New Business Model - Issue 9

Posted on 9/26/2007 by Jim Pickerell | Printable Version | Comments (0)

Issue 9 - Is it all about the customer? Customers will always want more for less, but at some point, there has to be enough revenue for the producer to justify continued production.

Since Getty Images came into existence, CEO Jonathan Klein has always focused on the customer. Back in 1998 in a keynote address at Photo Expo, he said, "Our industry - and when I use this phrase I am focusing on the stock photography business - has found it very difficult to think of our product and our business from the perspective of the customer."

In the stock photo industry, for the most part, the producers' business is separate from the sellers who set the price and negotiate the sales.

Unfortunately, it is very difficult to determine the "cost of production" because in almost all cases, the largest share of costs are laid on the photographer or image producer who is not allowed to participate in setting the price for the usage. Consequently, the only costs the seller worries about are his own.

The seller will lower price to increase volume until it reaches total market saturation. At that point, the seller may begin to raise prices to increase revenue and profits. Sellers tend to believe that because their costs are covered and they give the producer a percentage of sales, the producer is adequately compensated. But if they have no idea what the producer's costs are, they have no way of determining whether the compensation provided is adequate to the producers needs.

In most industries, the one setting the price knows what it costs to produce and bases the price on that, plus a certain degree of profit. In the stock photo industry, we have several problems. We have no idea what a specific image, or even a collection of images, will generate in sales over a period of time. We can not depend on the rate of growth in new customers, and we have no idea how competition will affect sales. Thus, we are constantly at risk of establishing prices that don't cover costs.

We've all heard about companies that were put out of business by Wal-Mart, despite the fact that their sales volume was increasing. Wal-Mart keeps demanding that the product be sold for a lower price until the company eventually reaches a point where the price of the product is lower that it costs to produce. To some degree, the same thing has already happened in the stock photo industry - and the number of producers put out of business seems likely to increase.


Copyright © 2007 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  

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