Pricing Clinic - Discounting

133

March 20, 1998

On a weekly, if not daily, basis small agencies and individual photographers hear the following
from their clients, after they have quoted a price.

"Why is your price so much higher
than XX Major Agency?" At that point the client will quote a price they say they got from this
agency that is often one-half to one-third of what the seller was asking for this particular
usage.

Some major agencies provide written quotes on every job so before you even
consider cutting your price ask them to fax you a copy of the quote. Make sure you are quoting
the exact same usages which is often the problem.

An Answer

Even if
the usage is the same Cheryl Pickerell at Stock Connection has developed a response that seems
to be working. She tells the client, "We don't do anywhere near the volume of business that XX
Agency does, so we can't afford to discount our price as much as they do." She follows this
statement with more explanation, as necessary. She may emphasize that we are more of a
"boutique" agency (implying that clients might be willing to pay more for higher quality)
instead of a K-Mart (where the clients get volume produced goods at lower prices). When a
client first calls, they often have no idea of the size of her operation, and assume they are
talking to a large agency. She turns small into an advantage, not a disadvantage.

At
first, she didn't expect to receive much sympathy for this line of reasoning, but figured it was
worth a shot. However, more often than not, the client responds, "Oh, I see. Well, then send
me an invoice," (for her higher price).

She also tries to get the message across that
since the larger agency does such a high volume of sales, there is a better chance that the same
image will be used by many clients. One strategy that is never an option is to match the large
agency price. The client often rationalizes that they can afford to pay more for a Stock
Connection image because they're saving money on the large agency image.

Why Does This Work?

A number of things may be happening. Not all of them will happen with
every sale, But, enough happen often enough to give the small agencies and individual
photographers an advantage over the discounters.

The client, often a graphic design
firm, has to have some kind of response to give their client if they are questioned about the
price. They have to be able to say that they made a good faith effort to get the image seller
to reduce the price. This is particularly true if your image is being used in a brochure with
an image from the large agency and the client is paying $200 for the image from the large agency
and $600 for yours.

If they are buying images from both you and the large agency, the
client can afford to pay more for your image because the large agency is giving them such a
deal. Thus, these large agencies are often doing their competitors a favor when they charge so
little for their work.

They called you in the first place because for this particular
use they liked your image better than anything the large agency was able to show them. Sure,
they could settle for something less from the large agency, but that's not what they want. THEY
WANT YOUR IMAGE.

• Some people like to buy at K-Mart while others prefer to buy
  at "boutiques". Different buyers approach the marketplace in different ways. Small agencies
  may have to lose the K-Mart shoppers, but they must ask themselves if they will ever be able to
  make enough sales to the people who expect discount prices to justify chasing after them.
  

  
  

• Some clients insist on always buying the cheapest product, even if it doesn't quite
  fit their needs. You probably aren't going to be able to sell to these clients, but hopefully
  you will make more money by selling at higher prices to those who are willing to pay a little
  more for the image that is the best solution to their problem.
  

  
  

• Your price, while
  higher than the large agency's is reasonable considering what it costs to produce images. If
  the designer can justify the price to their client, that's all they need.
  

  
  

• Considering the overall cost to the client of this project including design costs, printing,
  mailing, placement if it is an ad, etc. an extra $200 to $400 for the right image is
  insignificant.
  

  
  

• "I've seen this picture from the large agency used everywhere." If
  you are going to sell at K-Mart prices you have to sell it a lot to justify the low prices. All
  designers don't act in the same way. Some would prefer a picture that hasn't been used by
  everyone else.
  

  
  

• In their race to the bottom price and in an effort to compete with
  the royalty free producers, the large agency and other discounters are creating the idea in the
  minds of the buyers that their licensed images have the same extremely high volume usage as RF.
  

  
  

• When we talk about the large agency "discounting their price" it plants in the mind
  of the buyer that this is a discount product, and ours is not.
  

  
  

• In some cases the
  client is simply using a negotiating strategy to try to get you to reduce your price, and in
  fact doesn't have an offer from the other agency in question.

What Sellers Can't Afford To Do

Photographers and some stock agents often tell me that they get
"mad" when they hear these low prices. The one thing you can not afford to do is Get Mad. It
will accomplish nothing. You'll lose the sale and probably the client. Recognize that it is
the client's duty to try to get the lowest price they can for the image they want.

You
also can't afford to match the big agency's prices. You'll never be able to generate the volume
they do without their advertising budget, and at the lower prices you can't hope to survive
without that volume.

Look at other industries. There are major suppliers, but there
are also minor suppliers who charge higher prices and survive very well.

Be willing
to lose some sales. Decide how low you are willing to go, based on your costs of doing
business, and don't go below that price. Don't be influenced by someone else's lower price.
Always try to stay positive and friendly with the client.

Interestingly, some smaller
agencies have noted that the price discrepancies are mostly for small sales under $1,000. When
it comes to larger sales these large agencies seem to be asking the same kind of money as
everyone else. The theory seems to be that on these large uses, price is not a major factor.
The client is much more committed to a specific image and is much less likely to switch images
just to save a few bucks. Consequently, on these sales everyone asks top dollar.

Unfortunately, discounting is probably here to stay and something we all all have to live with.
The discounters may do the largest volume of sales, but they don't necessarily end up with the
greatest profits at the end of the day.

Organizing Photographers

Some have indicated that we should try to organize
photographers who are represented by the major agencies that are discounting, in an effort to
get them to pressure their agency. For a variety of reasons, I don't think that will work.
Therefore, I won't be getting involved in such an effort.

Most photographers with these
agencies are satisfied enough with the size of their overall check that they refuse to worry
about individual sales. Discounting has been going on for a long time, although not to the
extent that it is occurring today, and none of these photographers have taken a stand so far.
It is very easy for them to identify discount prices by looking at their sales reports and
seeing how much they are being paid for individual sales.

Many of the major
photographers get enough high ticket sales for advertising uses from their agency that they are
willing to accept low prices for small uses. The photographers who really lose on these low
sales are those who
produce images that usually sell for insert photos and other small uses, and who
seldom have an image used for major advertising purposes. They end up with only small sales and
nothing big to offset.

Most photographers feel that their agency will not hesitate to
get rid of anyone who complains, and that there are enough photographers waiting in the wings
that the agency will have no trouble replacing them. If they protest at all, they tend to
simply stop producing.

It is interesting to note that the agencies that are discounting
are also arguing that they must have a higher percentage of gross sales because they can't
support their operation on 50% of gross sales. It seems not to have occurred to them that
another way to get the additional money they need to operate their business is to hold the line
on pricing.

The big problem is that photographers will not see a big drop in their
gross checks, but rather a slow withering away. Based on my experience it is almost impossible
to get photographers excited enough about a long range problem to motivate them to take action.

Thus, I feel it is better to recognize that discounting is here to stay and focus our
energies on structuring our businesses with an eye to co-existence with discounters. People in
other industries do it. Photographers can do it too.

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