Global Economic Crisis

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Re: Global Economic Crisis (was Circuit City thread)

Postby Mother Theresa » 06 Jan 2009, 14:53

Glad to find a supporter, headhoncho. I don't know the technical aspects of instant cameras or film and I don't know anything about the costs of manufacturing the same, but I do know it's an awesome niche market and one often can make money in an awesome niche market. That is, if one can produce a product that is unique and highly desirable that should go a long way towards making money, so long as one can get the cost of manufacturing and distribution sufficiently low to sell at a reasonable price. That's especially true if ones product is protected by patents or other IPR protection or huge brand recognition or some other means of keeping competitors from moving in on your territory.

As I said, I don't know how this tech works or how much it costs to make it, nor do I know if Polaroid has lots of valuable patents, but I do know it's a fantastic and unique product (as headhoncho points out, digital cameras are definitely not the same as instant photos) and Polaroid has huge brand recognition. Therefore, it seems that so long as they can get their manufacturing costs to a reasonable level, they should have been able to profit off their cool product, and I can't help but wonder if they blew it with terrible management and sales/marketing/product development strategies.
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Re: Global Economic Crisis (was Circuit City thread)

Postby headhonchoII » 06 Jan 2009, 17:34

I've got a feeling that they were weighted down with costs from being an old established US business that a niche product that was of limited appeal couldn't support them, perhaps they sold off the license to Fujifilm years ago. Whatever original patents did exist must have mostly evaporated by now. It stands to reason that Polaroid should have a better chance than other manufacturers simply due to their brand recognition.

Fuji has one here
http://cgi.ebay.co.uk/ws/eBayISAPI.dll?ViewItem&item=200277606149&cguid=ab44121311e0a0e202f1dd81ffc27df9. Doesn't look very 'cute' though..a bit bulky and brown looking. Seem Fuji is the only one making this kind of instant film in the U.S. these days.

This is interesting. Uses printing technology instead.
http://www.zink.com/
http://www.zink.com/tomy-xiao

Then there are the 'Save Polaroid' people, any takers?
http://www.savepolaroid.com/
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Re: Global Economic Crisis (was Circuit City thread)

Postby politbureau » 06 Jan 2009, 17:51

I visited Polaroid headquarters in Massachusetts eight or nine years ago when I was working on a digital camera design project here in Taiwan. My observation was that the biggest problems barring their entry into digital imaging technology was that the Japanese had already aggressively patented much of the optics and mechanisms related to digital imaging while they were still focused on traditional camera technology and they didn't have enough engineering expertise anyway to do systems design of digital cameras.

They had some good, select, patented technology which was useful in digital imaging applications which they were trying to license but it was as if they were trying to sell off their seed corn rather than plant it themselves.
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Re: Global Economic Crisis (was Circuit City thread)

Postby lbksig » 06 Jan 2009, 18:48

headhonchoII wrote:Haha, that's funny... you make a profit when your income is more that outgoings. A niche global market is really a very large market indeed. People don't want a Polaroid to replace their digital camera, they want it for fun! If it is cheap enough many people would buy it especially females.


I'm going to have to weigh in with Rascal. While you are correct that your income has to be more than your expenses to make a profit, you are looking at Accounting 101 while Rascal is looking at Economics 101. I'll try to explain what I mean in the next couple paragraphs:

With a niche market, you have several factors that limit entry into the market (similar to a monopolistic situation): high production costs, weak demand (limited number of customers), high capital costs, patents or licenses that restrict entry and high profit margins per unit sold. Niche markets usually exist where you can't use economies of scale to lower your costs.

With a commodity: there is very little to no noticeable differentiation between competitive products, everyone is a price taker, small profits on each unit sold, and generally low capital entry requirements.

I think you are overestimating how large the global market really is for Polaroid. I don't think you'll deny the observation that Polaroid's heyday is largely in the past. With the advent of cheaper film, and now digital cameras, the demand for Polaroid film declined. A change in consumer taste made what was once really cool, into something that is a hindrance. You can change the picture after you have taken it with a digital camera or shoot again, for free. You can't dictate what demand will be, you can only respond to it (or try and change it through marketing).

Most of the world knows what a Polaroid is, they don't want to pay for each picture they take when they can look at it for relatively free (price of electricity) on their computer. Also look at how people are taking pictures now. The cell phones cameras are getting better for the majority of consumers. Professionals won't use a cell phone to take a picture, but millions of Taiwanese xiaojie's do!

As a result, you have to charge more for every Polaroid camera and film package in order just to break even. Try and figure out a price point that is the most you would pay for one package of Polaroid film. Every incremental raise of the price reduces the number of units sold on the Supply and Demand curve. The higher the price per unit, the lower the demand is at that price. You can't make it cheaper if the demand just isn't there. You need to expand factories to produce more, faster and cheaper so that you can lower the price. When demand shrinks you have to close up the factories and your cost per unit goes up.

That's why for a commodity you need to sell a lot more to make a profit. You're marginal profit on each unit is so small with a commodity because there are similar products people can buy. With a niche market, there isn't a readily available substitute for Polaroid. Those people who want it are willing to pay for it. You maximize the amount the are going to pay, not minimize it or else you go out of business.

Ever notice how most niche market players usually are new companies that are just starting up. Most older companies can't make the transition from major market to niche market because of their legacy costs.
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Re: Global Economic Crisis (was Circuit City thread)

Postby cfimages » 06 Jan 2009, 20:24

Some of Polaroids biggest customers were professional photographers who used it to check light levels etc when shooting with medium format film on location. They run around shooting a bunch of polaroids (big ass, expensive ones, not the consumer kind) and make sure all the light and shadows were in balance. Then they'd make their proper pictures with the MF film. With digital, there's no need for them to do that and so Polaroid have lost their biggest customers.
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Re: Global Economic Crisis (was Circuit City thread)

Postby headhonchoII » 06 Jan 2009, 22:27

I already mentioned that probably Polaroid's biggest problem was legacy costs, they couldn't downscale without going bankrupt or getting blocked by unions.
As for niche, you forget I said the camera is for FUN, not to compete with digital cameras. As long as the price came down and the marketing is spot on I don't see why they wouldn't be popular again with a certain type of user in each country, of course I'd focus on Japan or some country and maybe make a game or something out of it. I don't think it would be anything more than a fad for a few years though. The launch cost of checking this idea might not be too bad considering it already has a brand and tried and trusted tech, but as far as I can gather they have sold off a lot of the rights to the Japanese already and to them maybe Polaroid is really small change.
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Re: Global Economic Crisis (was Circuit City thread)

Postby lbksig » 06 Jan 2009, 23:22

headhonchoII wrote:I already mentioned that probably Polaroid's biggest problem was legacy costs, they couldn't downscale without going bankrupt or getting blocked by unions.
As for niche, you forget I said the camera is for FUN, not to compete with digital cameras. As long as the price came down and the marketing is spot on I don't see why they wouldn't be popular again with a certain type of user in each country, of course I'd focus on Japan or some country and maybe make a game or something out of it. I don't think it would be anything more than a fad for a few years though. The launch cost of checking this idea might not be too bad considering it already has a brand and tried and trusted tech, but as far as I can gather they have sold off a lot of the rights to the Japanese already and to them maybe Polaroid is really small change.



I really thought I explained clearly but I guess I didn't. Fun doesn't play as big a role in the economics of this decision as you make it out to be. Fun plays a small role in demand, but not as much as the cost does. Polaroids are for most consumers, i.e. non-professionals, a good. A better, improved good came out (digital cameras). That means the demand for the old technology decreases because it is obsolete. When it comes to technological obsolescence, the price drops dramatically due to the difference between the obsolete good and the new good.

When demand decreases it becomes more expensive, not less, to produce the good. This is mainly because of fixed costs involved in producing the good (like the rent on factories). The price can't come down if demand decreases, and all available information shows that demand for Polaroids has been decreasing for the last 30 years. The price can only go up in order to keep the company from going bankrupt.

I can see why it won't become popular again within a certain type of user in each country. There are just too few of them, spread out too thin to make it economically viable. The shipping costs would price out most people. You can't walk to the local store to buy it because there are too few people desiring the good for the stores to stock it. For you to have it work as an internet business, you need to have low shipping costs and a steady business (to judge production scheduling).

I think that the Japanese, or anyone else, would rather try and add a printing capability to a camera rather than bringing the Polaroid back to the mainstream marketplace. As a niche player it may make money selling to enthusiasts and professionals (at a high per unit cost) but that's it. It won't make a come back because people don't value the function that the good provides.
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Re: Global Economic Crisis (was Circuit City thread)

Postby headhonchoII » 07 Jan 2009, 01:01

How do you know they don't value it, things come and in out of fashion with new generations all the time. Witness the hula-hoop, pogo stick, yo-yo and the latest craze again for the last couple of years, the rubix cube. What seems tired and boring to us is a new discovery to each new generation, even more so with kids who are used to handling digital cameras and very rarely even hold an actual developed photo in their hands. To them a photo in their hands is COOL. Polaroid cameras are not expensive to make, simple tech and it can all be outsourced to China at a fraction of what it used to cost to make in the US decades ago. I understand the cost per unit is a factor but that is a common factor for every product, everywhere. Shipping and distributing is easier than ever round the world and online would bring the cost down further as you mentioned. The cost is in the marketing and the film I guess. It's not a given that they would be popular but I wouldn't write it off.
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Re: Global Economic Crisis (was Circuit City thread)

Postby lbksig » 07 Jan 2009, 10:58

headhonchoII wrote:How do you know they don't value it, things come and in out of fashion with new generations all the time. Witness the hula-hoop, pogo stick, yo-yo and the latest craze again for the last couple of years, the rubix cube. What seems tired and boring to us is a new discovery to each new generation, even more so with kids who are used to handling digital cameras and very rarely even hold an actual developed photo in their hands. To them a photo in their hands is COOL. Polaroid cameras are not expensive to make, simple tech and it can all be outsourced to China at a fraction of what it used to cost to make in the US decades ago. I understand the cost per unit is a factor but that is a common factor for every product, everywhere. Shipping and distributing is easier than ever round the world and online would bring the cost down further as you mentioned. The cost is in the marketing and the film I guess. It's not a given that they would be popular but I wouldn't write it off.


I know they don't value it because the demand for it has been going down for 30 years. There are cameras in cell phones now, webcams, digital cameras that can hold hundreds or thousands of pictures. You can email them to your friends and family for a small cost. Digital pictures last forever too, as long as they are backed up.

I would ask you to point me out to a link that says that the hula hoop, pogo stick and rubix cube became popular selling items again because I missed it. The only thing I notice about all those former fads is that they were never improved on. There isn't a difference between a hula hoop now and a hula hoop of the 1970's, same with a Rubix cube or a yo-yo. The primary function of a Polaroid camera has been made obsolete by the technological advancement.

I think you are trying to project your memories onto others, that is you found it cool as a kid, so they will. That may be true, but from an economic standpoint you need to figure out how much they would pay for that cool thing to see if it is worthwhile still making them. I'm sure if you handed free Polaroid cameras out to a class and everyone would take one. If it cost 300 NT for the camera and 100 NT for 10 pictures, fewer kids would want them. I just don't see a big enough demand at a reasonably comparative cost to their competitor, digital, to make it profitable.

Let me further explain the breakdown between costs. Your Total Cost (TC) is comprised of your Fixed Costs (FC) and Variable Costs (VC). You have to pay your FC no matter how many units are sold. Some FC might be: rent, insurance, interest payments on debt you take out to run the company, plant and equipment expenses, salary of permanent employees, etc. You are mostly talking about the VC, or the cost that you incur only when making the product. Some of those are: costs of input materials, wages, utilities, etc.

Now I'll try to explain why it won't be cheaper to just make it in China. China makes things cheaper that are in high demand. When demand is high you can buy in bulk, and get a better price per unit and drive down your costs. That means you can pass on the savings to your customers at the "China price". With Polaroid you can't for the following reasons:

1) Demand is softening for Polaroid camera and film. Fewer people want it so you lose the economic benefits that come from economies of scale.

2) When demand decreases, you produce fewer units in the long run, and so purchase fewer future supplies. That means you pay more for each unit of input.

3) In the short run, your VC stays the same, since it is the marginal cost of producing one more unit. As you use up your supplies and have to buy more, the VC increases. The FC per unit also goes up since you are producing fewer units. That increases the price for the consumer.

4) Larger factories in China may not take your order because its too small for them to bother retooling. If you find a producer, they will be the smaller ones that are less efficient, less reliable, etc etc.

5) When you produce fewer units, you can't ship bulk packages to distribution centers for the same price as before. The cost effectiveness you had when shipping is lost because you are sending fewer units via ship. You have to pay more for sending it by ship or it becomes cheaper to send it via air.

6) Have you seen how much it costs to ship internationally via air? No shipping companies will deal with sending one individual Polaroid so you have to use air. Sending by air is expensive, just look at Amazon's international shipping costs. Shipping and distribution go down when you produce in scale.

So to try and wrap it up, when demand decreases, price goes up. It can't go down or else you have a Bernard Madoff type CEO. Production costs go up. Shipping costs go up. Marketing may get cheaper if you use the internet but that's it. It goes from a commodity good to a niche good. Prices don't go down they go up.

Therefore, I will write it off.

Links:
http://www.toolkit.com/small_business_g ... d=P06_7510
http://en.wikipedia.org/wiki/Fixed_costs
http://en.wikipedia.org/wiki/Variable_costs
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Re: Global Economic Crisis (was Circuit City thread)

Postby Rascal » 07 Jan 2009, 11:30

headhonchoII wrote:How do you know they don't value it, things come and in out of fashion with new generations all the time. Witness the hula-hoop, pogo stick, yo-yo and the latest craze again for the last couple of years, the rubix cube.

Hardly an apt comparision, those are not tech stuff, i.e. the items are cheap to design and produce and sell cheap, and the manufacturers are very likely more diversified than Porlaroid. Not to mention you don't need to constantly buy something to keep a Rubik's cube or hula-hoop ring working, unlike with Polaroid cameras where you will have no fun without film.

What seems tired and boring to us is a new discovery to each new generation, even more so with kids who are used to handling digital cameras and very rarely even hold an actual developed photo in their hands. To them a photo in their hands is COOL.

Sure enough if they know how to use a digital camera and look at it on the computer they can also manage to print their pictures, let it be at home or any of the thousands of photo shops and drug stores that have machines just for this purpuse. An instant picture has a very limited appeal, while you can hold it in your hand it's not as easily shared as digital ones. As lbksig stated, digital cameras in all their flavours have proven to be the better product for the majority of consumers.

Polaroid cameras are not expensive to make, simple tech and it can all be outsourced to China at a fraction of what it used to cost to make in the US decades ago. I understand the cost per unit is a factor but that is a common factor for every product, everywhere. Shipping and distributing is easier than ever round the world and online would bring the cost down further as you mentioned. The cost is in the marketing and the film I guess. It's not a given that they would be popular but I wouldn't write it off.

You are right, they are simple tech and considering the unreliable results you get from a polaroid film they should actually give it away for free. * From Save Polaroid:

Polaroid film and the process of making photographs with Polaroid film is inherently imperfect. The best of their cameras are sometimes wonky, often have simple or even plastic lenses and operate in a very non-standard way. The chemicals in the film often react in unpredictable ways to temperature, and as they age, the color shifts and other gremlins creep in, like streaking and lack of sharpness.

Anyway, I can understand that it appeals to some people but that doesn't mean it's economically viable to continue producing the product.


* No offense intended, the sarcasm is not directed at you but the product, which is inherently flawed
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