Discussion on Pricing
So, it’s time for some meat, enough fluffy newsletter stuff. What about pricing? Next to my bed is a basket of books, a novel or two but mostly business books. Pour your heart into it-the Starbucks story by Howard Schulz, Small Giants, Blog Marketing and the Art of Pricing all currently have bookmarks. After over 16 years in business I am still a student looking for teachers, especially when it comes to pricing.
What do all these books have in common? They represent my search for the answer on how to grow and sustain MugsyClicks Photography. Common knowledge in the school photography industry is it is all about price. How cheap can you go, still survive and compete with the “big national”. Some companies do this by restructuring the commission structure basically by retailing prints. Some do it by undercutting, or bottom-feeding, which usually leaves them with a higher gross and a barely survivable net. This usually works on the schools that the “big national” has identified as not profitable. A few companies, the most successful ones, have worked out a formula that matches price and stretches for as much volume as they can wrestle in the contract season. These contracts tend to switch back and forth between these 2 or 3 companies when that year’s temp hires were disappointing. The bottom-line is that school photography business has become a commodity.
Here’s what Rafi Mohammed Ph.D, director at Simon-Kucher & Partners, in his book “The Art of Pricing” has to say about commodities:
“Mention the word commodity and most people almost reflexively start moaning about “low prices” and “no pricing power.” Commodities are products that are identical in every aspect (characteristics, service, distribution, etc.) to those of your competitors…many competitors experience the unpleasant reality of their products becoming commoditized-they face market environments in which their products are losing pricing power. In this situation, companies selling commoditized products end up having their products prices dictated to them by the rivals who are selling similar goods. If you don’t match the competition, your customers disappear.”
Now that is the school photography industry in all it’s glaring truth. Mohammed goes on to say, ” If your product is becoming commoditized…you have a strategy problem. Pricing cannot remedy this. You have to develop a new strategy (e.g. differentiation) that will distinguish your product and thus free your prices from their dependence on those of your competition.
Ah, there it is the opportunity… differentiation. Now while Mr. Mohammed goes on to discuss a multi-price structure as a short term prospect he sees the long term prospects as poor. The only way out of a situation like this is to recognize customer’s different valuations and meet those needs. So in photographer language… you can only use complicated print packages so long to trick the client into spending more money. This is especially true in our new digital world where scanning is as easy as a copy machine only much better quality. Not to mention my pet peeve, why are we commoditizing our children? Again, why are we commoditizing our children? Why wouldn’t parents want to spend more money on better photos of their most sustaining legacy? My experience with Mugshots has shown this fact to be true but it is still an uphill battle as it regards a massive re-education program for school administrators. Is this pricing restructure necessary? Absolutely! For many reasons all of them good- most of all for the parents, kids and community-based photographer.
Now that we have properly identified that school photography has become a commodity requiring a new strategy, “…a significant and time-consuming endeavor” it is important to look outward for inspiration. I chose coffee. Enter Howard Schultz. One day while ordering a Mocha (I only drink coffee drinks with chocolate and foam) in a Starbucks in Redding, CA on my way to a school photographer’s summit, I realized, in a much different financial market than my home-base Marin County, I was paying the same $3.45 for my Mocha. Then the next day,while breakfasting with my colleagues, I mentioned I needed to walk down the street for my much needed Mocha and 4 women joined me walking by pots of freshly brewed FREE coffee because they too need foam at the top. Coffee, the commodity, had been transformed into a daily luxury item! The model for transforming our industry was right downstairs, around the corner…Starbucks!
Love them, hate them, Starbucks has been a boom for coffee. No longer a commodity, it has re-energized an industry in more than caffeine. Read “Pour your Heart Into It” and “The Art of Pricing” and think School Photography. And of course.. contact MugsyClicks so we can use our combined energy to break the price barrier.