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Speculation was rife at the beginning of March that Nikon was about to release the D3 flagship digital Single Lens Reflex (SLR) camera, with a rumoured ‘Fullframe’ or possibly ‘1.1x’ sensor format. This would put the company head-to-head with main competitor Canon in a highly visible sector of the premium market, but would represent a change of course from the organisation’s investment in DX, or APS-C format sensors and equipment. This case study examines the pros and cons.

Background
For those not in the know, Nikon is one of two leading manufacturers of Digital Single Lens Reflex cameras, a market which it, alongside arch-rival Canon, created at the end of the 1990s, initially to replace film for professional photographers. Neither Canon nor Nikon were first to market with a digital single lens reflex camera. From 1993 Kodak manufactured a series of DCS cameras, which were hybrid Nikon or Canon film cameras with Kodak sensors and electronics, but reliability issues, and the existing market presence of both main manufacturers, meant that the Kodaks were progressively squeezed out.

Pricing was initially high, but by 2002 Nikon had introduced the ‘prosumer’ D100, at less than £2,000 UK price. Canon, in the meantime, had also been active, and both manufacturers have continued to trade model releases, each with higher specifications or markedly lower prices.

The principal advantage of the Digital SLR over the then market leaders, digital compact cameras, is that they behave very similarly to film-based cameras, and allow photographers to leverage their investment of auto-focus (and, in Nikon’s case, manual) lenses. Since for many professionals the investment in lenses dwarfs the cost of the camera body, and since the attraction and flexibility of 35mm SLRs was largely in the vast variety of interchangeable lenses, the advent of the DSLR was hotly anticipated. DSLRs gained rapid acceptance among photojournalists, and by 2005 film based SLR cameras were becoming a rarity in professional settings.

In the mean-time, other players were entering the arena, including long-term rivals Olympus and Canon, as the market broadened. From 2006, sales of Digital SLRs were predicted to exceed those of digital compact cameras in the consumer market, and new-boys Sony entered with an ostensibly entirely new line, though it was largely a rebadging of the Konica Minolta system. At the time, Sony insisted that they would become the number one player in the DSLR market. Nikon responded bullishly, stating that it would see off Sony, and eventually supplant Canon as number one in the DSLR market.

Clearly, both Nikon and Canon need to obtain the largest possible share in the burgeoning consumer Digital SLR market, since this dwarfs professional equipment sales. However, both manufacturers are aware of the sensitivity in the market place to the perception of premium status, as demonstrated by the numbers of professional photographers at news, sports and commercial events using their branded equipment. Nikon was able to maintain dominance in this regard from the 1960s to the 1980s, but Canon created a better professional equipment offering in the 1990s, with Nikon late to market in the area of autofocus lenses. In the meantime, other manufacturers failed in their autofocus offerings, so that the position by the start of the 2000s was that most SLR professionals used Canon, with a smaller, but still significant proportion of Nikon users. The launch of the D1 to some extent redressed the balance, and Nikon has made modest year-by-year gains in professional market share since.

Further, the consumer sales of photographic equipment are unusually sensitive to media comment and community perception. Photography has a long tradition of clubs and magazines, and this has burgeoned with the advent of internet discussion and pundit sites, and the confluence of cameras and computers, leading to a raft of new magazines. This is also true of a number of other sectors, notably home computing, home video and digital music. However, no comparable sector is so dominated by just two players, which together hold about 80% of the market.

The Dilemma
Because of technical differences between digital and film, both Nikon and Canon originally came to market with a smaller sensor than traditional 36×24mm film. The smaller, APS-C, sensor offered its own characteristics, including greater depth of focus and a 1.5x multiplication factor (in fact, a 1.5x crop factor) which gave more magnification to telephoto lenses, but rendered wide-angle lenses unuseful. The smaller sensor only used the central ‘best’ 2/3 of the lens, enabling sharper pictures across the field, which was an important advantage since digital photographers tend to examine their pictures at the pixel level, the equivalent of blowing a traditional photo up to 10x or 100x. Nikon and Canon both responded to the issue of wide lenses by bringing specialist lenses designed for the APS-C size, which not only restored large angle of view, but which were also lighter and faster than their predecessors.

However, sensing an unmet need in the market, Canon continued to develop a ‘full-frame’ (or original 36×24mm) sensor, and in 2002 launched the EOS-1Ds. Although expensive, the new camera met with acclaim across user communities and in magazines, as setting the benchmark for the flagship Digital SLR.

As of the time of writing, Canon remain the only manufacturer to have brought such a product to market (although the now discontinued Kodak DCS cameras were full-frame). Sales of the camera’s successors are slight — the EOS-1DsMarkII and the EOS5D account for less than 1% of the Japanese market — but Canon advocates are quick to stake the claim, as in Canon’s white paper on the subject, that the company is the sole occupant of the true premium sector of the market.

Nikon’s failure to announce a competitor product has caused some consternation in its community. However, there are unsolved technical problems in Canon’s offering, including poor performance at wide-angle, which was supposed to be the format’s strength, as well as a very substantial price differential. Furthermore, with effectively three formats in its offering (Full-Frame, APS-H and APS-C), Canon has created a degree of confusion in its own marketplace, especially since the new range of lenses designed for the APS-C sensor will not function effectively on Full Frame or APS-H.

The question, then, is: should Nikon underpin its recent gains in the consumer market by introducing a Full Frame camera, or should it stick with its single format strategy?

A BCG approach
This scenario would seem an ideal candidate for a BCG matrix, since both market share and market growth are already known. Nikon’s existing portfolio is Digital SLR cameras, Digital Compact cameras (the Coolpix range), Film Cameras, and specialist optical equipment. The actual market sizes for these products vary, but, taking high and low market share as the key factor, the table will look something like this

Currently, Nikon has a significant market share in three small, mature markets — it dominates the 35mm film SLR cameras, occupies a niche for particular kinds of specialist optical equipment, and has a measurable share of digital compact cameras. However, the first and third of these markets are showing marked contraction, while the second is a small market. Nikon has already closed its Medium Format optics programme, where it was a small player in a mature market. The Compact Camera may, in fact, be in the wrong place. Nikon’s share is around 9%, but it has predicted very substantial sales growth in 2007, releasing a range of new models, in the face of an overall market contraction.

On the other hand, Nikon has a 35% share of a rapidly growing market — consumer and prosumer Digital SLR in the APS-C format. This leaves entrance into the Digital SLR Full Frame market as a question mark — possibly — provided that the assumption that ‘Full-frame is the future’ turns out to be correct. Otherwise, as things currently stand, Full-frame would be a dog — low growth, low share.

In classic BCG thinking, the positions to take are as follows:
Milk the cash cows, but don’t invest in them. Investment costs money.
Abandon the dogs.
Invest in the rising Stars, but watch them carefully: the investment you need in a high growth, high share market segment may mean that you do not, in fact, return any profit.
Watch the question marks: don’t kill them off, but don’t invest in them either.

On this analysis, Nikon should not at this point enter the FF market, since there is no evidence at the present time that the FF market is actually growing, and, even if there were, this would only make it a question mark — one to watch, but not to invest in.

Does this answer the question?
Perhaps. On the same reasoning Honda would never have entered the automobile market. The BCG matrix fails to take account of the value of premium products in pegging a range. On the other hand, Nikon has made substantial inroads into Canon’s market share despite the absence of the allegedly premium sensor size. Further, the received wisdom that consumers buy what they believe to be professional brands underwent a huge challenge last year with the entry of Sony into the market. Sony had no heritage in digital SLRs, but captured 21% of the Japanese market in its debut month, with a predicted 10% full-year market share. In the event its actual market share for the first nine months was close to that, justifying Sony’s belief that a consumer brand without a professional user-base could take the number 3 spot, leaving long-term players Pentax and Olympus to scrap for the crumbs.

What actually happened?
In the event, the speculation proved false: Nikon did not release a D3 in March, and instead reaffirmed its position that Full Frame was ‘not on the road-map’, although spokesmen made a point of not ruling it out. However, it did release a new consumer based DSLR, the D40X, and new Coolpix cameras, indicating that, in this cycle at least, it believes that these are the markets to be seen to be investing in.