Why Price Discrimination Makes Sense

Posted on 7/1/2009 by Jim Pickerell | Printable Version | Comments (3)

In a recent conversation with Lee Torrens, author of Microstock Diaries and a leading advocate for microstock, I argued that the main problem with microstock pricing was not that pictures are sold for low prices to students, individual bloggers or personal Web site owners. The problem arises when images are sold to organizations that will receive substantial value from their use at these same low prices. Images used on billboards, in a million brochures, as part of an ad in several large circulation magazines, as a magazine cover, or as part of a textbook distributed to hundreds of thousands of students are worth varying amounts more than if used by a single student on his blog or cell phone.

Torrens said: “I cannot understand how you believe large corporations need to pay more for their photos because they can afford it. What other business services and products do they buy above the market value just because they can? You are talking about price discrimination based on who the customer is, not the quality of the product (in this case, the photo itself and the license).”

I believe we should discriminate. Market value should vary depending on how the image is used—the value the customer receives. Microstock images are not priced based on the quality of the product, but on file size, regardless of any quality standard. The distinguishing factor is between renting and buying a product.

Photographs are not the only products that may be licensed based on usage. If someone needs a car for a day or a week, the rental price is based on the value received—in this case, the time they keep the car, its usage.

It is also possible to rent bicycles, sailboats, golf clubs and other recreational equipment at prices below the cost to own them. The price is usually based on how long the customer wants to use the item, or the value received.

If you want to see a movie, you are more likely to rent a DVD than to pay a higher price to own your own copy. It is also possible to rent, rather than own, computers, VCRs, large screen TVs and gaming systems. It is even possible in many airports to buy a book, read it and then return it at a different location, where you can get another book at little or no additional cost. The fees customers pay to use products differ depending on the value each customer receives.

If you have a new baby, it may make more sense to rent a crib, stroller or car seat than to buy one, particularly if you are traveling. When you want to repair your home or work in your yard, renting certain power tools may be more cost-effective than owning them; the price you pay will be only a fraction of the cost to own such tools, and it will be based on how long you need it. When you want to use a special piece of camera or lighting equipment for a one-time shot, it may make more sense to rent rather than buy it.

In all, renting based on value received is a very common practice.

With photographs, rather than giving customers unlimited, unspecified use of the image, it makes more sense to give them all the uses they need and charge them an appropriate fee for the uses. Microstock companies do this to a certain degree. They do discriminate. They don’t charge every customer exactly the same price. They adjust the price based on the file size delivered. Part of the theory is that there are certain larger uses that a customer won’t be able to make if he only buys a small file. However, this is not an effective limiter, because file size has very little relation to the value the customer will actually receive from use of the image.

Microstock sellers also place high limits on the number of copies customers can print and require them to pay more to use the images on products, but these restrictions are inadequate when measured against the huge value a few commercial customers receive compared to the value the majority receives for the same price. It is like charging a one-day rental for a car and telling the customer, “Keep it for a year. We will not charge you anything extra.”

Torrens also said: “I can understand your logic in tying price to usage, though I do not think it has any hope of working in an oversupplied market. There are too many photographers competing for too few sales for the market to sustain such a complication to the convenience of license conditions.”

A modified microstock pricing system does not have to be as complicated as today’s rights-managed pricing. It just has to move toward establishing some large categories of use and pricing, each based on the value the customer receives rather than the file size delivered. (For more on such a pricing system, see “Modified Rights Ready Pricing.”)

Torrens points out that “the rest of the market is too competitive and commoditized for that to work. Even if you miraculously convinced the top 10 microstock agencies to agree to a usage-based license standard, new agencies would pop up and compete based on the fact they offered the old all-you-can-eat license model, and buyers would switch.”

I have to partially agree with Lee on this point. If the existing agencies were to adopt such a policy, new agencies would pop up. But I cannot quite see why image creators would run to dump their images in these new agencies, when the know that by sticking with the existing agencies, they will make more money. If the system I am proposing were to be implemented, 90% or more of microstock customers would pay the same or less than they pay now—the rest would pay more, and in some cases substantially more. If suppliers would not rush to give their pictures to large commercial customers for less, these customers would be forced to settle for something less than what they wanted in order to get the lower price.

Still, Torrens is right. There is no chance of my proposal being implemented. Everyone would rather stick with the status quo and lose money.

Copyright © 2009 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 301-461-7627, 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.  


  • Bill Bachmann Posted Jul 1, 2009

    It seems funny that NOW you are seeing the problem with Microstock prices being so low and BIG clients buying for $1 and using it to make a lot of money. You have told photographers for several years to dash their images to Microstock, RF or ANYWHERE to make any money.

    Now you see some of the problems! In my books, and in my lectures for years, I have said Microstock is NOT FAIR to the photographers... that all the good goes to the client. What you & others have done is create a LOT of people who sell a few dollars worth of RF or Microstock and run around saying the are photographers (while they sell shoes full time!) The profession of photographer has lost value because so many have jumped at low prices. Now you start to see that.

    In my latest book, I tell the truth about HOW to make a real living in stock,,, not just be on the sidelines. Yet so many of you writers just keep saying sell your pictures CHEAP and I will never agree with that premise.

    My book is on my website and it is titled appropiately....... "Remember The Joy: How To Have A Successful Career In Photography And Have Fun Dong It". www.billbachmann.com

    I wish more people would do it the right way!

    Bill Bachmann
    Orlando, Florida

  • Jean-francois Cardella Posted Jul 2, 2009
    You could argue that if you buy a T-shirt at Marks and Spencer, the price is the same whether you are a millionaire or if you are on the dole.

    However, differential pricing (or as Lee Torrens calls it Price discrimination) is not new. In fact it is everywhere, everyone discriminates. Moreover it accepted by customers. It is not “paying more because you can afford it”. It is all about the value the customer receives from the products or services. Many sectors apply this price discrimination where different prices are charged based on where and when customers make the purchase, depending on their status, age, job, if they buy in bulk quantity, depending on the method of payment, or the number of employees in the business, etc. I do agree with Jim, we should “discriminate” just like any other industries: different price for different customers.

    Want examples?
    Look at the airline business, you are “discriminated” if you fly at certain dates, holidays for example if it happens that you have kids. And you pay early bird rates for your downtown car park. Depending on your age, gender you will pay a premium with your car insurance policy. If you are a civil servant you often get government rates for a number of services. If you license a software it is likely the vendor will offer specific license fees for the education sector, not because they are cash poor, only because of the nature of their business or “mission” they won’t get the same commercial benefit as a private commercial enterprise. If you register with BAPLA, depending on the size of your library you pay a different fees.

    The Data Archive is currently working on a pricing system allowing clever fees adjustment because we think SOHO business types should be able to license images with traditional libraries both on RM and RF basis. Incidently the RM model has an evident price discrimination based on the value received by its usage, but the license matrix should go even further and integrate other elements in the background. The reality is that small businesses, bloggers, students, teachers etc. just can’t afford traditional license fees and legions are embracing the microstock model which is fair enough. The system currently in development with The Data Archive will be beta tested on Construction Photography who has clients ranging from giant multinational companies to “Joe” the plumber. The value they receive from the licensing of our images (which at the end of the day is a service) are not comparable and the license fees should reflect this.

    JF Cardella
    Construction Photography

  • Stanley Rowin Posted Jul 3, 2009
    "If someone needs a car for a day . . ."
    "It is also possible to rent bicycles, sailboats, golf clubs and other recreational equipment . . ."
    "If you want to see a movie . . .It is also possible to rent, rather than own, computers, VCRs, large screen TVs. . ."

    While I have no problem with your analogies, it seems that you all are discussing commodities. And if you are, you have different pricing models than many photographers want. Most old-business-model-photographers don't consider their work commodities, even though the market does and forces the price down because of that.

    Until photographers take a step back to look at the industry in the 21st Century, they may be forcing the square peg of "Rights Managed" pricing and all the current incarnations of it into the round hole of online commerce.

    Stan Rowin

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