Digital cameras overexposed

In contrast to the lucrative digital-SLR camera market, the compact digital still camera (DSC) sector is characterised by slim margins, intense competition and fickle consumer trends.

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By  Ronan Shields Published  December 13, 2006

|~|ACanon-G7.jpg|~|Industry stalwart Canon continues to lead the region's DSC market.|~|In contrast to the lucrative digital-SLR camera market, the compact digital still camera (DSC) sector is characterised by slim margins, intense competition and fickle consumer trends. Despite ‘digital convergence’ creating new product categories and attracting new vendors to the consumer electronics market, many manufacturers remain wary of the compact digital still camera (DSC) market, which is one of the industry’s least predictable and most competitive. This situation has largely arisen due to falling manufacturing costs, expanded feature sets, and strong consumer demand for low-cost models. The combination of high-end technology, low margins and market saturation has led many industry pundits to label the compact DSC market as ‘fickle’. Adding to this is rising demand for high-spec mobile cameraphones, with many rivaling traditional compact DSCs for image quality if not feature-sets. The compact DSC sector has traditionally been dominated by the Japanese juggernauts, such as Canon, despite the entry into the market of Korean and Chinese rivals in recent years. Recent entrant Samsung has positioned its compact DSC range as a premium offering boasting a high feature-set, in a bid to establish customer loyalty. “There are two ways of looking at the market,” says Makarand Phadke, sales and marketing manager for Samsung Gulf’s consumer electronics division. “Some say it’s fickle but others believe it is a market in the ascent, which is being driven by the development of new technologies and strong consumer demand for new and innovative products. “It’s the techies – or early adopters – that drive any market. The Middle East lags behind Europe, the Far East and US markets in terms of early adoption. However, that could partly be attributed to vendors not launching new products in the Middle East at the same time as other markets worldwide.” Phadke accepts that the traditionally slim profit margins associated with the compact DSC market have acted as a deterrent to many companies investing more heavily in the sector. “As more products are launched on the market, vendors have to reduce their profit expectations to compete with rival brands. This in turn has an impact on our channel partners,” he says. He also acknowledged that retailers were suffering due to diminishing margins in the channel. “Retailers face stiff competition, particularly in markets such as Dubai,” he claims. “They have to shift huge volumes to turn a decent profit. However, consumer demand for new compact DSCs remains high. “It is important to recognise that while price is an important factor in the compact DSC market, it is not the defining issue in terms of swaying consumer demand. Features are arguably more important. “Samsung has been investing heavily in the development of compact DSCs that combine video recording functionality. We believe these types of products represent a major commercial opportunity moving forward.” With such commercial pressures bearing heavily on digital camera vendors, many are looking to provide a point of difference in terms of product development and brand positioning in the marketplace. Industry stalwart Canon has turned its focus to developing premium products targeting the prosumer market that leverage the company’s strong brand heritage. ||**||Panasonic makes a play on the Middle East|~|Panasonic-FX50.jpg|~|Panasonic hopes the Lumix will prove popular in the Middle East DSC market. |~|By comparison, relative industry newcomer Panasonic has had to work hard to establish its Lumix-branded compact DSC range as a quality offering. Like Canon, the company is pitching its business at the premium end of the market but with an accessible pricing structure. In securing distribution deals with hypermarket retailers, such as Carrefour and Geant, Panasonic has based its strategy on marketing quality products at competitive prices that are widely available. Atsushi Hinoki, Panasonic’s general manager of marketing in the Middle East, says the company set out to capture market share from established rivals by offering affordable, yet highly specified offerings. “Although Panasonic is a latecomer to the digital camera market it is now a trendsetter that the other manufacturers are beginning to follow,” he says. ”The inclusion of the latest technologies in our products, such as a wide-angle camera lens in the FX series and Mega OIS anti-shake control, are key examples of this strategy. “We have also invested heavily in promotions and advertising in conjunction with our retail partners. Price sensitivity is a key concern when dealing with the Middle East consumer market.” When asked to comment on how low margins affect Panasonic’s relations with its channel partners, Hinoki says: “If Panasonic is performing well then our partners are performing well.” “The tight margins actually encourage the development of closer partnerships and cooperation. When dealing with slim margins, you have to rely on shifting larger product volumes, which requires improved cooperation with your channel partners. Hinoki says digital convergence will eventually create new opportunities for compact DSC vendors. “Compact digital camera sales are largely tied to consumer uptake of related hardware, such as PCs and printers,” he says. “Low PC penetration rates in emerging markets across the Middle East and Africa suggest there are still major commercial opportunities for compact DSC manufacturers in key regional markets.” Many observers claim the continued development and increased demand for high-spec digital cameraphones will seriously impact sales of compact DSCs. However, evidence remains that the limited feature sets included in these handsets means that most consumers will still trump up for a compact DSC. South Korean handset vendor LG Electronics’ first handset with a 5-megapixel camera, the KG920, has failed to meet sales expectations since its launch in the Middle East earlier this year. “We didn’t invest too heavily in promoting the handset in the Middle East, because we feared consumers would be put off by the sheer size of it,” concedes Sudreesh George, LG’s senior sales manager for Middle East. George claims that cameraphones will require improved feature sets and PC compatibility supported by customised editing software before they can seriously challenge the compact DSC market. However, Samsung Mobile sales and marketing manager for the Middle East Sandeep Saighal, disagrees. “Consumers are embracing cameraphones to the detriment of the compact DSC market,” he says. “Why bother with a compact DSC when a cameraphone can ultimately produce similar results?” Saighal may have a point. With Samsung set to introduce a 10-megapixel cameraphone in the first quarter of next year, the market dynamics may shift considerably in the favour of mobile phone manufacturers. ||**||

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