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Excerpt from, Photography: Focus on Profit Paperback with PhotoByte® CD-ROM 416 pages, ISBN: 1-58115-059-8 by Tom Zimberoff |
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Note from the founder of Garage Glamour™ -- This is first of several excerpts of Tom Zimberoff's book, Photography: Focus on Profit. Recommended by top educators as part of their curricula--this is a must have if you plan on succeeding in the business of photography--Rolando.
Competitive Pricing
© 2002 Tom Zimberoff
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If You’ve got a niche, scratch it!
Although price is seldom the only factor considered in hiring a photographer, it always plays a role in determining where and when you pop up on a buyer’s radar screen. If publishers are looking for the highest quality, they’re not likely to start out by looking for the lowest prices. Therefore, up to a point, the higher the prices you charge, the greater will be the perception of the quality of your work.
Still, some buyers are influenced by low prices more than others. (Please note, however, that this kind of consideration is based on overall price, not just your assignment fee, or “day-rate.”) Some buyers might not be sophisticated enough to realize the difference between a great shot and merely a good one, so quality is less of a factor.However, even with top-echelon buyers, and when all other things are equal (i.e., photographic talent, studio facilities, personality—your caterer!—whatever), price can indeed become the deciding factor.
In spite of making your initial “sales pitch” on the combined proposition of professionalism, talent, and even high-priced exclusivity, you still have to come up with a figure that doesn’t knock you out of the running. For example, are you priced lower than what the market is used to paying (a tactic some beginners use, trying to break in to the business), or is your price right on the money? Are you are you pushing the envelope to see how much the market will bear, raising your prices to attract a more exclusive but tighter-knit clientele who expect to pay more for topmost talent?
Before you can develop a pricing strategy in step with your marketing plan, you must find a comfortable niche for yourself amongst your competitors, a place where you want customers to look for you and expect to find you. Your goal should be to stake out what is called a position. Do you want to set up shop between JC Penny and Wal-Mart, orwould you rather be Neiman Marcus? Are you a Wolfgang Puck, or just another Jack in the Box franchise?
The Five Factors of Competitive Pricing
Careful consideration of the following five factors will help you find your spot in the marketplace. You must learn to maximize your:
• Competitive Advantage
• Market Penetration
• Market Share
• Volume of Business
• Profitability
Maximize Your Competitive Advantage
There are two kinds of competitive advantage to achieve in the marketplace:
• Temporary Competitive Advantage
• Sustainable Competitive Advantage
Only a temporary advantage can be achieved through pricing. In other words, lowering your price below market standards just to beat out the competition can only give you a short-term edge. It will not be sustainable. You still have to be profitable in the long run or else face the possibility of going out of business.
The idea of gaining an advantage by lowering prices, even temporarily, can also lure you into the dangerous trap of “low-balling.” That practice may help you land a few jobs in the short run, but with the undesirable long-term effect of holding fees at the level to which you lowered them. There is little chance of raising them back up again. (Another article will deal separately with the despicable practice of low-balling.)
A sustainable competitive advantage can be achieved only by carefully exercising a combination of talent, professionalism, and marketing skills. To think that you can launch yourself successfully into the market by charging lower fees than everyone else is naïve; you’ll simply make less money than everyone else. Few people will hire you—surely not those whom you want to hire you—solely on the basis of being the cheapest photographer in town.
Maximize Your Penetration of the Market
Penetration is determined by how fast you can accumulate a set of prospective clients and convert them into paying customers. One-time customers don’t count. Eventually that well runs dry. A real customer is one who will help sustain your business with subsequent jobs on a continual basis. Penetration is achieved by winning over customers withmarketing techniques.
Market penetration is best pictured as a graph, the slope of a line representing the number of buyers is measured against time. The steeper the slope of the line, the better your penetration. The critical question is: If you can achieve maximum penetration quickly enough by pricing yourself lower than the competition and still remain profitable for the time being, can you raise your prices later on and retain whatever market share you might have gained? You may not be able to answer that question until you try this technique. But knowing your rate of market penetration will give you an idea of how much time you have to break into the market before you start running out of cash. If you can’t sustain profitability where there is no barrier for other photographers to enter the marketplace (there is no barrier to entry), then it is impossible to retain market share and your customers will go away looking for yet another cheap photographer.
Since most start-up businesses are not likely to generate revenue and profits right out of the gate, the amount of capital funds you have on hand at the outset is also a factor in maximizing market penetration. It will take you a while to generate cash-flow momentum. This is the time during which many vulnerable new businesses tend to go south, when there isn't enough money to reach critical mass, to keep going until there are enough customers to sustain a cash flow. That's why simply lowering prices won't help you to effectively penetrate the market; it's impossible to sustain operations for very long without sufficient cash-flow from revenue. Lowering prices temporarily may help you achieve penetration more quickly; but only if you have a war chest to start out with and you can trust your clients not to feel uncomfortable when you raise prices to a more realistic level.
Ask a CPA or a financial planner for help in creating your own market-penetration graph. A session or two with a professional photo-marketing consultant might be useful too.
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