I have recently had to get my 1Ds II repaired after some strange drop-like artifacts were appearing in images due to contamination between the sensor and the low-pass filter. I have just been informed that to repair it they will need to replace the "imaging unit" - which I assume is the sensor itself. The cost of the new part is going to be £837.29 + VAT = £983.81.

As this is a repair I imagine they are charging it at cost, which suggests Canon can now manufacture a FF 16MP sensor for under £1000. Quite an achievement. While there are many other components that go into making a camera, this would suggest they could put a similar FF 16MP chip in a 5D replacement and sell it for £2000 - the same price as the 5D when it was introduced.


Julian

First, do you really have enough trusted info to get the sensor's true cost? You seem to be assuming plenty.

Second, there's very little profit in selling stuff for cost.

Third, if Canon can sell al the cameras they can make for $1000, why sell them for $999? Looks like Canon would lose $1/camera. If demand is greater than supply, take advantage by increasing margins. As demand goes down, drop the price and decrease margins. Milk the cash cow.

Obviously, Canon should be maximizing shareholder value and return on investment.

As suggested by Mr Smith above, manufacturing or parts costs have often very little to do with sale price. The price is set by the market, not by the cost of producing the camera.

Feppe makes an exdellant point. Furthermore, as Howie indicates there is no profit at cost. No successfull company will provide repair servce at cost whether parts or labor.

There is market value to "good will." A company may give something away to get future sales at a good profit. The local dope dealer may give away a free sample to hook a future user.

in general, manufacturers mark up spare parts much higher than finished products - there is competition for products - Canon has no competition for replacement sensors

based on the replacement cost, i'd guess their cost is $250 (based on the general rule that prices and manufacturer margins in UK and Europe are the highest in the world)

stever. I hadn't thought of that. When buying a new camera, you have plenty of choices. When you need a reapir part, there is Canon.

So does Canon pile on the price because they can (up to where it makes more sense to buy a new Brand X), or make the repair relatively cheap to you coming back. Interesting marketing problem.

i know of no manufacturer that sells repair parts cheap (legitimate 3rd party alternatives may sometimes constrain pricing - e.g. heavy equipment rebuilds, some high volume auto parts - there have also historically been companies that were to lazy to to maximize profit on repair parts - i don't believe that Canon is one of these)

a good example in the U.S. are European car manufacturers that have held the line on car prices (competition) but have raised repair part prices consistent with the exchange rate (BMW 3 times in the last 9 months -- will they be rolled back when the dollar gets stronger? ha ha). When you have a strong product/market position, you can charge a lot for repairs without pissing off the customers enough to change brands.

when i had profit and loss responsibility i chewed ass if my guys didn't maximize prices

I'm not completely stupid, and was of course suggesting that at £2000 they would be making a profit. I simply wanted to share a data point on something often asked for which there is no reliable information.


Julian

Julian, I don't think anyone said or implied that you are completely stupid.

The piece of data added is the price (a single price from a single source in England) of a part.

From that one piece of data you extrapolated that Canon could make a profit selling a 16mp 5d for £2000. I think the posts were to point out that there simply isn't enough data to jump to that conclusion. There is much more to profit than the cost of the making the parts.

This sounds very strange; and I wonder if this instead means "image processing unit" (the Digic processor). If they meant the sensor, why not say "sensor"?

Also, I greatly doubt the common claim that the 1DsMKII is sold at a huge percentage profit margin, far larger than most other DSLR's which are already, overall, high margin products. That would only make sense if a lower price would not lead to a significant increase in sales volume, due to either inability to make more, or the fact that most who would pay the lower price are also willing to pay the current higher price.

Production capacity limits mostly make sense only when a product is new; it seems very unlikely that after making the 1Ds and then 1DsMkII for some years, Canon is still incapable of increasing production capacity to meet the higher demand possible at a somewhat lower price.

That leaves the idea that at a lower price like $6,000 or $5,000, the 1Ds would sell at little more than its current relatively small volume (small compared to about every other DSLR, including the 1DMkII). I doubt that too, and so should anyone who believes that the 1Ds MkII is such an excellent and widely desired camera that many people do not have it solely due to its very high price.

In summary, at most of the following can be true:
- the current very low market share for 35mm format DSLR's is due mainly to their currently high prices, or
- the prices of 35mm format DSLR's are so high due mainly to far larger than normal mark-ups on those products, which could be quite profitably sold at a substantially lower price.

My guess is that 35mm format DSLR volume is low because prices are high, in turn because total costs of production and defraying R&D are high. Because I am fairly sure that at significantly lower prices, the 1DsMkII and 5D would sell in significantly greater numbers than they currently do, which would take a lot of market share away from higher level Nikon products in particular, gaining high end lens sales too. If Canon could cut 1DsMkII and 5D prices while still making a good unit profit, it would have so by now, not letting production capacity limits get in the way for more than a short time.

This is likely not as simple as it looks.

Making another Widget may not be as simple as making one more. I have to add machines, manufacturing space, people. etc. All may cost a lot of money for one more Widget. But maybe I can now make 25% more widgets for the same capital outlay. Can I sell them at the right price?

If I make and sell a New Improved Widget, I may sell it at the expense of my own Old Widget. No real game there.

There are some folks married to Canon or Nikon for other reasons than the camera body. The bag of lenses that will need replacing. Contracts to use the Name. I just like the Name. Whatever, I may not just buy a mew Canon body bacause it is now $1000 cheaper.

There are lots of faxtors that go into pricing and production. Maybe Cabon knows how to run Canon's businee better than LL does.

Canon is a huge company. DSLRs are but a small part of the company. I think all cameras are less than 25% of Canon. What if they took the resources necessary to make a cheaper DSLR (doulne sales say) and applied those same resources to color copiers? Maybe a better use of stock holders money? Isn't ot really their money, not the camera owner's (customer)?

If it were best for the stock holders for Canon to close the doors, or sell the camera business to Nikon or Sony or Chuck, shouldn't they at least consider it?

At a guess I would say that it is the whole board - sensor and digic chips and associated circuitry. Unlikely that it would be cost effective to remove the sensor in order to apply a new one to the circuit board and the devices are unlikely to be socketed (though I haven't taken one apart to see).

Ultimately it comes back to the cost of the components being a small part of the cost compared with development costs, shipping, storage, overheads and margin, etc... As a percentage of component costs the image processing unit is probably much higher in a 1DsII compared with a 400D, and cost recovery is spread over a smaller number of units.

Given that a 5D sells for close to £1300 these days I doubt the cost is that high. I recently had a 24-70L repared by Canon, the cost of the labour was almost double the cost of the part.