managerial overhead involved in each M9. Although these, too, decrease with volume, there is sort of a limit to how low it can go. (There is also a limit on quantity, known as "production capacity", which I will discuss later.) This is why as quantity goes to infinity, cost does not reach 0, but hits a sort of a price "floor", the minimum possible cost of producing and selling an M9, even after you've recouped your initial capital investment.

Second, the red line, the revenue curve. This is a function of how many M9s one could sell at a given price and is a measure of consumer sentiment toward the product. One thing to note here. With revenue, the price per unit determines the quantity sold, whereas, with cost, the quantity produced determines the cost per unit. This makes these graphs a bit confusing, since the x-axis is the causal variable for cost, whereas the y-axis is the causal variable for revenue.

Anyway, the revenue curve starts at a point where the price is so high that literally no one would buy it, and goes to the point where, even if you give away M9s for free, there is a natural limit to how many people would take it. Wait, you may be saying, why would anyone not want an M9? Actually, I might not take an M9 even if it is free; I don't like (gasp!) rangefinders. My eyes can't handle them. Also, M lenses are too expensive for me, and I have a stable of telephoto R lenses, too long for a rangefinder. An M9 won't do me any good, since R lenses are not rangefinder-coupled anyway. I can't even sell it and buy a Nikon D800E and some Leitax adapters, because, being free, no one would pay for my M9. So, no go. My partner would not take the M9, either; she rarely takes photographs, and she would laugh at the price of the lenses, even the Voigtländers. I'm the girl with the camera in this family, and I don't want it, although I see the point, and she doesn't even see the point. You get the point.

So, you can see that, in most cases, the revenue line and the cost lines intersect at two points. (The exceptions would be if the revenue line falls below the cost line; then you're screwed, and can't make any profit off your M9, at any price.) In between these two points, we have a viable business that is profitable. Somewhere in the middle is kind of a "sweet spot", where the revenue line is far above the cost line. This is the "profit maximization" point where every company strives to be.

Actually, it is a bit more complicated:

Figure 2. Maximum profit per unit vs. maximum profit overall.

The point you want to hit to maximize profit is likely at a lower price than the price at which you would have maximum profit per unit. You sacrifice the per-unit profit a little, but then make up for it with increased quantity, because (total profit) = (profit per unit) x (quantity sold). If you lower the price too far, however, you may have more revenue, but end up with lower overall profit. (I know I did a lousy job with the graphs, but the general idea behind these graphs is still valid.)

So, a company has a few choices. If you set the price above the "no one will buy" point, no one will buy your product, so one would not do that. If the price/quantity is set at "X", you can't sell very many, and lose a lot of money. If the price/quantity is set at "A", we have a luxury item that is limited in production strategically or out of necessity. It may be that it's hard to find a lot of people who are skilled enough to make M9s, or quality control becomes difficult at higher volume. Or perhaps the special sapphire something-or-other cannot be produced in mass quantities. Or, you just want to run a small shop, do a little work with a small staff, and make just enough to keep you happy; you will be profitable, but not very profitable. (I will address the luxury marketing strategy later.)

If the price/quantity is set to "B", you are making as much money off your operation as you possibly can. But, is that really where you want to be? Sometimes, market share is more important than profit; having a large market share of full-frame cameras, for instance, allows you to sell more full-frame lenses. You may also need more revenue, even at lower profit, to have more cash on hand to do other short-term things. You would then set your price/quantity to something like "C". Or, you can sell M9s at a loss by setting your price/quantity at "D". A lot of people will buy M9s, and then plunk down more money for the lenses and viewfinders and motors and those fantastic-looking cases that advertise to every purse-snatcher that the camera you are holding with a piece of electrical tape over the red logo is, indeed, a Leica. Give away the camera, sell other stuff. This is the strategy followed by most inkjet printer manufacturers and cell phone services.

Prestige Pricing

So, then, what happens if the prestige of a product goes up? Let us assume, for the rest of this exercise, that Dr. Kaufmann is basically interested in maximizing the profit on the M9. I want that, in fact, because more profit from M9 means more capital for the full-frame mirrorless with EVF and contrast detect that I keep asking for. Or maybe the R10 or a new DMR. Right.


Figure 3. Prestige and profit

The M9 and the M9-P are basically the same thing, and the actual cost of producing them, at the same quantity, are probably close to identical. Edmund Optics sells optical-grade 2.5-inch all-band sapphire windows for $354 each; my guess is that the M9 window costs about $100 at quantity, which will be mostly canceled out by the savings from the absence of the red dot, right? Regardless, I am going to assume, for convenience, that they cost exactly the same at the same quantity. Then, I'm throwing in here an imaginary Panasonic-branded M9, made in the same factory and everything, so same cost at the same quantity.

Whether we like it or not, the Leica brand does mean something. There is a reputation for quality and value, established over more than a century, that is undeniably well-deserved, despite the many mistakes they have made. Panasonic, by contrast, says "cheap mass market", no matter the actual quality of the product. That means that people are going to buy more Leicas than Panasonics at the same price. Wouldn't you by the D-Lux 5 rather than the DMC-LX5 if they were the same price? Or, even, the Leica PA-Curtagon 4/35 rather than the Schneider PA-Curtagon 4/35? Crazy, but true.

Same with the M9-P. There is something magical about that logolessness and the sapphire window, although they add little to the image-capturing ability of the cameras that a piece of electrical tape over the logo cannot achieve. Yes, image-capturing is what we buy these for, right? Right? Oh. That's why I don't want an M9... because I can't capture anything with it that is in focus. Oh, well.

Now, note that the "price at which no one will buy" is also higher for the more "prestigious" models, but, as the price drops, the difference between the models kinda' disappear. In the end, someone who does not want an M9 would not want it no matter what its name is. Rose is a rose by any other name, and I'm just as allergic to the smell.

And, now, finally, look what happens to the "sweet spot"! M9-P's price needs to be set higher, and the quantity lower, because of its "prestige" curve, even though more people would buy it at the same price. Panasonic, by contrast, must sell at a lower price, but that will get them higher quantity.

No nefarious desire to control people's mind is required here. Nothing about the constraints of the economy of scale. M9-P is more expensive because more people would want it at the same price, not because fewer people would dare buy it. Ironically, in cases of prestige, higher demand leads to lower quantity.

What one really needs, then, is great marketing research, to see where people's minds are at, and great marketing, so people will perceive your product as more desirable, more prestigious, thus moving the revenue curve. This is the hard part. Sigma's SD-1 is, no doubt, a fantastic product, with stellar image quality for an APS-C sensor. However, Sigma also has a reputation for "cheap", and the SD-1 apparently also has clunky software that helps mar its reputation, without 100 years of history, like Leica's, to earn any forbearance. In other words, Sigma was hoping that the image quality of the SD-1 would speak for itself, and make it a "prestige" product. Unfortunately, as they quickly realized, it was treated as a mass-market product, just as a Panasonic-branded M9 would be. Same thing basically happened with the Zeiss Ikon, which was every bit as good as the M6, but the fact that it was made by Cosina, not Zeiss, meant that its price had to be significantly lower. Even Zeiss has a slightly lower "reputation price" than Leica, although arguably they are just as capable as Leica in many ways.

The M9-M as a Prestige Product

Oh, then, what about the M9-M, the monochrome version of the M9? One can assume that some people would really want it. These are the people who really need it because of the kind of work they do, or people who want it because it seems really cool and, besides, it looks great when Seal is holding it.

Still, people who are at the "mass" end of the curve, those who would buy a Leica only if it is dirt cheap, would be a lot less likely to want it. To them, the black-and-white sensor is not a great feature, but rather a lack of feature.


Figure 4. The M9-M and M9 compared

I am assuming here that the M9-M is, at the same quantity, cheaper to produce than the M9. Normally, this would make it so the sweet spot is at a lower-price/higher-quantity combination. However, the steeper and higher curve of the M9-M demand makes it so that the price needs to be higher to maximize profit. To the left of and above the intersection between the revenue curves of the two models, denoted by "A", we have a few people who really want it. To the right of and below the intersection, denoted by "B", most people would prefer to have the M9, and you'd practically have to give the M9-M away to increase the sales quantity much. So, having fewer, more fanatic customers leads to lower quantity and higher price, even at lower cost.

Production Capacity and Expansion

Now, about the new building and expanded factory. Sometimes, you end up with a facility that cannot actually let you reach the "sweet spot" quantity you need in order to maximize your profit:

Figure 5. Production capacity

If you could make more, you could sell more at a lower price, but there is a problem: building a factory costs money. So, to produce more, your cost per unit will have to increase. In other words:

Figure 6. The effect of expansion.

Still, even with the slight increase in cost, the greater production capacity allows you to lower the price even further than you could have before the expansion.

If you cannot, in fact, increase your profit by adding a factory, you would have to have a reason other than the profit motive to do it. This gets a little complicated, since the goal is to maximize the profit of the whole company, not of a single product, but, if they've done their homework, Leica should be able to lower the price once their production capacity increases, even for their "prestige" products. If profit is the motive, it is not in their interest to keep the prices higher than the profit-maximization price, or quantity lower than the quantity-maximization quantity.

So, yay, new factory!

Inflated Pricing?

You may have noticed that I do not address the question of "Is Dr. Kaufmann inflating the price, in order to create prestige?" I will touch on this here briefly, using the models I have laid out so far, but with a less quantitative, more speculative spirit. On the surface, the argument makes sense, and I'm sure many companies do that, but I doubt that this is the case with Leica. If Dr. Kaufmann is raising the price to create prestige, then he is running a very expensive marketing campaign. Remember, excessively high price results in higher per-unit profit, but lower overall profit. Think about all the profit he loses by raising the price. Wouldn't it have been better to collect all that and hire a stable of well-respected professional photographers to take some fantastic images and post them on their Web site? Wait, they are already doing that! (Man, have you seen those S2 raw image samples?) In fact, given Leica's history and reputation, most people would be happy to do it for the price of a single M9 and a single Summilux, or for as little as the pleasure of using an S2 for a month or two. Heck, I'd do it! Wouldn't you? Why raise the price and lose the sale of dozens of M9s, when you know it would also piss a lot of people off, and when you can increase the prestige for the price of one or two? When renovating a small section of a reputable store in a rich neighborhood will do? When many such stores would be willing to pay to do it themselves? It seems unlikely that Dr. Kaufmann would sacrifice significant amount of profit for a very ineffective, risky campaign, when other, very cost-effective campaigns are available.

It may also be more effective to sell at maximum profit, and use the profit to develop new products and features that will further add to the prestige of the brand. They have done that with all those "special edition" cameras, believe it or not; I said "new", not "innovative". Hopefully they have done that with the M9-M, and will do it with the mirrorless "solution" this fall.

Thanks, Comrades!

I hope this makes some sense and enlightens our discussions, which, as I have said elsewhere, I enjoy immensely, even when things turn less civilized.

Thank you for your indulgence. Again, please feel free to comment and/or offer alternative models.

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  • Calvin

    Or, faced with the situation where they can’t meet demand in a reasonable amount of time, they have two options. Increase production of increase prices.

    Increasing production will meet demand by producing more cameras and lenses. However, this will mean that a lot more product is out there, which reduces exclusivity.

    Increasing prices reduces demand because people can’t afford to buy the product. It also maintains the exclusivity factor because there isn’t much product out there.

    My problem with all this is that the demand was created by Leica themselves, and now when they can’t handle it, they cut it off by pricing things to high. I think this will turn around and bite them because other manufacturers will come in to meet the demand, for lenses at least.

    I have the M8 and M9, both which I was able to buy new. If my theory is correct, I don’t think I’ll be able to afford what they produce next.

  • MarkIII

    Personally I think it would feel better spending all that money on new Leica gear if it was more up to date. A newer sensor and perhaps a better LCD would mean a lot. They don’t have to revamp the whole M9 to update it. When other brands introduce a new sensor and better ISO performance Lieca come up with a new wrapping, like Hermes or whatever. Anyone want to buy an limited edition Canon 5D in pink? Didn’t think so…

    And they would also have to take all their products into consideration when setting price and how many to make. What if they maximise profit by selling 10 000 units of an M9, but only 5 out of 10 will buy more than one new Leica lens? The rest are buying either used or other brands. Their total profit could increase.

    A friend of mine have been saving up for the M9 and summicron 50 and are planning on buying it next Spring. He sure hope the new summicron is not the only one available new next year, or he has to keep saving another 5 years, he says. They would also lose the sale of an M9.

    • Harold Ellis

      leica prices explained:

      we focus on P&S market and those few lunatics buying our overpriced aged cameras we can barely satisfy with our high prices, so we make them higher.

      next in the news:
      Gucci handbags made in china, prices explained.

  • heiko

    Great post. gives me a lot to think about

  • c.d.embrey

    I don’t like rangefinder cameras, at any price. So I’m not interested in their B&W camera at any price. BTW I also dislike the Fuji Hybrid Finder. Meh!

    I do shoot a lot of B&W, both film and digital. So I would be interested in either a R10D or a mirrorless/EVF camera with a B&W sensor. Now the question is, how ridiculous a price will a non-Leica fan except ???

  • Bryan Willman

    Economics of the post is text book, and it’s text book basic micro, so it’s a part of economics that is pretty much spot on.

    What J. Shin left out is edge effects and supplier effects. By edge effects I mean things like “you can’t actually raise the price 1% this year and afford a 3% larger factory to allow making 5% more cameras next year.” You have to gather a huge pile of money to make the whole factory (or a huge pile of money to make an increment to the existing factory.) And seemingly unrelated issues like the distance to the lot-line and the zoning way heavily on this process. In short – building up capacity to meet demand can be much much harder than you might think. It also involves very great risk. (There are all sorts of other bizarre issues unrelated to the task at hand that play into this.)

    The supplier issue arises because of the use of physically large semi-conductors to make sensors. They are more or less custom, Leica probably has to commit to a large order to get them at all, and they’ll set the floor for the price of the camera. What’s more, because the basic market isn’t all that large, Leica will probably never have big leverage over any sensor maker. Film cameras never had this issue, and so there could be (and were and are) lots of really weird low volume cameras that were economic so long as they used standard sized film. That trick doesn’t work with sensors.

    These things combine to mean that Leica’s update cycle will be slower than the big DLSR makers. However, the update rate that the market demands/supports is slowing down, and so Leica may well become more competitive as the market matures.

    The M9 sensor was very competitive when the camera came out. It still makes amazing images. It only seems deficient in comparison to the DLSRs of the last 12 to 18 months or so.

    So a new factory is a very hopeful sign, since it suggests owners and management are confident they can ramp and make money rather than lose it.

    And of course, an M10 with some variant of live-view would produce the smallest full frame camera capable of using various adaptable macro lenses, and other odd but wonderful optics. So just as the M9 was a great leap into relevence for the M line, the M10 may be. Or not. We’ll find out in a few months I guess.

  • o.b.1ne

    Not all companies want to be known as mass manufacturers…

    Leica is definitely increasing prices just to add prestige, they know people will buy because they are the only one who are producing Digital RF’s.

  • Jim

    Most everyone that complains about Leica prices are people who want them but cannot afford them. PERIOD.

    • genotypewriter

      Most people who say those who complain about prices are those who can’t afford the items are geniuses…. not.

    • Liora

      Agreed with both. I don’t understand the complaining, but at the same time I can’t necessarily afford one without taking time to save. Maybe instead of complaining that you can’t buy a $7000 camera and even more with lenses, people can complain about something with more sustenance. And instead they can say, “I wish I could afford one of those expensive cameras”

    • Mugget

      You know what – I bet that alot of the people who complain would not even buy a Leica if they had the cash. They strike me as being interested alot more in expressing their frustrated opinions on the internet rather than taking photos.

      Or maybe they’re just gear heads who are in awe of the Leica build quality, lenses and image quality – but if they had one they probably wouldn’t be able to use it well (if they had ever used a rangefinder at all).

      A person who really does want a Leica will save up for it. Yes, they’re expensive, can’t argue against that. But people these days want to be able to afford things with a months pay, etc. They’re just looking for a quick fix. But someone who really wants a Leica will save for years.

  • FED4-user

    Great article, thank you. To sum up, Leica like LVMH, Hermes, and other luxury brands will have a “what market (global market) can bear” pricing policy. I will suggest the readers/whiners get ready for high prices for leica products for next 3-5 years (at least). The reason is low production ability of Leica and high demand from Asian countries. Now in new global trade trends, it will make a lots of American customer upset, but if you want this product you will need to compete with Asian middle-high/upper income class customers. Few days have a conversation with Boston used photography equipment store, and they said that used Leica equipment have a world market demand, rather than a particular urban area. So they sell their leicas on ebay mostly to China with a great profit. It was such a great business model, so they have a one person in staff who job is going to garage/estate sales and finding used Leica equipment.

    • Mugget

      Yep, that’s how it is! Shame – makes it harder for me to find cheap deals on old Leica glass! :P

  • Shawn

    Well reasoned.

    Do you know of other situations where features were (apparently) taken away (colour sensor) and the price was raied for the privilege of owning it?

    • J Shin

      The classic example that people often talk about is skim milk. Skim milk takes more step to manufacture than whole milk, but cream, the by-product, can be sold separately, so it comes out about even. Still, when skim milk first came out, it was a “prestige” product that was more desirable to the health-conscious, so it was more expensive than whole milk. Back then, the “feature” of additional milk fat was considered a liability, much as the Bayer filter is considered a liability by many. These days, however, skim milk and whole milk are generally sold at the same price, as most people make the choice on the basis of taste preference rather than value of milk fat.

      Another example is Volvo, another brand of which I am a big fan. Volvos have a reputation for safety, although objective testing has shown that they are not necessarily the safest, and that other brands have models that are just as safe. For a long time, this perception of safety as a “feature” overrode the consideration of style and interior amenities, which are also important features to most people. Until the 1990′s, Volvo interiors were quite spartan, climate control was primitive, and audio system was, to be charitable, poor. Oh, and their engines were chronically, horribly underpowered, given how heavy their cars were, because of the “safety” feature. These “lack of features” paradoxically served to assure Volvo owners that they are special; we care about safety, not irrelevant things like horsepower and bass response. (Sound familiar?) As Volvo encountered financial troubles, they sought to increase their market share, which required them to introduce more stylish cars, better climate control, and better audio, and they began touting the superiority of their torque curves, even as raw horsepower, relative to chassis weight, continued to lag. All this made Volvos less distinguishable from other brands, but they are still skating on the prestige of their well-deserved reputation for solid engineering, which overrides another rising value, gas mileage, on which they lag horribly. Now that Volvo is Chinese-owned, with China as a nation still struggling to establish reputation for quality, despite the iPads, we will see if that perception of reliability changes. Saab had the same problem with erosion of their prestige, but could not keep up, and has now disappeared. Same with SUV’s; when having a big car was the primary value, the “feature” of gas mileage was almost boastfully sacrificed, and, now that people are more economy-conscious, they are falling out of favor.

      Lesson for Leica: the bubble will pop. Will you be ready?

      • Shawn

        More solid analysis. Thank you very much for taking the time.

    • obican

      All following cars have less features than the models they are based on, yet, still sell for more.

      BMW M3 Coupe > BMW M3 Sedan (Has two doors less)
      BMW M6 > M5 (Two doors less and much less gadgets and overall material)
      Porsche 911 GT3 RS > Porsche 911 GT3 (Takes away many things, even the badges on the bonnet and charges for more)

      Funny thing is, all these cars are German :) Just like Leica


    long story short: Leica owners pay for prestige, Canon owners pay for quality, right?

    • FED4-user

      Not necessarily. I would say you pay for exclusivity, luxury, and prestige, rather than just prestige. Sometime it does effect the quality sometime it does not (for example hermes leather bag vs samsonite leather bag). BTW Canon top quality product lines are also can be expensive.

    • Peter

      I’ve seen a lot of canon products, where the word “quality” is not the first thing that comes to mind. And keep in mind canon does a lot more than make cameras. So people expecting Leica to compete with canon on the same playing field is not realistic. And Leica very well knows this.

      On a side note :Does anyone know if Leica workers are well paid?

      • Liora

        The ones in Germany are…can’t say about the retail stores now opening…

    • Tourlou

      Canon, quality?!? I’d say, it’s more convinience than quality!!!

    • Mugget

      Haha, Pariska makes a joke!

      There’s other things to consider besides prestige Vs. quality (not even going to touch on that because it’s a whole other topic…) But some people would actually prefer to use a rangefinder over an DSLR, just as J Shin prefers not to use a rangefinder.

      As was pointed out in the article – you could not give away an M9 to some people. On the flip side, you could not give away a Canon Pro-SLR to some people. ;)

  • thatguy

    Does this mean that my M9 will increase in value even though it’s used? I know all M lenses increase in value each year. Is Leica the only consumer product that actually increase in value?

    • FED4-user

      The trend definitely exist for all mechanical leica products, they all if not growing, then hold the value against the time. I was hesitant to say anything about the situation, when electronics mixes with mechanics in Leica machines. One of the reasons, the electronics is not Leica expertise. So in general if electornics in M9 with time proven to be reliable it will grow the value, if not it will depreciate.

    • Dave

      All Digital cameras depreciate quickly, and Leica digital cameras are no exception. In ten years an M9 will be worth $75 on eBay, just as the D1 was a $5000 camera which is now worthless except as a museum piece. If you doubt this, just try to name an exception to this rule.

      The lenses should hold their value, though.

  • Simon


    I do love my Leicas, I have been the proud owner of several film versions and the digital M8, suffice to say I have offloaded all except my Leica M4-P. Although I have kept all of my Lenses For a future Digital purchase.

    Price for the digital Leica has justw become beyond my excess cash flow, I shoot mainly in B&W and love the idea of the Monochrome but just can’t justify the $$$. Your insight into the Leica Economics for me was insightful, however I do wonder one thing.

    If either Canon or Nikon decided to pump out a Rangefinder, (full frame along with all the mod cons of their DSLR cousins) how many Leica or Rangefinder lovers would jump ship and if so how would Leica deal with this in their pricing to stay viable.

    I am assuming sooner or later if either of them will come to the plate. If so how big a wedge could afford to loose from their pie. Hell if Fujifilm would have stuck a full frame sensor in the X-Pro 1 ?…

    Your thoughts

    • J Shin

      If NEX-7 or X-Pro 1 had a full-frame sensor, I probably would not even be reading this blog any more; we’ll see after Fotokina. :-)

      I doubt that Canon, Nikon, or Sony would do a rangefinder. There just aren’t enough people who really want it for them to make a profit; without the Leica prestige, the revenue line is probably below the cost line. If they do it, it won’t be for profit, but to drive Leica out of business–a tactic Microsoft often used to increase market share–and I don’t see why they would want to spend money putting an insignificant competitor out of business. If anyone, Cosina is probably the best established to put together a challenge at this point, since they are not afraid of small profits, and their rangefinders are already reputed to be comparable to the M, and so have a prestige of their own. They can probably sell a FF-RF for about US$2,500 – 3,000. (With a mechanical shutter! Interchangeable film/digital back! Optional EVF! Yes!) It is unlikely that Cosina, with either Voigtländer or Zeiss name plate, would ever be able to siphon away Leica’s celebrity, but they could probably peel away most of the people who use rangefinders only because of their true advantages, like most readers here. Panasonic could maybe do it, too, since their collaboration with Leica will give them some shine. Some problems: Panasonic has zero established reputation for mechanical engineering; it would risk Panasonic’s relationship to Leica; and the profit rate will be far below what is required of a large conglomerate.

      Instead, FF EVIL is the real threat to the rangefinder mystique, especially if contrast detect is perfected. The technology for an EVF that equals or exceeds the M rangefinder, I believe, exists right now. However, I suspect the market for FF EVIL is also still too small, especially for the price tag of US$2-3,000, which is why the major manufacturers are dabbling in smaller formats. For the FF EVIL to be profitable, they have to peel away not Leica fans, but FF SLR fans, the kind that demand 12 fps and spot-on continuous focusing on 400mm lenses, and it will take some time. By the time they do, however, rangefinder devotés will also find EVIL hard to resist. Sony’s SLTs are the “gateway drug” that achieves precisely this transition, using the advantages of both the SLRs and EVILs, so we’ll see how the a99 does. Sony also has been using the same sensors in their SLTs and NEXs, allowing the software know-how to migrate freely between the two platforms, with some fantastic results.

      If EVIL cannot achieve this level of perfection, of course, they’ll go the way of the Contax G2 and Nikon 28Ti, or play second fiddles to SLRs forever. Still, even as it is, if Sony fixes the purple-fringe problem in the FF NEX, or if Fuji learns to properly program their FF X-Pro, that may very well be the end of the M body as a photographic tool (as opposed to jewelry). It’s just that Sony or Fuji won’t put out an FF EVIL until EVIL advances to a point where it can challenge the 7D or the D800, because until then the revenue curve will be hideously low, since people who would not want a FF SLR would not want a FF EVIL.

      As someone mentions below, Leica’s lens designing ability is still unmatched, so it is unlikely the whole company will disappear, but the M is not invincible. If Leica cannot get ahead of the curve, their fate might be to become like a high-end Sigma, much as Zeiss has become for most of us. This is already happening; EOS owners and mirrorless owners are a significant part of the run on Leica lenses, new and old, M and R. Similarly, Leica’s push into cinema lenses (which readers here rarely talk about), builds on their strengths, prestige, and appeal to people for whom five-figure equipments are the cheap part of the budget. The S line is a slightly different bet that is still unfolding, since it is trying to establish a prestige of its own the old-fashioned way, with raw performance and pricing that go head-to-head with Hasselblad and Mamiya/Leaf; one has to respect that.

      • Mugget

        Very interesting – cheers for that followup. I won’t hold my breath for a digital rangefinder from another company then… as happy as I am with my M8, I still think it’s nice to have options available.

        But you know the strange thing is that even if there was a cheaper alternative, I would probably just take the time to save for a Leica. Having now worked with one for a decent amount of time I have become used to the awesome build quality and spartan layout.

        I wonder if FF EVIL would really live up to all the hype. Maybe I’m just an exception to the rule, but I do not want anything without a real optical viewfinder. To have a large, bright viewfinder is one of the main reasons I switched from DSLR (and that was a Canon 1D-series so even that viewfinder was larger than most).

    • J Shin

      I just realized I didn’t answer your question directly; I just babbled on about why it’s unlikely that Leica will have a rangefinder competition. Sorry about that.

      If, one way or another, a company successfully skims off the lower-end Leica lovers, as Cosina could, Leica will need to raise the price. Too visualize why, take the curves in figure 1, and squeeze the lower half of the red line (revenue) to the left, making the revenue curve steeper on the lower half, but leaving the uppermost bit only a little bit changed. You will see that the crescent-shaped “profit” area gets squeezed to the left, with the “maximum profit” also getting squeezed to the left, toward a higher price point.

      Complicating this is the fact that Leica’s production capacity right now is likely below the profit-maximizing point anyway. Because of this, the price may not need to change at all, since, to the left of the production capacity, the revenue curve could remain about the same.

      Now, the story is different if the higher-end Leica lovers are also skimmed off. If the top half of the curve tilts left as well, price will have to go down, as the crescent is squeezed to the left and to the bottom.

      So, is it possible that anyone could steal away Leica’s high-end enthusiasts?

      • Mugget

        Good grief! Then I hope that no one skims away the lower end Leica revenue (at least not without taking some from the top!)

        Speaking personally, it would be possible for someone to steal away this high-end Leica enthusiast. Possible, but very very unlikely…

  • George Washington

    At the very least Leica needs a tiered product line. Just like nearly every other camera company on the planet. That means a Digital CL. Not the X-series, but a real camera with a simplified RF unit and an APS-C sensor. They still could charge $3000-4000 for it and all the moaning would go away.

    Nikon does this.
    Canon does this.
    Even Porsche does this (911 vs cayman) and they are a luxury brand.

    Oh, and if they want to be taken serious as a producer of professional cameras they may want to consider some professional feature for the M10, like a bigger shooting buffer, weather sealing, external battery pack bla bla bla.

    • Yadda

      I’m sure people would be falling over themselves to buy a $4,000 APS-C camera.


    • Mugget

      Ummm… they do have a tiered product line.

      Oh, you mean a whole line of rangefinder cameras from cheap to uber-expensive? An APS-C sensor, you say? Well – they’ve been there, done that. It’s called the M8. If that’s what you want, just buy one used. That’s what I did.

      I wouldn’t be against some more powerful internal components, but the way someone uses a Leica does not require a high fps rate. Maybe that’s been a purposeful decision by Leica? The fact that it’s all manual control demands that the photographer work slower and think about what they’re doing.

      External battery pack? Why? So that Leica users can look like all those entry/mid-level DSLR users who try and look like they have pro gear by making it look bigger? There is such a thing known as extra batteries… Many Leica users would not want to sacrifice the small weight and size just for the sake of a nonsensical battery grip.

  • Banksie

    There is a plethora of journal articles written by economists about profitability, branding, and luxury product sustainability. Just put ‘Leica M9′ into the equation and it will be basically the same hypothesis. If one is truly interested in the fundamentals (i.e., a ‘road map of economics’) then one can start with the basics of the prices of production set forth by Marx, Smith, and Ricardo. And then proceed to the economies of Veblen goods as a group of commodities outside of the law of demand.

    However peer reviewed publications are not filled with innuendo and sarcasm based on the author’s personal world view. Just sayin’….. :)

    • Mugget

      Everything in your first paragraph sounds really boring, not something that a person who is really only interested in photography like me is going to spend time on.

      Thank goodness that J Shin has been able to write an article to explain the basics without dragging on and on with boring dialogue!

  • AB

    I am a happy owner of a Leica M9. I purchased it new along with the 35mm f2.0 lens back in 2010. The M9 has performed to my expectation except for the SD card problems that was largely resolved with the latest firmware update.

    I think Leica will continue to charge a premium for their products until they can no longer do so without losing sales. Also, with Blackstone on board as an “2 and 20″ investor, pricing will continue to be on the high side.

    The only way I see prices of Leica products to become more affordable is for Canon, Nikon, Fujifilm to come out with a full frame rangefinder that would out-Leica the M10 and other future Leica products. By “out-Leica”, I mean not just optical quality, but also the materials used, the design, the build quality, and the user interface. Having seen the internals of a M9, I hardly think it is beyond the technical expertise of the Japanese. A lot of money can be taken out of the construction costs by making them in Asia. Before you guys freak out, take the body and casing, it is made by robot used CNC machines with like hand finishing. The electronic circuitry can be produced with any existing high-end electronics production lines in China. The only area I see Leica having a tangible lead is the optics. This is probably the only area where the Japanese need to catch up on.

    Before many of you begin writing hate-mails to yours truly, let me make it clear that I am a Leica fan and I love my M9. But I just want to de-mystify some of the perception of Leica’s famed quality.

    The Japanese have done it before. Toyota made the Lexus and it sure did wake the Germans up!


    • AB

      I typed the above post on my iPhone and the auto-correct was a bit overzealous. It should ‘robotized’ and not ‘robot used’, ‘little’ not ‘like’.


  • AB

    I typed the above post on my iPhone and there are a few typos like ‘robotised’, ‘little’, and other minor ones.

  • BC

    Making a rangefinder is expensive, and that’s why Canon and Nikon no longer make any.
    The whole optical system has to be within a few microns of accuracy. It’s a lot easier to build things with big tolerances, and then have microprocessors make the final adjustments. Why make an optical finder when you can buy tiny video displays for a few dollars?

    The problem with that is video lag. You are always seeing stuff the happened half a second ago, and by the time you trip the shutter, you’re probably a full second behind. Contrast that with a M that has a shutter lag of a couple hundreths of a second, and all of a sudden you understand why some passionate photographers will pay more for a Leica.
    Just imagine if almost every piano on the market had a half second delay built-in… Musicians would obviously pay a premium for a “real time” piano!

  • o.b.1ne

    some evidence that Leica does indeed charge a premium and deliberately limits their production to keep demand/prestige high:

    • bidou

      I own a CL body, mostly because it’s the cheapest M body you can find (and so small). This is a real good and handy body, but i wouldn’t consider as the best proof against a “premium” charge by Leica. This body is clearly cheaper in construction that any 100% leica produced body.

    • Mugget

      If anything, the comments towards the end of that page support what J Shin has written above.

      If you really want to consider “premium charge” the same as “staying profitable”, then go right ahead.

      I for one am glad that Leica did not sacrifice the M system for a cheaper product.

  • scotfmy

    Well I am an accountant and have 22+ years experience on wall street. Here are my thoughts…
    1. Leica really understands who their customer is and what they want
    2. Leica really understands supply and demand. When you control supply on a product that has high demand…price must go up.
    3. I suspect for the majority of Leica consumers the prices aren’t really that big a deal compared to their disposable income. Most of the complaining about Leica price come from those of us in a lower pay grade.
    4. Leica makes a unique “Jewel like” product. This really appeals to the wealthy. (once again see point 1 above).
    Lastly, I really did enjoy your write up. Well thought out…kudos

  • Dave

    Something you don’t seem to take into account is the state of the camera industry.

    At this point, digital cameras are a needless luxury. They’re like wristwatches: for the most part, all of their functions can be performed by a cellphone. Therefore, like wristwatches, they are destined to go from utilitarian tools to objects of display.

    The entire low end of both the camera and watch industries are destined to be devoured by the smartphone. This spells trouble for Canon, Nikon, etc. who must compete on features and price.

    Leica is in the fortunate position of being the Patek Phillipe or Rolex of its industry. Its products are mainly objects of display. A Patek doesn’t keep time as well as a $5.00 Casio, but that’s not the point. A Leica lacks features even a cellphone has, such as autofocus. Both Patek and Leica are in the fortunate position of catering to the global elite, the mythic 1%, and don’t have the problems of obsolescence that other camera makers/ watchmakers face.

    What is essential for their survival is that they protect the exclusivity of their brand at all costs, which means keeping pricing high and inventories low.

    • Mugget

      Funny that you should mention wristwatches, I haven’t had one since I was a kid. Don’t like them at all. I don’t see the point when I can just look at my phone or a wall clock, or computer to see the time.

      You say that Leica “lacks” a feature like autofocus, I say that it doesn’t include unnecessary distractions. I actually switched from DSLR to Leica by my own free will. Yes – I actually want to use a manual focus camera! Some people just won’t understand, Leica is not the camera for them. That’s just how it is, and that’s fine as well.

      What is essential for any companies survival is that they remain profitable, correct.

  • Sav

    All nice and well thought out, explains a lot.

    Bitter truth though is that with their current lineup but especially with these prices Leica is increasingly becoming irrelevant.

    I did want a Leica up to fairly recently, but to be honest their pricing is getting a bit over the top. Disgusting is actually the word that comes to mind, but it is not fair as I do believe that the product is of high quality and warrants at least a portion of its cost. But that is how it feels…

    • Jacob

      I concur vis-a-vis relevancy of the digital M. I’ve really wanted a digital Leica that would serve me as reliably as my film Leicas for a very long time, but digital Ms fall too far short. I simply refuse to invest in these camera bodies. I’m honestly shocked to read reviewers who accept the inferior buffer capacity dismissing it as a minor annoyance of little importance. Perhaps I’m too demanding, but I hate the feeling of powerlessness while I wait for the non-responsive Leica to clear its buffer so I can make an exposure. I guess I’m spoiled by cameras that fire as long as there’s film to advance, or worse, by a DSLR with a buffer that swallows handsfull of RAW data at stratospheric ISO ratings with an insatiable appetite. The digital Leica Ms are hobbled. There’s no excuse for such poor performance and ISO limitations. In my opinion the cameras are not yet worthy of the name or the price.

      • Jacob

        I might ad that I do also use an M8.2—a real headache. The S, [Stupid], setting ruins the experience and tops off the camera’s other shortcomings. It’s cash value has crashed and I won’t invest in the M9; it’s not good enough.

    • Mugget

      The same could be said of many other exclusive brands. The most obvious comparison is to the automobile world.

      It’s funny that some people become bitter towards brands that they once loved, or grew up with as an object of desire. As if any person should be able to own a Lamborghini, Leica etc. as though it were their individual right as a human being. Interesting…

  • Nobody Special

    Interesting as a paper. As with many ideas, yours, others, mine, we can only base comments on experience and input, hopefully direct or close to source.

    So, if you have a ‘direct source’ about the real manufacturing costs and profits to weave within the theories and concepts written above, we all are really holding the same basic ideas and opinions as we had before. We need more real data, not just ‘ideal’ formula graphs. Too, products are made by humans – some are greedy, some are altruistic, and some just want make a living profit – OR – they can be any combination and more.

    So with Leica’s case, no one except the few that have access to the figures will know what the real story is.

  • Borge H

    The Leica company follows basic pricing strategy:

    “Companies use the concept of elasticity when setting prices. If demand is elastic, reducing prices will lead to a rise in total revenue. When demand is inelastic, raising prices will lead to an increase in total revenue.”

    With elastic demand, lower prices will increase the demand, as indicated in the original post. But will the demand for range-finder cameras increase if the price becomes lower? I think not. I guess the Leica products are inelastic. If you want a M9 or M9-P, I guess you will buy it if you have the money (like I me). You will not buy three of them if they had half the price.

    The future? I guess we will see increasing prices on all Leica products. Because most of us will still continue to buy them for a while. But at some point we will loose interest. That is when the competitors (Fujifilm?) will market better products.

  • Mikko Moilanen

    Thank you very much of the interesting article. Would had never expected to see something like this in LR.

    I think Leica is doing things right. They maybe can’t, however, ignore the demand of consumer markets.

    Japanese are making better and better mirrorless cameras and DSLRs. It kind of reminds me how Japanese made cheaper range finders. They took the markets where they could easily do it. After that they have just kept doing it.

    So what can Leica do? They can try to take a share of mass markets – and they have done it with co-operation with Panasonic. This was a very interesting symbiose. Panasonic got some luxury into his brand and Leica got his (small) share.

    Is there anything else Leica can do? They can continue to maintain and improve the high quality luxury brand – which they are doing very well. I for one appreciate hand crafted items were they luxury or not. That’s why I would buy the Hermes edition with three lenses right away if I just could afford it. The hilarious truth just is that I can’t even afford a second hand M8 with a lense xD

    Anyway, in my opinion I wish Leica keeps doing what he can do – that is to sell high quality luxury items – even though quality is subjective and one can argue that Panasonic G3 or whatever mirrorless camera is higher quality than native Leica cameras because they are cheaper and offer pretty much equal or better features.

    Maybe the saddest thing to happen, in my opinion, would be Leica becoming just another mass brand with made in China build quality products. The only thing what would be worse would be Leica disappearing altogether from the markets.

    So what I would do if I would be the CEO of Leica?

    I would listen consumers and make M10 with EVF. The camera itself would be range finder, but it would at least take accessory EVF to the flash hot shoe or it would just have two fixed viewfinders. One optical for range finder and one electrical. The user could chose which to use and when. I would try to make it more affordable so that more people could buy it and then spend money on lenses, leather cases, and other stuff. I would make M10-R, a cheap variant of M10 without range finder. I would also keep X2 and S2 series and further refine them.

  • George Washington

    Turning the M series in to a M43 clone is not the solution their problems.

    Actually they don’t really have a problem. Their biggest problem is that they can’t keep up with the demand. And depending on how you look at it, that may actually not be a problem.

    It’s their legacy customers that have the problem, because they have been priced out of the market and abandonedby the company they have had a relationship with for years, decades or generations.

    And this really doesn’t seem to be perceived as a problem by Leica itself, because they are making money hand over fist and management gets to hang out with a bunch of celebrities, instead of a busload of pudgy retireries from the LHSA.

    Go watch the Stefan Daniel interview on the Luminous Landscape from the M9 introduction. I think Sean Reid asks him about the concerns people have in regards to the ever increasing prices of Leica gear. In a nutshell the response it: “Can’t afford our gear? Too fuc***g bad.”

    And for the existing customer base. “We already got your money.”

    So, in a sense this is a pointless discussion, because they have absolutely no reason to change their course and most likely won’t.

    The end.

    • Nobody Special

      Excellent points and I agree. I have found the comments directed towards existing users as well, really, really poor.

      The current ownership may truly believe that the path (he has) chosen is the best path – but for who? IF the Chinese market wasn’t available to them what path would they be on? Would they have to rely on product creativity with new technology?

      The legacy customers kept the company going. The ‘new’ Leica can now be questioned for what they are as a company when in the past, we all knew they were just trying to survive while they built great glass and average in use bodies – but they just seemed to give a crap back then – about their customers – now, as has been noted by their own words, seem to state otherwise.

      • Sav.

        One more point.

        As an engineer myself, working in a quite high tech environment (composites), I have almost lost my respect to Leica engineers.

        It is soooo easy to solve problems by throwing money at them, it truly is the easiest thing to do. And Leica at the moment seems to only be able to do that; it is as if there is no engineering creativity left.

        In that respect, I have much more sympathy and respect for Cosina & Zeiss engineers than Leica ones.

        My short selection of Leica glass (a 35 and three 50s) has become way too valuable to carry on the street, they have been 1 for 1 subsituted by CV/Zeiss lenses. If this isn’t sad, I don’t know what is really.

        • Nobody Special

          I have sold Leica Sport Optics, which by some strange happen-stance seem to come up with new designs and technology with nearly every new generation.

          Someone at Leica Camera lets that happen so why doesn’t or isn’t it happening with Leica cameras. Germany possesses very competent designers – make that very creative and imaginative designers. One simply has to believe that up until this coming Photokina that has stalled at Leica.

          Remember, they created AF in an SLR – BEFORE anyone else in the late 1970′s. They have done things in the past – by choice – the sport optics division has contiually improved product with optics changes and form factor.

  • David

    In the meantime, both colors of Summilux 50mm ASPH are now in stock at B&H . . .

    • LR admin

      Thanks David, will post that online.

  • Mark

    It is very obvious by now: Leica is behind technology. Their market strategy is “manual focus, essential elements of photography, etc…” It is safe to assume that Nikon, Olympus, Canon, etc. can make awesome manual focus lenses because they are simpler by design. As long as consumers buy into the “German engineering is best,” or “elegance and simplicity” of photography, then there will be a market for Leica. I think it is brilliant how Leica makes limited edition cameras. The purpose of the high price tag and exclusivity attracts consumers’ desire for ownership of one. More professionals use DSLRs because it provides more opportunity for capturing the images they want. The “magical” experience of taking a photograph with a Leica is subjective and is also felt by photographers who use a point and shoot Casio camera.

    • Mugget

      Talking about technology and users having to buy into some kind of ideal are just irrelevant distractions. The real fact is that SLR and rangefinders are completely different types of cameras! Not everyone prefers to work the same way, so there will always be markets for both.

      Regarding more professionals using DSLRs, this is likely a product of cost as well. I can easily imagine that even professional photographers would break into a cold sweat when they consider the purchase price of an M9 plus a single Summilux. But I would bet that it’s also true that most of those professionals (someone who makes photos and gets paid for it) who use DSLR are doing low-value work. However look at the professionals who do use an M9 and you’ll see that they do very different types of work, much higher value.

  • J Shin

    Before this post disappears off the front page, I wanted to thank everyone for reading and responding to it. I answered a couple of comments where there was an explicit question, but I am letting your other comments stand, since I have nothing to dispute, and your comments add more dimensions of variables to consider in understanding just what is going on over there in Solms-Wetzlar.

    Banksie’s comment above mentions peer-reviewed publications. I hope it is self-evident that the only peer review that matters to me here is your response, and it was a very gratifying experience.

    Thank you!

  • Andrew R

    Thanks for an interesting and well-written article. It was refeshing to read a reasoned analysis of Lecia pricing that didn’t degenerate into name-calling.

    One complementary factor is corporate risk aversion. Leica might be able to sell more at a lower unit price if they expanded their production facilities. However Leica management does not know the precise elasticity of demand. If they expand their production facilities, they know that they will have additional costs (the cost of the capital required for expansion and probably higher overheads), but they cannot be sure how much additional revenue the lower pricing would bring. Even if they think (but are not certain) that the additional revenue would be sufficient to cover the additional cost, the risk if they are wrong would be enormous. Why bet the company on this possibility when the current model is (probably very) profitable?

  • Robert Callway

    the new factory that they are building isn’t really being built to produce more numbers of cameras/’s being built to so they are more effecient. At the moment getting products etc round all depts. is time-consuming etc. The new factory will smooth out these processes improving efficiency and output. Leica would need a much bigger factory to produce a significant increase in manufacture.

  • Luiz Chang

    A great analysis.
    I found a typo in “If profit is the motive, it is not in their interest to keep the prices higher than the profit-maximization price, or quantity lower than the “profit” (not quantity)-maximization quantity.”

    • J Shin

      Oops! You’re right. Thank you!

  • regular

    This analysis does not take into account the time axis of the problem.

    As it is described here, Leica pricing strategy is inefficient, because it does not take into account the lifespan of a new camera body on the market, and how high-price and sales number can be sustained.

    The price difference between a new M9 (5500euros) and a perfect-looking second-hand M9 (3000-3500 euros) is killing Leica strategy.

    If Leica was creating products which sustains a low price-difference between new and second-hand, then consumers would prefer to get the new item with warranty, rather than the old product without.

    There are different solutions for Leica :
    - gradually reduce the street price of the camera over time, in order to fight second-hand market. Leica can either slowly reduce margins, or optimize the production costs over time.

    - fight second-hand market directly. For example, to create user agreements that forbid resales for a long period, or to attach warranty to the initial owner. A smarter decision is to offer very appealing upgrade program via camera exchange.

  • Frostbit Panda

    I hate to say this, but I don’t think Leica sells that much cameras to save it’s sorry ass. It has to thank those Japanese made lens mount makers who have made the act of intercourse between a Leica lens and mass market digital cameras so much easier that they end up buying them more than those madly expensive German digital bodies.

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