Strategies for Pricing

16

April 9, 1996 - Recently John Boykin asked some questions on the PHOTOPRO network
concerning the way stock photography is priced. This precipitated some lively discussion
and I have included some of it here. Any additional comments or observations are
welcomed.

John Boykin's Original Post

I don't get it. Having been in the image licensing business only a short time but
having been in the world of commerce for many years, I am still trying to understand
this industry's pricing methods. By basing our crafts product on the usage we immediately place ourselves in a world of bargaining.

In standard retail we find the price set by the merchant at what it takes for that
merchant to make a profit and continue in business. The seller could care less if
the hammer is going to be used in a skyscraper or a bird house. He knows what the
hammer, overhead, etc. costs, adds his markup and lets the market dictate the volume. If
he is over priced he soon learns and discounts the product until he achieves the
turnover rate required for success.

In an area of commerce I know very little about, art, I understand the price is set
according to the artists time. If, for example, I want a Gladstone widget, I will
pay Gladstone's price. More people buy Gladstone widgets than Boykin widgets therefore
the Artist Gladstone is more pressed for time. The only way artist Gladstone can improve
his economic standing, since all of his productive time is taken up by producing
Gladstone widgets, is to increase his price for widgets. If he continues to sell
at maximum production rate or at least 85% of that rate he has priced his product too
low. He is traditionally encouraged to raise his rates until his demand falls below
85% production capacity. Since there are several types of Gladstone widgets and
some are better sellers than others Artist Gladstone has to react to the supply and demand
within his own product line by setting varying prices for his line of widgets.

Now on the other hand, Boykin widgets are bottom feeders in the market and cannot
dictate price. They have to work harder to find a market and until a sufficient
demand comes about the price will stay at a level that is consistent with the demand,
at the bottom. One is by artificially creating the demand increase through aggressive marketing
and the other is by creating a better widget.

For a couple of years now I have listened (read) as top names in the photo industry
have decried bottom feeders as selling too cheap. What about top feeders selling
to low and thereby pushing bottom feeders downward?

I guess what I am saying is what happened to supply and demand? I love my fotoquote.
I thank you folks in ASMP for your pricing studies. But I have seen people who
have dyn-o-mite product with years of blood, sweat and tears invested, sell their
product for way less than its value. That does not leave us newbies much room to get established.

Just remember, you are who you are. Your work is what it is . You know your standing
in the marketplace. Why not set your prices according to the demand for your work
and forget all this other tit for tat stuff? Do you shop at the local flea market
and bargain for everything or do you go to a normal retailer?

As a friend tells me, "they pay what they pay, its up to you if you want to sell for
what they will give." If not look for a higher feeding level. It's always a buyers
market on the lower ends. It's a sellers market on the upper end.

J.B. Boykin

Pickerell's Response To Boykin

You raise a lot of good questions. Let me see if I can answer some of them.

First, most photography fees have traditionally been calculated based on two factors
-- the time it takes to produce the image AND the way the image is used. Your question
is why don't we just price our service based on time and other direct costs that
are required to produce our widget and forget about this usage nonsense.

We photographers have an advantage over the guy producing hammers because we produce
a product that is not necessarily used up by the first purchaser. When a guy buys
a hammer he intends to keep it for the rest of his life, or until it breaks. When
you sell a photograph -- because of the nature of the product -- it is possible to sell
to one buyer all the rights that buyer wants, and still retain ownership of the photograph
and the right to sell to other buyers all the rights they want.

Photographers have two choices. They can produce a product, and sell it based on
the costs of time and materials, or they can sell rights. Most photographers use
a combination of these techniques based on the particular project. At one extreme
we have the photographer who does catalog photography for someone like Sharper Images or J.C.
Penny, or someone who does meeting and event photography. They will probably price
the job based on time and materials, and give the buyer all rights to use the images.
They do this because in their estimation there is unlikely to be any second usage after
the initial use. At the other extreme is the photographer who produces stock images
entirely on speculation. This photographer has no initial recovery of costs. Whether he pays for the cost of production, or not depends on the number of times the image
is sold and the price received for each sale.

To make it even more complex many photographers earn some of their annual income from
doing some jobs at one end of the spectrum, some at the other and a lot where there
is some initial fee paid upfront, but where certain rights are retained that may
or may not

be sold later.

The photographer has many different problems from the guy producing hammers. Our costs
vary widely with each photo we produce, even within a specific assignment if you
were to try to apportion a fixed cost to each frame, (which no one does). Yet, how
much it cost to produce the image often has little relation to its value to the user of
the image.

A major national advertiser may be looking for a photo to be used in a major national
campaign to help sell his product. The advertiser is going to spend millions of
dollars in placement of the ads. The right photo is of great value. The right photo
may be available as stock, but in fact the actual production costs for this particular
image were only a $1000. Because of the use this photo is worth much more to the
buyer. Because of some unique characteristics the buyer may not be able to go out
and hire someone to take another photo that works as well for the advertisers purpose as
this one. Because it only cost $1000 to produce it may seem unfair to charge the
advertiser $5,000 or $10,000 for this usage, but from the advertisers point of view
that is still a reasonable price because of the usage he intends to make of the image. Part
of the reason you charge more for these uses is that you've got a lot of other images
sitting in the stock file which had production costs too and will never sell, you
just don't know which ones. We do know that less than 1% of the images in stock agency
files ever sell.

Now on the other hand we may have someone who runs a small local service company.
This person can't afford magazine ads. This person does his marketing through direct
mail and he only has a mailing list of 2,000 people. The same picture works for
him. This person can't afford to pay the same price as the major advertiser. He can't
even afford to pay the actual production costs of the images. On the other hand,
if he could share the cost of production of the image with a number of other non-competitive
users he could have a good illustration for his brochure and the photographer could
make a profit through multiple sales.

The simple fact of the matter is that there are many more people out there who can't
afford to pay the full costs of the pictures they need than there are people like
our national advertiser who could easily justify a much higher price than the actual
cost of production.

As photographers we could say, "If you can't pay my total costs of production then
I am not going to produce photos for you." In my estimation you are only going to
be able to talk to 10% to 15% of the market because the rest can't afford the freight.
Will the rest simply pay more? I don't think so? If you raise their cost of marketing
too high they can no longer make a profit so they either go out of business or learn
how to market without using photos. I think you have to come somewhere down the
scale so you have the potential of selling to more than 15% or the market. Some people
can make it producing and selling Rolls Royces. The vast majority need to produce
Fords.

At the same time I believe you can go too far in the direction of trying to sell to
everyone who wants to buy a photo and price your usage rates too low. I've tried
to establish rates for various usages in the price guide I publish -- Negotiating
Stock Photo Prices -- that enable photographers to sell to a broad cross section of the market
at prices the market can afford, while still enabling the photographer to make a
good profit.

The question of "supply and demand" is which demand are you going to supply. If your
services are so much in demand by major national advertisers that you don't have
time to do anything else, more power to you. I think there are some people who produce
great images who sometimes find that they need to sell for small brochure uses and
they need to sell to the start up companies in order to make enough to have a decent
standard of living. Hopefully, the fees they charge the small users will be reasonable,
and not undercutting the market even though they are less than what the national advertiser
would pay if they happened to want to use that image.

Some Other Thoughts

1 - A photographer may have a better portfolio of what he has done in the past, but
that does not mean he will necessarily do a better job of shooting the next project.
The best of photographers have been thrown into situations where they did not produce
very inspired images because of the nature of the subject matter they had to work
with or the pressures the client was placing on them.

2 - People buy stock photos based on content, not photographer's name. If you want
to compete in the stock photo market you learn what subject matter is in greatest
demand and produce photos of those subjects. Given a variety of photos to choose
from on a given subject, buyers will usually choose different images. Buyers have different
tastes. It is very difficult, if not impossible, to define what will make a photo
"better" for all potential buyers of that subject matter.

3 - The guy who produces hammers usually has some way of predicting sales before he
cranks up to full production. He also has an idea of what additional production
and marketing costs will be required to increase demand by 10%. I have not met the
photographer who can give you that kind of statistics. They can tell you after the fact
that a certain marketing campaign increased their by 10%, 20% or 30%, but when they
try it the next year they may get totally different results. Most people try several
things and hope some them work. They try to assess what doesn't work and go on to something
else

4 - I disagree with your friend who says, "they pay what they pay, its up to you if
you want to sell for what they will give." We find that they will often pay more
than they originally offered -- sometimes double or triple their original offer.
The art of negotiation is finding the maximum they are willing to pay and then deciding whether
that is enough for you to make the sale.

5 - Working at a higher feeding level often means doing fewer jobs. That may be advantageous,
but it doesn't necessarily mean a higher gross sale figure at the end of the year
or more profit. From some of stories I hear from the high end sellers, I'm not convinced that their margins are all that much greater that the middle level sellers.

6 - Please define for me what a "normal retailer" is. Almost anything I want to buy
at retail I can get different prices at every store I go to, and the retailers will
have Sales and Special Discounts on certain days. In addition to that I can buy
the product through catalogs and get a better price. I can go to the grocery store and
buy a generic product that came off the same assembly line on the same day as the
brand name product for much less money. The hammer that had a fixed production cost
is available at many different prices. What limits me in getting the best price is the amount
of time I want to spend shopping. I often pay more than I might have to because
it is most cost effective of my time than having to shop around for the best price.

Jim Pickerell

Additional Pricing Strategy

My experience in selling stock is that multiple usage does not depreciate the value
of the image. If anything it may increase the value because other buyers see it
and want to use it. I understand that overexposure of a fashion model may depreciate
her value. I have not seen that happen with stock photographs.

John says, "the remote profits are 'on the come' so to speak, if you go that route
you will always have to take less on the front end. I would rather have a clean
sale banking on the old southern axiom of 'a quick nickel is better than a slow dime'"

Both marketing strategies -- selling all rights for a maximum one time fee, and selling
usage rights -- are valid. Both are likely to continue in the marketplace. Some
sellers will prefer one and some the other. Neither side is likely to win the other
totally over to their side.

I would like to point out some of the advantages to using the "rights" approach.

1 - Many sellers find that they can get all the dollars the client can afford to pay
and still retain the rights to sell the image they have created to others for even
more dollars. Why give up that secondary right.

2 - Top sellers who are getting the highest rates for usage are also retaining the
rights to their images in order to be able to sell them to others. If those who
are selling unlimited usage and complete buy outs of their images were always getting
the highest rates, I might go along with the "clean sale" argument, but that is not the
case.

3 - The "quick nickel and slow dime" depends on how much you can make on investing
that nickel, how long it takes you to recover the dime and whether the potential
gross sales are a hell or a lot more than twice what you could get for it upfront.

4 - How many "winners" do you really shoot. Can you go out any day of the week and
shoot a dynamite best seller. If you can then take the quick nickels. If you can't
then you had better maximize your investment in those winners. For most of us the
winners are few and far between.

5 - They will hire you to do an assignment because of your name and reputation. When
it comes to buying a stock shot name and reputation of who created the image means
absolutely nothing. It is content, content, content. The price the buyer is willing to pay depends on usage and the buyers perceived value or the images.

The buyer will often pay more than his first offer, but never more than he perceives
the image is worth to him.

6 - The buyer usually doesn't need so why not sell him the rights he needs for the
maximum he is willing to pay -- and then go on and sell more rights to the same image
to someone else.

John, your experience in trying to sell a stock in Austin is classic. If it is any
consolation the same thing is happening to many other photographers every day. There
is a difference between producing generic stock of subjects that are in broad demand
and shooting an assignment on speculation. From your description I think you shot
an assignment on speculation. When you handed the art director the shot she had
you be the family jewels. You had spend a lot of time helping her define what she
wanted at no charge. She probably then went to "Big Name Photographer," clearly defined what
she wanted and he already had in the file. Then she picks among the selections she
has and plays you off against each other on price. Keep in mind that there is a
reasonable chance that Big Name Photographer may have spend less time producing the shot
than you did (I'm counting all that time you spent figuring out what the shot should
be)

You say, "The photo buyers come to Jack and Gary because they have a good reputation
for producing quality work. They come to an unknown and expect bottom feeder pricing
because the unknown has no big name leverage." This is true of assignments. It
is not true when selling reuse rights (stock). By your own admission in the example above
"Big Name Photographer" did not under price you. He just sold for the same price
you were willing to accept. If the price was the same, why wouldn't the client pick
the photograph that they felt would do the best job? Did they really think that "Big
Name Photographer" on the credits page inside was going to affect how people perceived
the cover?

It seems that what you would like the big names to do is set their higher than the
clients are willing to pay -- and lose the sale -- so the "bottom feeders" can come
in and make the sales at the prices the clients are willing to pay. Believe me,
it's not going to happen. The big names will try to get all the money they can, but they
are not going to put themselves out of business just so the "bottom feeders" can
survive. I can make these statements as an observer because I am not a "big name."
At best I am a "middle feeder." No one has ever bought a Jim Pickerell picture because of
the name, only because of the content.

Jim Pickerell

Further Response to Additional Questions

You said: "As a newbie I know I cannot charge the day rates and prices for my stock
that top feeders can." If it is truly stock you absolutely can charge the same
the top feeders can. In fact you often can get more if the client happens to really
like your image and the top feeder's agent is offering it for too low a price.

One of the realities of this market that we all have to live with is that work of
many of the most productive photographers is being handled by major stock agencies
and they are setting the prices. Unfortunately, they are often setting the prices
too low because they are trying to generate volume and competing with other for market share.

We here at Stock Connection are a small agency, but our average sale over the last
year is $590. We are willing to turn down low sales. More often than not we get
our price even when the client can get a picture for less from one of the major stock
agencies because the client happens to like our picture better and our price is not out
of line with what the client can afford to pay. I only know of one major stock agency
-- Sharpshooters in Miami -- that probably has a higher average sale price. Most
of the major names you all know are quite a bit lower.

I would encourage every stock photographer who is with a stock agency to divide their
total gross sales figure for the last year by the number of sales and see what their
personal average is. Of course that doesn't necessarily tell you anything about
the agency. Many they are only selling your pictures for less. I think most photographers
will find that the average sale their agency makes for them is in the $300 to $400
range. I know a lot of agencies who ware selling uses for under $100 here in the
U.S.

With the stock agencies controlling so many of the sales -- and willing to sell low
-- it is hard to see how we are going to push up prices, as I think all of us producers
would like to see. At Stock Connection we are willing to set a minimum below which
we will not sell a photographer's images. Most agencies are not willing to do that
and if the big name photographer tries to require that as part of their contract
the stock agency will simply say, "Sorry we don't need you."

So far, most stock photographers make more through volume at the low stock agency
prices than they do by trying to sell the work themselves and keep their prices high.
Consequently, they will do anything to stay with the major agencies.

I don't know what we do to get around that. Long range I don't think it is healthy
for the stock photo industry, but it is a current reality that we have to live with.

Jim Pickerell