Microstock sellers have introduced a number of strategies that traditional agencies and distributors should be considering, if not rushing to adopt. One of these is pricing based on credits, which transfers money to the seller before product delivery, makes it simpler to conduct small transactions, appears simple to the buyer and gives the seller more flexibility in adjusting prices.
For the seller, there is a major advantage in having three pricing variables—the number of credits needed to purchase an image, the price per package of credits and the number of credits in a package—rather than just one, as is the case with dollars. The seller can improve his position by adjusting any one of these variables. Depending on how this is handled, it can cause the buyer to believe he is getting a better price than is really the case.
This can be illustrated by iStockphoto’s current prices. An extra-small file for Web use is priced at 1 credit. If you look on iStock’s Web site, it says $1 (one dollar), but that is misleading to the seller’s advantage. If the customers does not need many images and wants to buy the minimum number of credits (12) he will be paying $1.50 per image—a 50% premium over the listed price. It can cost even more per image if the customer does not download 12 images. The dollar figure is not really a lie; the customer can get the image for $1.00 or less, if he buys 1,500 or 2,000 credits at a time—but how many Web users will make that kind of commitment?
When the seller wants to raise prices, he can keep the number of credits required to buy the image the same and simply raise various credit package prices. If you go to iStock to purchase credits, the Web site tells you how many “extra credits” you get by purchasing each larger package but does not provide prices per credit. The customer can figure this out, but how many do? It is likely that most customers estimate of the number of credits they will need, look at the price for a package with a slightly larger number and, if the price seems reasonable, buy it. If the price is a little higher next time, the customer probably will not notice.
The seller can also keep the prices of the credit packages the same and reduce the number of credits provided in each package. Such strategies enable the seller to increase prices without it being readily apparent to any but the most careful of buyers.
Another factor is the size of each credit package. Prices in dollars are for an exact number of dollars and cents. In contrast, credits may require a customer to buy more than he needs. Chances are the customer will not immediately use the exact number of credits purchased. The seller not only gets his money before he delivers anything, he may get to hang onto—and receive interest on—a significant portion of it for weeks or months, before the customer requests delivery of a product. In cases where the customer fails to use all the credits purchased, that money can generates interest indefinitely for the seller while it is effectively held in escrow.
Sizing credit packages at levels where some credits are left after any purchase tends to encourage the customer to return to the site to use the remaining credits. iStock’s 26-credit package for $38 provides an interesting example. If a customer wants small files, he can purchase 8 images, but will have two credits left over and have to purchase another package if he wants another image. He can get four medium files, but will also have two credits left over. None of the credits required for large, Xlarge, and XXlarge divide equally into 26. It is likely that this was not an accident but a very shrewd business strategy.
Over time, sellers should be able to determine the average number of credits most customers use and adjust credit package sizes to ensure that most customers either leave some credits in their account or buy extra images just to use up the credits. Either way, the seller wins.
For traditional agencies, a credits-based pricing system would make it easier to license images for certain small, low-priced uses, enabling such sellers to begin reaching at least a portion of the customers that currently get their images from microstock companies. In addition, credit pricing does not have to be the only system employed by an image distributor. One strategy could require that small uses—say those priced under $50—be paid for using credits and that those prices be non-negotiable. Negotiation and invoicing would still be available to high-volume customers and on larger uses.
Customers purchasing higher-priced uses could be given the option of paying with either credits or dollars, but if they use credits, they get a discount compared to the dollar price. For example, the dollar price might be $250 or 220 credits. To get the latter, the customer would have to buy a 300-credit package for $370 and would have 80 credits left over. If the customer knows he is going to need a lot more images in the future, he can buy a 2,000-credit package for $1,900 and get this $250 image for $209.
Thanks to microstock, the concept of credits-based pricing has become widely accepted in the industry—and it works to the advantage of the seller in every imaginable case. Thus, it is hard to understand why it is not being employed by traditional sellers.