No one sees it like Canon

So what’s with Canon these days?

Jason McLean

Jason McLean

What would induce a market leader to compete so aggressively with its customers in hardware, and at the same time set up a range of direct-to-consumer businesses – photo education (Canon Academy), printing services (PhotoPico) and now image storage which, if they don’t also compete with said customers, certainly step on their toes.

Beyond its inroads into retail, there seems to be a change of attitude towards the rest of the industry. We saw a minor manifestation of this at the PMA Convention, when quite close to the event, Canon director Jason McLean withdrew from the opening panel discussion of managing director-level executives, sending a relatively unknown line manager, while the Canon representative at the panel session on printing simply didn’t show up.

There must be a sound business reason to jeopardize retailer support, industry perceptions of ethical dealing, goodwill, and ultimately that same market share dominance which the company has such pride in highlighting in press announcements and other communications.

In the absence of any comments or statements from the company on its present and future intentions (it has slipped into No Comment mode when it comes to responding to difficult media enquiries), this is what I think:

Canon-1First, Canon doesn’t believe that there is any particular retailer loyalty towards it – so there’s nothing to lose there.

It was way back in 2011 that Mr McLean stood up before a group of photo specialists and expressed his concern that they were doing the dirty on Canon by persuading their customers (their customers mind you, not Canon’s customers) to purchase a brand which was not Canon. What’s more, this infernal interference by retailers was driving customers away:

‘One of the things the industry needs to understand is they [the consumer] know they are getting switched in-store. One in three people know when they walk in with a research plan they realise they can be switched.’ He said this was driving consumers online.

– This was part of the rationale he provided for Canon launching its online store. He also said at the time that Canon’s prices on its website would not attract any great interest from consumers – there must have been a small print ‘use-by’ date to that assurance!

Specialist retailers might see this ‘switching’ as simply a brand-agnostic attempt to get the right product in the hands of the customer, but to Canon it must have seemed like perfidious treachery, no doubt fuelled by spivs from its envious competitors.

– That’s one great thing about a dedicated online store – there are no alternative products from other brands to confuse the poor consumer!

Canon2During that same speech he said Canon had a particular connection with the photo specialty channel, as photography was part of the corporation’s heritage. ‘We are in this together and I think there’s a lot of energy spilt around looking over our shoulders and not being focussed on the fact that the consumer is changing around us.’ (As I’ve quipped previously, who was to know then that the ‘this’ he was alluding to that we were all in together was – retailing!)

Canon would have been further convinced that retailer loyalty ain’t what it used to be when, a month or so after that PMA NSW meeting, JB HiFi started to parallel import popular Canon and Nikon cameras and sell them online at the same time as the more pricey Canon and Nikon-supplied local versions were on sale in-store.

JB possibly did itself and its competing retailers a favour with this maverick move, as not long after Canon announced price reductions (on popular camera and lenses, at least) and Nikon sweetened the local deal by reducing prices AND providing a two-year warranty via authorised dealers who agreed to play nice. Canon has since upped its manufacturer’s warranty to two years also.

Canon3These price reductions must have been a bit of a hit to the margins Canon Australia was used to enjoying – and that’s a critical point. One way to make up for that reduction in wholesaler margins is to take both a wholesaler and retailer margin by selling direct. This also reduces distribution and administration costs, so the outcome is overwhelmingly positive from a financial point of view. At least for a while.

I really don’t know what wholesaler margins for cameras are, but I do know that some camera companies used to sell cameras to journalists and other favoured types at a big discount. The formulas varied – some added a small percentage to landed cost, some simply discounted the RRP by 40 percent or more. You would have to assume the camera companies never actually lost on the deal (just like Big W never used to lose on 8 cent prints!). So if Canon Australia pays Canon Japan $1000 for a camera and sells it on the Canon Store for $1800 or $2000, it’s a nice little earner – way better than sharing the margin with a bunch of ingrate retailers who keep switching your customers to competing camera brands!

So Canon hasn’t gone berserk – it simply comes down to making more money. But what about the reaction from the retailers – surely that has to be weighed against the simple gain in gross profit? If they were switching before, then surely it’s an ABC policy now – Anything But Canon – given its recent behaviour.

In a retail sector which is noted for its civility – ask anyone who has come into the photo industry from other sectors – the publicly-expressed negative reaction at the PMA convention in September from some retailers on the panel and some in the audience to Canon’s retailing adventures were a breath of fresh air.

All cashback offers are created equal - except when you purchase from the Canon store, the 'cashback' is a direct discount at the checkout.

All cashback offers are created equal – except when you purchase from the Canon store, the ‘cashback’ is a direct discount at the checkout.

But that was it – one little breath! I wrote an article recently showing Canon undercutting local stores and even B&H in New York – with not one comment from readers. That must have further convinced Canon it was on a winner. I’ve been quietly encouraged by several retailers to go in hard about Canon undercutting them on price, but when it comes to standing up to say publicly what everyone is saying privately, let’s just say no one is available for comment. Retailers seem scared of Canon, and that’s appalling.

What I think is happening is that Canon has identified the retailers it really can’t do without. Some of those retailers might be inclined to tell Canon to take a flying leap, but its products represent too much of the market for them to risk it. So the big guys in photo specialty and CE are all ‘in discussions’ with Canon. Observers of the photo retailing scene will have noticed a recent plethora of retailer-branded cashback deals and bundles on Canon gear lately. This is a big change from nationwide Canon-branded promotions that all retailers could participate in.

So what about the small guys? This is what Darren Spargo (Pakenham Photo Electronics) had to say to the Canon rep from the floor at that PMA panel discussion:
I’m horrified and quite upset, Simon. You want to sell direct to the consumers and yet many of us as independent small retailers have been pushed through an ex-distribution channel that makes it very difficult to service our customers.

‘We used to be able to contact a supplier and know whether we had stock to purchase or not. Now between the customer’s enquiry and being able to make the sale we’ve got two, three, five different distributors you try and push us through.

‘Most of the time when you go looking for the accessories we are all talking about being such an important part of us being able to make a margin, half the distributors don’t even carry a full range of your accessories.

‘And it’s particularly difficult as an independent small retailer to continue playing this game, so to James (Murray, Nikon) and Mark (Radatt, Olympus) please continue selling direct to small retailers, and I hope the companies that have elected to push us through distributors get the message.’

– There was no response from the aforesaid Simon. I mean, tell some one who gives a damn!

Because it’s fairly clear that Canon is offloading its small customers – the businesses that don’t have any leverage – who need Canon more than Canon thinks it needs them. Canon can then replace that market share – let’s say it’s 10 percent of its sales – with much more lucrative sales from its online store. So they substitute the least profitable 10 percent of their sales with a super-profitable 10 percent. And you better make sure you are well away from that danger zone! Why, you might even be inclined to switch customers to Canon to make sure you keep in the good books.

Canon could even afford to drop a few points of market share and still look healthier from a profits point of view.

So overall it’s a classic divide-and-rule strategy. Keep enough sugar on the table for the bigger accounts to remain ‘in discussions’ rather than getting on the phone to a friendly grey marketer. They then lose any allegiance to their smaller specialist colleagues, and as far as Canon is concerned, it’s not really concerned at all with the mums and dads (except those under the protection of the Camera House brand).

This is very much an outsiders’ take on things. Fortress Canon has not been doing much in the way of briefing on marketing strategy lately. (You might have noticed that?) Looking back over Photo Counter’s almost always positive Canon stories over the years, I feel a bit like the unwanted smaller retailers! The shoulder started getting colder about this time last year. Because Canon doesn’t address the industry as a whole any more Photo Counter, like the Darren Spargos of this world, is irrelevant to it. Canon can talk to who it wants to directly using the account manager approach, and the rest of us can make our own arrangements.

But will it work? I don’t think so. At least I hope not. The closest comparison historically is probably in the ’90s when Kodak-owned Smiths/Kodak Express stores offered $9.99 and $7.99 D&P. And that didn’t end well.

Nikon is holding firm with a go-to-market strategy which includes the whole of the photo specialist channel. (And hats off to Nikon for not slavishly following the leader by undercutting its customers at retail.) Olympus likewise is more focussed than ever on photo specialty.

Sony’s new full frame interchangeables and some other exciting new releases from Panasonic (also getting closer to specialists), Olympus and Pentax will do the switching rather than retailers. Remember those old ‘no one ever gets sacked for buying IBM’ ads? It was hard to imagine a world without IBM PCs back then…

I am heartened to note that while Canon quickly amassed 75,000-odd subscribers to its various consumer websites, the membership has basically plateauxed over the past six months. That’s not very impressive given the millions of dollars sunk into online publishing. And they have created a big rod for their own back with their Facebook page. The Canon fanboys and girls are both finite in number, and inclined to stamp their little feet a lot when they don’t get what they want. Like big discounts. And some of the most recent online store deals have seemed a little desperate: for instance, the Canon G16 with a $119 soft case for $599 when it’s the same price at JB’s without the case; or the Ixus 510 HS at $169 – more than $100 below the wholesale list price.

And what’s to stop those smaller stores from really making their own arrangements? It may not be a matter of inevitability that the grey wholesalers and the smaller operators in the specialist channel start to do business together, but surely there’s a big ‘if’ there.

Some readers will be aware that I worked for Kodak during it’s Indian summer in the late ’80s and ’90s. I can tell you that it was most arrogant and aggressive just before it started to lose control. Hubris will get you in the end, but the damage done in the meantime can’t be undone.

 


5 thoughts on “No one sees it like Canon

  1. I believe Canon Australia made a net profit of around 5% last financial, so the sooner Canon Australia goes broke, the better our lives will be. I find it funny that Canon have no balls to make statements. Canon have been doing the dirty for years with smaller accounts and promised one “We’ll never sell direct to your customers!” What a load of crap Canon!

    • Not happy Jan – canon’s net profit of 5% is more likely to be a paper figure than the real deal. The profit is actually made in more tax friendly countries. For instance most Canon goods come through Singapore (corporate tax rate 17%). Hence taking the profit here then upping the wholesale rate to Aust minimises tax paid. Looking at the local subsidiaries financials ca be quite misleading. There is a lot of transfer pricing that goes on to minimise tax. The tax lost to Australia, the resultant higher local costs, lost sales and employment opportunities cost this country FAR more than the 10% GST on online sales under $1,000 ever will.

  2. Great summary, thanks. Canon NZ are not selling direct ( yet ) but who knows when that is going to happen. At present I’m still trying to work out which half of the market I’m in, the half they can do without or the half that is in ‘discussions’. We were out of our shop for 523 days, recently back in, and within the rules that Canon have in place they were quite supportive. I think they still view independant photo specialty as an important part of the market here, as we are not dominated by chains, or groups, and CE is fast losing interest in cameras.

  3. As said above, this is a great summary of what’s going on in the market place. It seems that since Canon are one of the largest players they are being noticed more than those smaller suppliers also doing the direct selling dirty dance.
    Here in NZ we don’t have a direct sale happening between Canon and the consumer but I am concerned at the slippery slope they are starting to tread. Harvesting customers details with every promotion, and now the release of a 2 year warranty, via an online registration. It’s probably just a matter of time till they follow their Australian cousins down the road to direct selling.
    I just remind myself “Change is inevitable, growth and bitterness is optional”

  4. I have watched the battle between specialist marketers since the early years of the late 50 ies and worked in the industry since 1956 when I held my first job on Saturday mornings and the peculiar ways of wholesales, importers and retailers have conflicted many times. At the end of the day all need each other and none of the players have learned this preferring to combat with each other instead of Sharing their expertise for the common good. It appears that there is an enjoyment in the combat.
    In 1976 my late uncle and I were standing on the footpath and he said to me ” you know Ron I started my business in 1939 and gee it was hard but I am glad I am not starting now.
    I replied you know uncle Hans I started my business in 1968 and gee it was hard but I am glad I am not starting now. Every day some young bloke comes to my store to buy a item of gear to start a new business now. It is always hard to start up a new venture but it is also hard to stay in business as we are all slow learners.
    Retailing, Wholesaling, Importing, Manufacturing is all the same I.e. We chase margin at any cost because there are laws that restrict the many ideas that we wish to try.
    It is funny over 50 odd years I have watched my suppliers, completion, clients all believing that they are being ripped off, as they compare our prices with the USA, Hong Kong and other overseas markets which are often much cheaper than Australia but often the selling conditions are vastly different and the comparison is unfair.
    Remember we live in this country and our lifestyle is great and that is the real reason that our costs are so much higher.
    Most companies show a annual profit of around 8.5 0/0 which is not a lot in the scheme of things so try and see your position and compare what your supplier must do especially with advertising, holding inventory, carrying a service department the list becomes endless.
    Yes we all attempt to have a greater share of our suppliers margin and then we also attempt to take their business as retailers become importers and distributors attempt to be retailers it is quite sad let’s us have more corporation with each other.
    Just my thoughts
    Ron Frank
    Perth
    West Australia

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