Canon Tries to Survive in Budget Price Range

by Robin Liss

Published on Jan 5, 2005 8:15 AM
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While many consumers will look at Canon's new 2005 ZR and Elura models as downgrades from their 2004 models, Mike Zorich wants you to look at it differently. Zorich is the Director of Marketing for Canon's Consumer Video Group and oversees the marketing of a line of budget Canon camcorders which have come under fire over the past three years by this publication and other publications, as well as their own users for remaining stagnant and not solving a low-light performance problem. However, Zorich and Canon's strategy of passing up new features and maintaining the same core camcorder internals seems to be working.

Among all the criticism, Canon's ZR camcorders are still highly popular and dominate sales in the budget camcorder market. According to sales data provided by one manufacturer, Canon's ZR camcorders held the numbers 1 and 3 spots in the quantity of units sold in November 2004, while Sony held the 2 and 4 spots and JVC took spot number 5.

The budget consumer category is becoming incredibly competitive, with price reductions each month. Canon's 2004 ZR80 was selling for under $300 at some stores towards the end of the holiday season, as were comparable digital models from Panasonic and Sony. The industry has entered a price war in the sub-$500 category where the manufacturer who can produce the least expensive digital camcorder will likely win. The result is that Canon has had to concentrate on price reductions rather than feature set upgrades in the ZR line.

"We're working very hard to maintain profitability," Zorich said in an interview with CamcorderInfo.com. "In order to maintain profitability even at that low end, it really is necessary for companies to look very carefully at how they can maximize the technologies, and that's one of the reasons that you see similar technologies carry over from one generation to the next, which really leads to why hasn't there been significant change in the ZR product line over the last three years."

Canon's ZR camcorders have evolved slowly with small changes over the past three years. The 2003 ZR models with the ZR60, ZR65MC and ZR70MC. Those were replaced by the ZR80, ZR85 and ZR90 last year at $100 less. This year brings the ZR100, ZR200 and ZR300, reduced by $100 again. With the 2003 models Canon started using a 680K pixel CCD, and that CCD has been used in very ZR since 2003, including this most recent batch. However, that CCD has caused controversy because of its reported poor low light performance. Zorich explained why Canon has kept the same CCD system which has earned them criticism:

"In order for Canon to continue to bring the product to the market place and have a competitive feature set and continue to maintain some degree of profitability which is critical in order to reinvest money into R&D."

However, the upgrades which have been done on the ZRs provide a window into those features which really sell in the budget camcorder market. While the body has remained similar, and Canon has kept the poor low light performing CCD, they've mainly added features to their still performance for each ZR - a feature that markets well with consumers shopping from major retailers. Those consumers often don't realize that the still quality of any $300 or $400 camcorder will pale in comparison to any digital still camera. In 2003, Canon added direct print options to the top two ZR camcorders, allowing them to send pictures directly to a compatible Canon printer. In 2004, Canon added their DiGiC chip to the ZR camcorders which the company claims allows for separate, and better, processing of digital stills and video. Canon coupled that upgrade with a heavy television marketing campaign emphasizing the quality of Canon's DiGiC chip in 2004.

By comparison, Canon's major competitors in the budget price range have been making major technology changes to their line year after year. Each year, Sony's budget camcorders get smaller and smaller, and in 2003 they introduced the touch screen. In 2004, Sony followed up with improved touch screen technology and and an emphasis on ease of use recording. In the past, JVC has been a small player in the category, concentrating on their low prices in 2004. They responded to complaints about their own camcorder's low light performance by adding a 3D Noise reduction technology, which earned praise from this publication.

While the features have remained very similar in the ZR camcorders over the past two years, Canon has been able to dominate the large zoom lens market while other manufacturers play catch up. The zooms help Canon hold on to the top-selling camcorder rankings. Like still performance, large zooms sell very well to budget consumers. Through their 2004 line, Sony, Canon's biggest competitor in the budget camcorder space, had 10x optical zooms on all their budget MiniDV camcorders, with only their Digital8 camcorders beating Canon's zooms. JVC's MiniDV camcorders have never had a zoom over 16x optical over the past three years. Panasonic camcorders also all fell under Canon's zooms until 2004 when Panasonic revamped their line with smaller camcorders and many zooms which broke the 20x optical barrier.

The move towards larger zooms on the Panasonic camcorders is finally providing some competition for Canon camcorders' large zooms, and may be why Canon has reduced prices once again. In the past 18 months, Panasonic has gone from a minor consumer camcorder manufacturer to a dominant market leader. Some reports say that Panasonic has claimed the spot from Canon as the 2nd largest camcorder manufacturer. One report stated that their market share grew from 6 percent to 18 percent when compared month to month in 2003 and 2004. Panasonic's strategy has been two-fold: be ultra competitive on the low end with huge zooms and small body sizes and attack the above $500 market with 3-CCD camcorders which emphasize performance and control. Panasonic also is aggressively marketing their new camcorders in their "Ideas for Life" campaign. Finally, they are giving deep discounts to retailers in an effort to get the best placement of their product in stores. One industry insider reported that Panasonic was selling their budget models at a loss of $100 each (with the profit passed on to the retailers) so that they could get better placement when they replaced those models in 2005.

Panasonic and Canon are adding fuel to the pricing war fire. Over the past two years the prices of MiniDV camcorders have dipped lower and lower. This year saw the first time that MiniDV models were consistently available under $350, and prices are only expected to get lower. The industry has entered a pricing war which benefits consumers, however, when you mix it with a declining number of camcorders sold in the U.S., it can make for a very destructive combination for the manufacturers.

"As the price goes down, we're not getting more and more camcorder users, so the market is going down or its flat. The retailers aren't making as much money selling camcorders any more," stated one executive at a major camcorder manufacturer who did not want to be identified. "You're not making as much profit even if you're making the same percentages because the margins are shrinking [for lower priced models]."

The result of the pricing war could be seen earlier this year when Sharp Electronics officially pulled out of the camcorder industry. Although the company did not give an official reason, one U.S. Sharp executive complained that they couldn't make any money in the camcorder industry anymore because prices were getting too low and margins too small.

Sharp's market share had been declining for years from the mid-teens at their height to the low single digits. Sharp originally entered the market with an LCD centric design with their Viewcam style camcorders. At one point, Viewcams were very popular, but as camcorders got smaller and people preferred compact models that were easier to hold, Sharp lost market share. However, multiple industry officials have attributed Sharp's decline largely to their failure to get placed in the key national chain stores where most camcorders are sold.

Where Sharp dropped out and failed, Samsung has come in roaring. Samsung is fairly new to the camcorder industry, only being a player in the past two years. Samsung has been successful at getting their camcorders into those very "box" stores like Circuit City, Best Buy, as well as major department stores and discount stores such as Walmart, Sear's, Costco and Sam's Club. Samsung's camcorders have been concentrated in the budget category and have not received much praise for their quality.

"We've obviously seen some new companies enter the market," Zorich said. "Clearly there are formidable challengers like Sony and Panasonic who has had some market share growth in 2004. They've achieved a good degree of success. But we're also looking at some new competitors like Samsung as an example. Being that they're not manufacturing in the same country, there is a cost efficiency that competitors are able to realize. When you compare a Samsung to let's say a Sony, a Panasonic or a Canon and that makes it even more critical for us to make sure that we're maintaining the cost to produce each model."

Whether Canon will be able to hold on to their budget camcorder lead remains to be seen. However, one thing is certain. Prices are going to keep dropping. One executive who spoke anonymously about the industry said that the future is good for consumers, but bad for the manufacturers: "Everyone is scared and reluctant to go to $299." After a pause, he speculated, "By the end of the year, we'll all be at $299."