Shift in Nikon strategy

Nikon recently announced the cancellation of the DL Series of premium compact cameras which attracted a lot of attention. While it likely didn’t garner as much attention there was also an announcement regarding a shift in Nikon strategy.

This shift in Nikon strategy was cited in its “Notice of Restructuring” back in November 2016 and also referenced in a recent financial update. Here is a key phrase from that recent Nikon financial announcement (my bold face type addition):

“As announced in “Notice of Restructuring” released on November 8, 2016, Nikon Group is currently under a fundamental company-wide restructuring to improve its corporate value as shifting from a strategy pursuing revenue growth to one pursuing profit enhancement.”

A company focused on “revenue growth” may have continued with the launch of the DL product line. A company looking for ‘profit enhancement’ would not.

The words seem simple enough, “shifting from a strategy pursuing revenue growth to one pursuing profit enhancement”. The impact of this shift in Nikon strategy could be very significant in terms of future Nikon product development and how it conducts its business.

Only the Nikon executives in that corporate boardroom that made this fundamental strategic decision know for sure what they intend to do, but we can certainly ponder the ramifications.

Potential for larger sensor Nikon mirror-less cameras
Personally I think this is a non-starter for Nikon – at least in the foreseeable future. Recent comments from Nikon executives have focused on the capability and performance of Nikon DSLRs, with only passing references to ‘monitoring’ the mirror-less camera market. There have been specific comments from Nikon executives about Nikon ‘staying the course’ in terms of its current DSLR and mirror-less product lines. In the short term this helps to conserve cash.

As long as Nikon can produce its DSLRs cost efficiently vis-a-vis its competition and generate their target per unit contribution margin, the company can maximize its profitability. It can also eliminate research and development costs associated with larger sensor mirror-less cameras. The marketing assumption made with this kind of strategy is that consumers are ultimately buying image quality and camera functionality rather than the guts in the camera. The other assumption would be that they really don’t care whether a camera is mirror-less or not.

Large format Nikon camera
I doubt that we will see this type of product from Nikon any time in the near to mid-term. It would likely represent a higher outlay in research and development dollars in terms of a body and associated lenses than Nikon can afford to make. Again, a company focused on revenue growth may go down this road, not one focused on profit enhancement.

Frequency of product updates
As seen with the Nikon 1 product line we may see Nikon spreading out the launch of new models to reduce its research and development costs as well as marketing expenses. In a declining market like digital cameras this makes financial and strategic sense. Holding off launching a new model until there are significant points of differentiation makes far more financial sense than the incrementalism currently in play in the digital camera market. Holding a product longer as current before introducing an updated one can allow a company to get a higher return on investment from its research and development investments. The key point, of course, is whether it can fend off competitive offerings with its ‘older’ product during that period between product launches.

Product rationalization
We may see Nikon begin to eliminate some low volume products or some that have some overlap with more current models. With the Nikon 1 system we could see the 10-30mm non-PD lens eliminated in favour of the 10-30mm PD version. If sales of the 10-100mm PD zoom are insufficient to cover marketing costs we could see that lens also disappear from the product line.

On the DSLR side of Nikon’s product offering we could see fewer generations of DSLRs being offered to consumers. For example, how much sense does it make to offer both the D3400 and D3300 models? Or having both the D7200 and D7100 available? Some of this may be due to inventory still being in stock in various countries of course. Focusing more on profitability rather than revenue growth may indicate more emphasis on stringent inventory control, thus reducing the need for downstream ‘fire sale’ pricing.

I think the latest Nikon 1 product releases are examples of this approach. Earlier models of the Nikon 1 product line were subject to significant price drops because Nikon overproduced the number of cameras and had to blow them out later. The pricing on the V3, J5 and CX 70-300 has been much more consistent with very few ‘deals’ to be had after the models were released. This approach helps to maintain per unit contribution margins.

One thing is for certain, interesting times lay ahead.

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29 thoughts on “Shift in Nikon strategy”

  1. Hello, your photos show that it is the man behind the curtain that counts. I am curious as to why you went with a one inch sensor when MFT would give you a much larger sensor and still a lighter system than traditional cameras. Was MFT still too big, or was there something unique about the Nikon one system that you preferred? Thanks!

    1. Hi Richard,

      After I sold my D800 and all of my FX glass in July 2015 I actually bought a M4/3 Panasonic GH4 and the two ‘pro’ Panasonic zooms (12-35mm f/2.8, 35-100mm f.2.8). After about 10 days I returned the rig for a small restocking charge. There were a number of reasons for that.

      1) The auto-focus speed and accuracy were not nearly as good as my Nikon 1 gear.
      2) The RAW files did not have the consistency and predictability of my Nikon 1 gear. I just never knew what to expect when I opened up a Panasonic RAW file and they took me 2-3 times longer to process which was a huge time waster for me.
      3) The Panasonic 12-35mm suffered from a lot of flare…actually it was the worst lens I’ve ever owned in that regard.
      4) I found that I hated working with the 4×3 stills format especially for landscapes. The format was also not very compatible with my safety poster business, forcing me to crop every image.

      As it turns out in May 2016 I ended up purchasing a pair of Nikon 1 J5s with the new 20.8MP BSI sensor. I was a bit hesitant since the camera has no EVF, but I soon discovered that this was really a non-issue for me. While the colour depth and dynamic range are still a bit behind M4/3 it was a significant improvement over the previous Aptina sensors in other Nikon 1 models and with less work in post give me much better results.

      My kit now includes 6 Nikon 1 bodies: a trio of V2s that I use exclusively for client video work, 2 J5s for all of my general photography work, and a V3 which I use specifically for birding/nature. Other than the 11-27.5 zoom and the AW lenses I own all of the other Nikon 1 lenses and my kit can handle just about any shooting situation I face. I don’t hesitate at all to shoot my Nikon 1 gear at a camera setting up to ISO-3200 and on occasion up to ISO-6400 as I can handle the noise in post quite quickly. Moving exclusively to the Nikon 1 system has made me at least 30% more time efficient when shooting client videos compared to using a Nikon D800 and FX glass, so overall I am very satisfied.

      I know a lot of people like M4/3 and enjoy using that format so I’m not criticising it in general terms in any way. I just didn’t like it using it at all and it did not fit my needs nearly as well as my Nikon 1 gear.

      Tom

        1. Hi Richard,

          If you are able to buy a J5 or V3 with the 10-100mm f/4-5.6 it will give you a more flexible initial investment. This would be important if you plan on adding a 6.7-13mm f/3.5-5.6 and/or CX 70-300mm f/4.5-5.6 in the future.

          If you have to buy a Nikon 1 body with one of the 10-30mm lenses then the 30-110 would make more sense from an overall value perspective. The 30-110mm is also an excellent lens to use with extension tubes if close-up photography is of interest to you. Also, with the money that you would save from not buying the 10-100mm f/4.-5.6 you would have enough to add an 18.5mm f/1.8 to your kit which is an excellent prime for lower light conditions.

          Tom

    1. Hi Edward,

      Unfortunately the economics in the camera market are such that all manufacturers will have little choice but to raise prices of their products in order to generate sufficient contribution margin on declining unit volumes in order to cover their fixed costs and be profitable. Nikon is certainly not alone in this. Camera owners of brands like Panasonic and Olympus have already seen significant price hikes with the introduction of new camera models. An earlier article that I wrote ‘Potential Price Shocks Ahead‘ discussed this issue.

      At this point it is hard to predict how much more contraction there will be in the camera market and which brands may end up being casualties.

      Tom

      1. Sure, I understand, they have to make a profit, and I don’t begrudge it, but a company that is primarily looking for profit enhancement instead of customer satisfaction has lost its way and won’t be around very long in a competitive environment.

  2. I rarely understand Nikon thinking. At one time I bought a Nikon Pronea (camera discontinued and APS film discontinued)..
    I bought a Nikon V1 because I figured that sensors would improve over time and a 1″ sensor and interchangeable lenses was a great plan going forward.

    I was dumbfounded when I heard about the DL series and nothing about a V3 successor and faster lenses for Nikon 1.

    It seemed to me that Nikon DL was going to compete with other similar cameras and to do this Nikon was nearly abandoning the Nikon 1 system that had tremendous advantages if further developed. The 70-300 zoom which gives an equivalent 810mm has almost no competition. Why isn’t Nikon developing a “could be great” system’s strengths?

    Tom – you’ve demonstrated the incredible macro ability of Nikon 1. Nikon has laid the groundwork for an amazing system but does not market it correctly. At least my Nikon V1 system will not be joining my Pronea in the closet because digital recording media will be available for the V1 unlike APS film.

    1. Hi Danaher,

      Unless one is sitting in an executive boardroom with full access to industry data, internal research, and the specific pro-formas for potential products it is very difficult to try to understand corporate decisions. I think the past couple of years Nikon has been scrambling trying to figure out how to grow revenue as a fundamental strategy. This, I believe, led to decisions to create the DL Series and KeyMission action cameras. The DLs appear to have been targeted at competitive offerings from Sony and Panasonic, while the KeyMission focused on GoPro.

      Looking at CIPA industry data and the rapid decline of the fixed lens camera market had me scratching my head about the viability of the DLs right from the get-go. As I expressed in my articles numerous times I never saw the DL Series as direct competitors to the Nikon 1 system, or as a potential replacement for it. The DLs were a different class of camera altogether.

      As the fixed lens camera market continued to decline the viability of the DL Series became even weaker. I wasn’t the least bit surprised when the DL Series was cancelled as I had mused about the likelihood of this happening in an article last year. Whether the KeyMission line will be successful will depend on Nikon’s ability to correct initial product problems reported by owners.

      I agree with you that Nikon has done quite a poor job marketing the Nikon 1 product line. Every camera comes with some kind of trade-off with sensor size being the major one with Nikon 1. On the positive side the lightweight and portability of the Nikon 1 System combined with very accurate focusing, fast frame rates, and the flexibility of utilizing interchangeable lenses are significant pluses. Nikon has not focused on these advantages, nor demonstrated them effectively thus far. We can only hope that a shift in marketing strategy occurs so photographers can better understand the unique capabilities of the Nikon 1 System.

      I do see a few glimmers of hope. Nikon has done a better job matching Nikon 1 production volumes with consumer demand with products like the V3, J5 and CX 70-300. Unlike previous Nikon 1 products these have been able to maintain their market pricing without being subject to the ‘fire sale’ after launch pricing of previous Nikon 1 products. The V3 is a bit of a jumbled concept with its detachable EVF and grip, but still quite a capable camera with good handling characteristics nonetheless. Hopefully Nikon has learned from this design mistake and will do a better job with a future V-Series.

      My biggest reason for optimism is the J5. I have found this to be an excellent camera in terms of image quality, handling characteristics, and market pricing. This is by far the best Nikon 1 model the company has produced and based on comments from a number of Nikon executives last fall, apparently is doing quite well in the marketplace. On a personal basis I reach for one of my J5s for all of my still photography needs, other than birds-in-flight. If Nikon can apply the same focused engineering to an updated V-Series we will see a very capable update.

      The shift in Nikon strategy to one of ‘profit enhancement’ makes sense in these times of declining market volumes and may help ensure that the Nikon 1 system remains for some time to come. Nikon does have a decent line-up of lenses currently available that meet the needs of the majority of non-professional photographers. Updating the J5 and V3 will allow Nikon to leverage previous R&D done with the lens line-up. Like you I would like to see some faster zooms like the ones planned on the DL models, but I can certainly live with what is currently available.

      Tom

      1. Hello Tom, I think the J6 will be a key factor in this scenario. if it is as sucessfl as j5, I see no reason why not. yet.
        talking to my local dealrship, they viewed the dlseries as too expensive for a compact camera. when I got my v1 there, they said nikon were having more sucess than canon with its eos-m line (they were right). If the j6 has really enanced 4k video, I will certainly be tempted. I hve seen some short burst v1 4k videos with anamorphic adapter lenses attached. impressed.

        the mock-up pre-production larger-sensor nikon mirrorless looks interesting. if nikon incorporate all the ^speed’ tech of the nikon 1 line into it, it could give sony,panasonic,fuji,olympus cause for thought

        years ago, a top dealer in london, told me nikon was a relatively small ompany, by japanese standards. hence the gap between launches between its professional bodies.

        isince the80’s, as part of the mitsubishi group, it may have benefitted to tech and financial resources at a higher level.

        Nikon, it seems to me, is japan’s senior camera/optical brand.
        keeping he competition guessing is an important marketing consideration. like ziess in germany, they are not followers, but innovators. press releases often mention, ‘it will offer something new to the market’, or similar.

        with the brand power of sony and panasonic now in the marketplace, I do not envy their task. suceeses in japan,USA and china markets will be key to profits growth.

        1. Hi Allan,

          It is anyone’s guess what Nikon is going to do. My posting was simply me putting on my previous corporate strategy hat again and letting my mind wander a bit. At my advancing age ‘mind wanderings’ are becoming more frequent. 🙂 I’m not aware of any official Nikon ‘pre-production larger sensor Nikon mirrorless’ camera. If you have a link to any official Nikon site that shows this I’d enjoy seeing it. There have been a few folks posting purely speculative things like this in the past, but as far as I am aware they are only that…purely speculative.

                1. Nikon might have leaked mock-up photos to test market reaction. also confuse the competition. not unknown in the marketing world. as you pointed out earlier, Tom, a fx format bsi sensor with the same pixel pitch as the j5 20.8mp sensor. wow. coupled with a upgraded expeed engine, the resulting camera images might be croppable to still yield an impressive result. – with less lenses to carry around.

                  digital photography is still a relatively recent technological field. – about 18-20 years. so it has notpateaued yet.I think Nikon will innovate further.I read they have lodged patents on a infrared enhanced sensor design – to improve low-light performance. layered sensor designs, rather like the foveon concept may prove worthwhile. nikon seems capable of designing lenses which can equal improved sensor designs, so far.

                  like you, I am optomistic.(while being realistic,too!) A.

                  1. Hi Allan,

                    Well Nikon is keeping us guessing…if nothing else we are having a quite enjoyable time exchanging ideas! I still remain optimistic about Nikon’s future as they seem to be making appropriate strategic decisions.

                    I was reminded yet again today why I love shooting with my Nikon 1 gear. I have a quick fly-in-and-out day tomorrow to finish up a client safety video and I need to travel very light. I’m cramming an interesting assortment of gear into my recently acquired Tamrac Anvil Slim 15 backpack: 3 camera bodies (2 V2s and a J5, 6 lenses (10mm, 18.5mm, 32mm, 10-100 f/4-5.6, 10-100 f/4.5-5.6 PD and 6.7-13mm), extension tubes, travel tripod and two mini tripods, tripod head, a half dozen batteries, portable LED light, Nikon 1 flash, and a few cleaning supplies etc. All in one backpack bag and under 20 pounds in total…I don’t miss my DSLR days at all.

                    Tom

            1. Hi Allan,

              Thanks for the link! I remember seeing it some time ago. The latest comments from Nikon execs seems to indicate that the company is taking a ‘wait and see’ approach to assess potential growth with the mirror-less market. My best guess is that Nikon will stick with DSLRs for at least a few more years as switching over to mirror-less could cause cannibalization and reduce unit volumes of specific camera models. This would affect their break-even points so I don’t see that making much business sense.

              I’m likely an atypical camera user but I’d have no interest at all in a larger sensor mirror-less camera from Nikon or any other manufacturer. I’ve improved my onsite shooting efficiency by at least 30% moving completely over to Nikon 1 and I have no want/need to go back to larger sensor cameras like the D800 I used to own.

              Tom

              1. with a lower total parts count, lower moving parts count with associated assembly cost savings, nikon will have to move further into mirrorless teritory, to remain competive and get satisfactory unit profit…….or have a much smaller imaging devision.
                it is dx-dslr that is the most likely sacrifice, perhaps, in favour of mirrorless dx or fx. you may have dx/fx figures-you seem well-informed.

                bearing in mind their stated wish/need to enhance profitability, spreading resources too thinly across too many product ranges, like r&d, is always a danger.
                for the dl range to get developed as far as it was, then axed, illustrates japanese business culture:
                being able to turn on a dime – fast. if the J6 suceeds and the global eonomic story unfolds well, post Trump, nikon 1 will get internal support at nikon. also therefore, mirrorless. ifnot, sionara. you a betting man? 🙂 Allan.

                1. Hi Allan,

                  I agree that there are some good product design and construction reasons for Nikon to pursue more mirror-less options for their product portfolio. I don’t see Nikon moving forward with any DX or FX mirror-less bodies for a least a couple of more years. My guess is that they will monitor the relative size of the mirror-less market closely and identify a ‘go point’ where making the shift over to mirror-less makes sense for efficient production. Many Japanese companies have very fluid production processes and they tend to be much faster and much more efficient changing over production lines to build smaller batch lots of products than many of their competitors. I don’t know if this is also true of the camera market.

                  In the near term I think we could see the D3XXX line dropped. DX sensor cameras could start with one D5XXX, then move to one D7XXX model level, with the D5XX at the top of the DX sensor body cameras. If Nikon decides to put some real effort behind the Nikon 1 line, we could see a stacked sensor to further improve image quality. The near term strategy could be to try to transition D3XXX buyers into Nikon 1. Use the D5600 as a bridge body into the higher end DX lineup, then focus most of their DX effort into D7XXX and D5XX. That way Nikon could reduce DX models down to 3, all of which would be higher value/price/margin bodies. Full frame could be addressed with 4 bodies: D6XX, D7XX, D8XX and DX. As far as Nikon 1 I think there will be 2 models a J and a V. Given the water infiltration issues with the AW I think that model will disappear.

                  Given that Asia and Europe are the largest mirror-less markets any Nikon product development will be heavily skewed to the needs of consumers in those markets, not North America.

                  I see Nikon’s survival being very much dependent on focusing on fewer camera bodies, but increasing their emphasis on lens development.

                  Tom

  3. Hi Tom
    I certainly hope you are right. I do not need large format camera, from the high Quality point of view FX is utterly sufficient for my needs. I still am not in the position to be able to say FX cannot fulfill my wishes. You could say the format is still better than me. Alternately I use Nikon 1 V1, V3 and J5. DLs seemed interesting to me, but at the moment I would be content with something like J5-sensor in a body like V3. Maybe it will come in our direction. Nikon has to produce something, don’t they? Interesting times indeed. Keep up your good work, thanks for this site.

    1. Hi Robert,
      Thanks for sharing your perspectives – always appreciated! Some comments last fall from Nikon executives indicated that the company views the J-Series as its ‘bread and butter’ Nikon 1 camera body, and the V-Series as more of a speciality product focused on the enthusiast market. We can all just keep our fingers crossed that a much improved V-Series will make an appearance some time in 2017 or by the spring of 2018.
      Tom

      1. Hi Tom
        I wonder what is your take on this: Since couple of months already I regularly check ebay and ricardo (kind of swiss ebay) for V2 and V3. I would like to buy a second body V3, if possible. They are virtually inexistent, even V1s are very seldom, their price is maybe halved, but not always. Why are people keeping them? According to Thom Hogan Nikons 1 are hopelesly out, so if he is right, one would think, the market would be livelier.

        1. Hi Robert,

          I have lots of Nikon 1 owners contacting me regularly and the vast majority of them are keeping their V-Series cameras as they are unsure if Nikon will be producing an updated V-Series in the future. My take on it is if a V4 is launched, then the used market will see a lot of older V-Series being released into it. I know that Nikon Canada still gets shipments of new V3s and they are snapped up very quickly. I recently added a V3 to my kit so I can retire my trio of V2s from still photography and thus extend their lifespan for my client video business. All of my still photography needs will be handled by my pair of J5s and the newly acquired V3.

          I don’t follow Mr. Hogan at all and I don’t know what ‘hopelessly out’ means. Anecdotally I do know that there are a lot of Nikon 1 owners trying to do the exact same thing you are doing, i.e. looking to add another V-Series body (or two) to their kit as a bit of future proofing of their system. I have not seen a used V2 in Canada for probably 18 months now. Folks that have them are keeping them.

          I also get a few dozen emails every month from people who have made the decision to purchase some Nikon 1 gear for the first time. They often ask for advice on bodies and lenses. Some of my recent articles (http://tomstirrphotography.com/choosing-nikon-1-body) have been inspired by the regularity of these soon-to-be Nikon 1 owners requests.

          Tom

          1. Hi Tom
            Thank you very much for your answer. You certainly covered everything. I am waiting either for an opportunity on ebay, or for V4.
            Best regards
            Robert

          2. Robert’s comments puzzled me a bit. brand new V2

            and even V1 can be found on ebay france, maybe germany and UK too. look on amazon.de, too.
            incidentally the original 10-30 non-pd zoom had a recall issue. as the 10-30 PD zoom is such a great performer, imo, buying this separately and a body separately, is no hardship, new or mint used.

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