Strategy Session: Pentax Ricoh Levels the Playing Field

Strategy Session: Pentax Ricoh Levels the Playing Field

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On April 1, 2012, the merger between two venerable brands, Pentax and Ricoh, became solidified with the formation of Pentax Ricoh Imaging Americas Corporation, and Pentax assumed sales and marketing responsibility of Ricoh’s entire line of consumer cameras, including the Ricoh GRD4 and GXR. Along with this merger, the company instituted a unilateral pricing strategy that has the industry buzzing.

I spoke with Pentax Ricoh Imaging Americas’ president, Ned Bunnell, and asked him to sort it all out for us.

JG: Ned, how did the merger come about?

NB: There has been a fairly strong historical relationship between Ricoh and Pentax. If you look back to the ’70s when Ricoh was building SLRs, they were actually using our K mount, so there has always been a close relationship around our mount technology. Ricoh was interested in purchasing our brand heritage, as well as our technology. They have some pretty serious long-term plans to build the Pentax Ricoh camera business.

So it was a very logical fit; they have strong R&D, but cameras were never a major part of their portfolio. But now Ricoh is firmly committed to the camera business.

In Japan, a new company was formed called Pentax Ricoh Imaging, and we’ve been integrating Ricoh’s camera/business unit into Pentax Imaging, combining resources in Japan under one roof. Then they formed Pentax Ricoh Americas. We will be offering Ricoh products as well as Pentax products under one roof. We’ve brought together all of the R&D and engineering staff and merged them, and we now have one team focused on all camera development from here on out.

And the plan is to keep both brand names?

Yes, both will continue to be promoted. And we will be able to sell any Pentax or Ricoh cameras to retailers.

What’s the good news for the dealers?

Ricoh has stated they want to make Ricoh and Pentax major players and will be contributing more resources to put together programs to offer our dealers. From a dealer perspective, you now have a single source to buy both Pentax and Ricoh—more products, better support and the ability to offer a broader product line than they had before.

Are you seeing growth coming from both brands?

Yes. We’ve seen a large response from photo specialty retailers who want to carry Ricoh products. They are advanced consumer products that target a pretty serious photographer, so they’re not mass-merchant cameras. A lot of photo retailers know about the quality and see the opportunity to bring on a very select SKU. Clearly Ricoh is interested in our SLR technology and heritage, so there’s no question we will continue to focus on SLRs.

We’ll also be expanding availability on products like our Optio WG-2 weatherproof cameras—one of our most well known and most popular products. We’re looking for dealers to sell Ricoh cameras, and we’re getting better placement on Pentax products, primarily due to our new unilateral pricing strategy.

Why don’t you explain what unilateral pricing means, and what’s in it for your dealers and your customers?

Our unilateral pricing policy is really part of our broader plan on how we want to grow our business in the U.S. For now, we have very low store representation. This pricing policy allows us to offer all of our accounts a level playing field by setting a price that products cannot be sold below. We’re hoping that smaller retailers that haven’t done business with us before will be interested in bringing on the Pentax and Ricoh brands.

So, is it a level playing field versus the Internet?

It’s a level playing field across all channels in which we do business; so that means online, retail, home shopping—anywhere we do business.

How would that help you grow your business?

We have a number of accounts that we have not done business with for a while, and we clearly want to be a choice for them, and they want to be a choice for us. But if you’re a small retailer, it’s hard for you to want to bring in cameras and lenses if there is a bigger guy a few miles down the road who is going to severely undercut your prices. Now that we can provide an assurance that we will be competitive with anyone else in their area, dealers will be more likely to invest with us and bring in our cameras and lenses. This allows us to expand the number of outlets where both our traditional customers and potential customers can come in and touch and handle products they are interested in purchasing, which is one criticism that we face right now.

I’ve read your blog, and some of your loyal Pentaxians have claimed you’ve raised your prices significantly.

Yes, I’ve received a pretty strong reaction from some of our customers, particularly on how it affects our current pricing. Although most of our customers have seen significant price differences on our lenses overnight, I try to explain we really haven’t made a price move. Our lens prices have seen a jump because they can no longer be sold at a severe discount. I’ve tried to assure them that once we have established this parity in pricing, it really gives us the chance, as a company, to offer timely rebates and promotions that turn out to be a win/win for the consumer and dealers. It’s difficult right now to do that if pricing is all over the place and there’s no consistent perceived value, but over time, it will be beneficial to them because it will be better for the brand, better for the consumer and better for the retailer.

So, in fact, your pricing didn’t change, just the discounts went away?

A lot of the manufacturers have done a much better job in managing prices, and we have not done a great job. Now that we are, our prices will be more true to what they should be, and our perceived value will be consistent across all outlets.

What effect does this have on margins for the dealers?

Good question—and that’s where there is a lot of confusion. A lot of people thought this was a move for Pentax Ricoh to increase our profits. In reality, it increased the margins of the dealers, not us.

We haven’t really changed our prices; therefore the dealer nets are the same. And if the accounts understand we’re going to support them, and they agree to sell at the suggested price, they are not discounting and therefore will make a greater margin on each product they sell.

Do you see unilateral pricing as a trend in photography products in particular, and in CE products in general?

According to what I’ve read and seen, if you look at the economic conditions we’re facing in this country, I think these types of policies will be implemented across many product categories. Right now the costs of manufacturing, supporting channels and promoting products are so high and it doesn’t matter whether you’re selling a camera, a notebook computer or an iPad. I think there’s going to be parity across multiple channels as a way of strengthening companies in our economy.

Do you think we’ll see the return of the small businessman, because they will be in a better position to compete?

I don’t see why not. It extends opportunities for many businesses.

What’s the unilateral pricing for your brand in general? Is it starting with your lenses, and then moving to cameras?

Actually, we have been using this policy for our cameras for a number of months, and clearly there has not been as much disruption, because in general everyone has been adhering to camera prices. I think the bigger disruption came with the lenses because we were not managing them well for the last year. But now we are confident it will settle down, and we’ll manage this just fine.

It feels like this will be a real boost to the photo specialty channel, since they seem to be the ones having the most difficult time competing. Now when people walk into a store to try out a product, they won’t turn and run to the Internet to buy it because they won’t be able to find a better price online. Right?

That’s one of our focuses, and we have been quite encouraged by the response so far by photo retailers, many of whom have invited us back into their stores in the last year. And our dialog with other retailers is picking up.

Are you seeing any backlash from the Internet dealers?

I haven’t heard anything from other channels at this point. I’ve spent most of my time trying to reach out to our users—that’s what has been keeping me up most of the nights.

It’s admirable you’re taking on the issue of discounted pricing that really diminishes the value of your products. Taking on the Internet retailers or just making sure it’s a level playing field will make you a strong friend of the photo retailer, which I’m sure they will appreciate.

We think this is really fair for all of our sales channels; a level playing field will be good for everyone—and it will only strengthen the value of the Pentax and Ricoh brands.

I also admire you for being frank with your loyal customers, who sometimes only care about getting a good deal. I think honesty doesn’t always go down as easily, but people always appreciate it more.

If you believe in something, you have to commit to it. Sometimes you have to make hard decisions. Quite frankly, a lot of our Pentaxians realize it’s really unusual to have an executive reach out to them on a one-on-one basis. I understand my position, and sometimes you have to say things that don’t go down easily.

For every person who talks about buying online, others tell me they want to be able to touch and feel my products in the store. I have a responsibility to appeal to people no matter where they buy—as long as they buy Pentax and Ricoh products.

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