In any business, pricing is not, and should not be, an arbitrary decision. Neither should raising prices. How we price is based on a seemingly simple formula, Price = Cost of Doing Business + Profit. I say seemingly, because gathering data to arrive at the cost of doing business is not an easy task. It requires keeping records of ALL business expenses, computing for breakeven points, depreciation values of equipment, return on investments (ROI) and many other accounting works. However, this article will not deal with how to arrive at pricing. Instead, we shall concentrate on two real stories about raising prices.
These are our actual stories at Adphoto, and I hope that telling them would encourage other photographers to share their own experiences.
IN 1989, when a few photographer-friends and I were trying to form the Advertising Photographers of the Philippines, I met Eddie Go – a well-respected and successful photographer – and his wife, Lydia – an equally successful food stylist. (Eddie Go has passed on, and his son has taken over as photographer-partner to his mom).
They were a few years ahead of us in the business of photography, and I looked up to them. Even without looking at our rate sheets, Eddie suggested a pricing experiment. He challenged me to raise prices, and he predicted the results. I don’t remember his exact words, but the message was essentially this: “Raise your prices, and you will find that you would lose some of your clients.” He continued with his prediction, “but in the end, you will find that your profitability will go up, and you would actually be grossing higher than before you raised your prices. Even if you did not earn more, you will be surely be working less for the same amount! ” Challenging me further, he asked, “Would you rather accept 100 jobs at P1, 000 each, or 10 jobs at P10, 000.00 each?” To seal his argument, he reminded me, “We’re in services, Harvey, not in selling retail. There is only so much that we can do in a day.”
Suffice it to say that I heeded his advice, and benefitted from the wisdom he shared with me.
Our next pricing challenge was in year 2000, when the Philippines was suffering from a deep economic slump. President Estrada was being tried for corruption and no one wanted to invest in the country. Everything had stopped to a standstill, as the country stayed glued to the court proceedings being broadcasted on TV like a riveting teleserye. There were not enough advertising jobs, not just for us but also for everyone, and our facilities, equipment and people (among them three photographers and one digital artist) were all under-utilized. We didn’t know where the country or the industry was going.
We needed to do something – to have “one, big, hairy, audacious goal” to lift us from the flat lines that we were experiencing. Searching the Internet for ideas, we got excited over developments in digital backs. But they were scandalously expensive – at more than a million pesos for a piece of equipment that was small enough to hold in one hand. I emailed Phase One, and told them that we were interested in their product, but there was no way that we could buy something that expensive yet had neither seen nor touched. They sent a quick reply, and said they would send someone to the Philippines to demonstrate their product.
If they came just for us, all the way from Denmark, I feared that we might feel pressured to buy, so I offered to organize an audience of the top 10 photographers in the country for his demo. If we decided not to buy, maybe somebody else would. I also volunteered to introduce their sales and marketing representative to possible distributors in the Philippines. They said not to worry, their man was going to Japan and Manila would be just a hop away. We were assured that he would come, whether he makes a sale or not, as they needed to reach the Asian market.
We hosted this demo, and the 10 photographers whom we invited brought in 20 more. But at the end of the evening, although everyone was excited at the features and capability of this new piece of equipment, everybody felt that this was not the right time for such a heavy and risky investment. One photographer said to me, “But, Harvey, you could buy a van with that kind of money.” On the other hand, we were convinced that this was the way for us to wake up the industry that was in doldrums. I answered him, “But, you have a van and we have a van, but we can’t shoot with our vans.”
At the end of that evening, we were the only ones who signed up for an order of a Phase One digital back. Aside from real estate (our Bautista home and studio), this was the biggest single purchase that John and I had ever made. I had to bring out our entire life savings to purchase this tiny piece of equipment. It was one of our biggest gambles. We could only pray that we were doing the right thing.
As soon as the digital back came, we had to master the equipment and the software. And we had to go full-blast in marketing this new, expensive “toy.” We prepared samples of our digital work, a Keynote presentation enumerating the advantages of a high-end digital back vs. film, and made a list of agencies for our sales blitz.
At our first presentation to an ad agency, everyone looked excited and convinced, but the moment of truth came with the question, “Would it cost us more to go digital?” John and I answered at the same time. He said “No,” and I said, “Yes.” We looked uncomfortably at each other but to John’s eternal credit, he said, “Well, pricing is Harvey’s territory,” and literally took a few steps back to motion me to walk up to the microphone.
Nervously, I repeated the benefits of going high-end digital, but one of our clients impatiently demanded, “We know, Harvey! How much more would this cost us?”
“Just enough for us to recover our investment.” I looked at them, and saw that they did not quite accept that as an answer. I knew that what they were expecting were not words, but numbers. With as much courage and confidence as I could muster, I said, “15% more.” The split-second while I waited to see if they would approve or disapprove was like eternity, but that magic number must have been acceptable because I did not see any disapproving looks. I heard a couple of clients softly mutter, “OK.” Again, silence for a few seconds, and then they stood up and applauded our presentation. They excitedly approached our computer to see more images, and to ask more questions – no longer on pricing but on the capability of the digital back. Before we left, they had asked for our earliest availability for a photo session- which was the following day.
The biggest surprise was that we did not have time to continue or finish our planned marketing blitz. Our clients – folks from both agencies and advertisers – took care of spreading the word.
The representative from Phase One computed ROI based on the number of films (4×5 and 120mm) that we were using and spending on in a year. This, plus what we spend on Polaroid prints, is the expense that the back would replace. My rough computation on possible ROI was based on one photographer using the digital back, but not everyday. I knew that our computations were not 100% accurate, not foolproof and not guaranteed – everything still depended on how well our new pricing would be received.
The response was overwhelming! We were overbooked! All clients were requesting us to use our digital back. All three photographers had shoot assignments, and the only way to accommodate their shoots was to insist that the assignments would be, not on location, but all in our studios. We had three large format and medium format cameras readied in three studios, but we only had one back. As soon as the first set up was approved, and the next layout was being set up, the digital back was shuttled to the other studio for the second photographer, and on to the third photographer, and back again to the first photographer. In the meantime, we had to find ways to keep clients entertained so that they would not notice that the digital back was not where they were.
Those were exciting times.
In six months, we had earned enough to recover our investment and to order another PhaseOne digital back, and before the year was over, we placed an order for the third back.
With three backs, our three photographers were happy. They could shoot in the studio or on location, and most importantly, our clients were happy. We delivered on our promise.
PhaseOne found a distributor in the Philippines, and we helped them reach a greater market by acting as their “unofficial” showroom. Other photographers who were interested were invited to come to our studio for a demonstration and discussion of the features of PhaseOne digital backs. In return, PhaseOne gave us discounts and allowed trade-ins of older models for newer ones.
To be continued (if you are interested)… The Year After: It’s Not Always Rosy in Digital Photography.