This post is written by Cosimo Fanuli, student of Management Engineering at University of Salento, Italy:
Abstract
In virtual communities dedicated to photo enthusiasts, dealing with the Leica M theme always creates antitrust fractions. On the one hand, the detractors of the brand find unjustifiable the expense for this type of instruments. On the other hand, those photographers who consider a Leica M camera a tool suitable for their photographic genre. This study aims to explain how a company can make a profit by having a really narrow market share. By adopting a differentiation policy that is reflected in the uniqueness of technical solutions and high-quality products, creating a strong image of the brand and providing a tool that reflects the needs of customers, Leica Camera AG succeeds in gaining a strong corporate business success.
In online communities dedicated to photography talk about Leica, and in particular about M system, often creates antithetical factions. On the one hand, there are the staunchest defenders of this historic brand, on the other side there are the detractors who see the “red sticker” only as an expensive photo tool with too many technical deficiencies. In this scenario, threads are created that demonstrate the necessary subjectivity in the evaluation of a photographic tool. However, because of the discussion environment and the subjects involved, the company’s business model is not studied to explain pricing policy and a careful analysis of the interrelations between the tool and the user is not conducted. This raises the need to create that missing link that there is between the community assessments and those that are the foundations of business strategy that enable Leica Camera AG to operate profitably in the photographic industry. In particular, it is important to carry out an analysis of the competitive environment in which the company operates, assessing the technical point of view the products and examine the value proposition offered to customers. To this end, a study on the adoption of this technology by the users must be conducted, the rationale for the selection of this type of camera must be understood and the value that the customer gets from buying it must be analyzed.
The M system is accepted as having been the first mirrorless model, since its introduction in 1954 of the Leica M3. As such it has always carved a slice of the market alongside competitors that sell SLR systems. For nearly a decade, some brands have introduced camera bodies without a mirror, so going to undermine the already narrow portion of the mirrorless market. In particular, Dr. Andreas Kaufmann (Leica Chairman) states that Leica market share to 1% of the global camera market, reaching sales of approximately 100,000 cameras every year (in the catalog there are other photographic systems in addition to M System. 1% refers to the entire catalog) [diepresse.com, 26.10.2016 Carsten Hoefer]. From these numbers it is understandable that, in order to have a sustainable competitive advantage, for Leica is impossible to operate at low cost as there is the need to divide the fixed costs of the production on a limited number of products. Thus the brand adopts a strategy of differentiation [Competitive Advantage – Michael E. Porter]. A differentiation strategy is appropriate where the target customer segment is not price-sensitive and customers have very specific needs which are possibly under-served. Differentiation involves making products or services different from and more attractive than those of the competitors.
Figure 1: Porter’s generic strategies
Products will typically involve unique features, functionality, durability, high quality support and also strong brand image. To make a success of a differentiation strategy, organization need:
By adopting this strategy, the company therefore requires a premium price for their products exceed the costs incurred to differentiate them, so endow them with unique features that have some value for its customers. The risks associated with this strategy may result from the fact that consumers do not recognize the differential factor, as could be observed in many online community users. Using the model of the six principles of the strategic positioning of Porter [Harvard Business Review, March, 2001 – Michael E. Porter] is possible to analyze the business of the company in detail and how it manages market and customers in order to sell products related to the M system:
In order to fully understand the strategic positioning of Leica Camera AG, we must study the aspects related to the brand because they have a strong impact on consumers. In fact, developing a good relationship with the tar- get market is essential for brand management. Hislop [An Overview of Branding and Brand Measurement for Online Marketers, 2001 – Hislop M.] defined branding as “the process of creating a relationship or a connection between a company’s product and emotional perception of the customer for the purpose of generating segregation among competition and building loyalty among customers”. The process of brand management implemented by Leica has the following components:
The last but not the least factor that allows the M system to be successful on the market is the absence of direct competitors. In fact, there are no other photographic systems that adopt rangefinder focusing. This particular method of focusing is a prerogative of the German brand only. Other brands are bringing innovation to electronic viewfinders or, in the case of Fujifilm, in hybrid viewfinders. The Fujifilm solution thanks to the possibility of framing inside the viewfinder, wide viewing and the use of LCD screens to focus are as close as possible to the rangefinder. However, it is still far from the use of the optical rangefinder.
Studying the forum discussions, it was possible to evaluate the thoughts and opinions of the Leica M users. In particular, users who participated in the discussions can be divided into two main factions. On the one hand there are those who, by performing strictly technical assessments, consider selling prices too high for the features offered by the product. In particular, they point out that the Leica cameras do not have all those characteristics of modern technology that today are found in the products of competitors. They therefore going to wonder why we should pay so much a product that does not present great innovations. On the other side, there are the users of Leica rangefinder cameras that assess the failure of many technological features in a positive manner. Despite the high purchase costs, they consider this product unique in its kind and perfectly corresponding to their expectations. In particular, they appreciated the rangefinder, the possibility to mount the M lenses and the essentiality of the camera.
The behavioural study is based precisely on the few features that are considered not only essential, but also sufficient for all those photographers who use to shoot the Wetzlar camera. By using the technological acceptance model of Davis [Technology Acceptance Model, 1989 – Davis] it is possible to explain the adoption of this type of camera by the photographers. The model suggests that when users are presented with a new technology (and in this analysis, this refer in the adoption of a camera that is completely different in the use of those that are the traditional SLR or mirrorless), a number of factors influence their decision about how and when they will use it, notably (Figure 2):
Figure 2: TAM: technology acceptance model
The shutter low noise and the discretion of the camera body are two important variables that influence the perceived usefulness. For certain photographic genres these features are essential, so the photographers decide to adopt this camera that allows them to blend in and go unnoticed in the scene the will be photographed. Furthermore, the rangefinder allows a wide view of the scene. The space be- yond the frames allows to understand if something is entering the scene or if there is an opportunity to better compose the shot. The lack of automation and many functions that are unnecessary for certain photographic con- texts play a key role in the perceived ease of use by the photographer. The simplicity of this type of camera for users who purchase a Leica is therefore not a limit, but a wanted feature.
The M system represents a milestone in the field of photography, as some of the great masters of photography have taken famous pictures, then become real icons, just with a Leica M camera. This allows the brand to have a strong reputation and appeal. Constructive quality and after-sales service are also a guarantee. In addition, the process of differentiation compared to competitors has allowed the company to create target customers willing to pay for a rangefinder camera, which, on the one hand, does not feature the latest generation found in the technology field, on the other hand represents a tool minimalist style that fully reflects the will of some photographers to use a camera with essential features.
Nowadays there is a very varied offer in the field of photography. However, there is no direct competitor of the M system, as other brands propose solutions that do not reflect the philosophy of the German company. Users then continue to buy M-cameras because using them finds a strong feeling and features that fit their way of photographing.
In virtual communities, it is common practice to guess that the entry into the market of a product with a rangefinder focusing system and essential in its functions could undermine the monopoly of the Leica M system, at a time when the price would be in a lower budget target. A lot of users think that this could cut a slice of both the already affectionate clientele of Leica brand and those who not having the necessary finances for a Leica camera. However, despite this current of thought in social communities, no concrete industrial initiative has been implemented to introduce products that can compete with the M system. This is because, on the one hand, the market share of these devices is so limited that if a competitor wanted to sell products in this category it would be impossible to implement a low-cost sale policy. Indeed, new product, production and marketing costs should be charged on a very small numberof products (based on the reference market). It would also be difficult to compete with such a well-established brand, because it is for some people as a status symbol.
From these considerations of economic origin in the context of global competitiveness, by analyzing the company image, thanks to the high quality of the products and emphasizing the research of some photographers of a simple and essential tool, it is therefore possible to justify and explain as the business model adopted by Leica Camera AG is winning.
©Cosimo Fanuli
