The Price is Right, Come on Down!

I was able to sit in this morning on a workshop presented by the Community Partnership for Arts and Culture (CPAC).  The module revolved around pricing structures for artists and the arts community, and how we all can apply typical pricing strategies from the corporate world to our own artistic careers.  The presenter this morning was Michael V. Marn, Director of Pricing Services for McKinsey & Company, Inc.  Michael led an extremely interesting conversation about tactical, perceptual and psychological barriers to getting the price you want for your work. Often, artists are made to feel bad about what they charge for their work, and Michael explains that in contrast, every artist, dancer, musician, or designer should actually take pride in the fact that they received the price they set out to get.

While not a complete transcription, the following are some notes from Michael’s presentation that I thought were interesting, and can serve as a springboard for many professional artists to start thinking about their pricing.   

Trying to Decrease Price to Increase Volume

McKinsey & Company’s research shows that changes in price, say a 5% drop in price, typically results in no increase in sales; the basic math of decreasing price to increase volume of sales just doesn’t work.  The extra volume needed to justify the decreased price doesn’t compute. 

Notes About what Sellers (Artists) are up Against

• Buyers are always trained to go for the lowest price; it is natural tendency.
• If you are getting no complaints about your prices being too high, you could actually raise your prices. Unless about 15% of your customers are saying your prices are too high, they are probably too low.
• “Pro-Amateurs” who undercut your own professional work by offering lower prices for sometimes inferior work. These are lower benefit competitors; if you as an artist can be articulate and clear to your customers that your benefit level is better than that of your competitors, you have much more headroom to charge higher prices. The Big Question is How do you make that case to your clients or buyers? That skill is essential for any artist entrepreneur to develop and put into place.
• Some buyers are using the economy as an excuse to try to negotiate prices. Even in a downturn, buyers will most likely still pay your fees, just as long as you can demonstratively show that your benefit is higher than that of others.
• Your customers do not care about your cost/overhead! They care about the best price vs. benefit tradeoff.

What prevents you from getting higher prices today?

• Fear of rejection
• Downturn economy, lack of discretionary dollars
• Buyers have price cap, existing reference price
• Fear of not moving the product; volume concerns
• Exercise for Artists: the next time you sell an item, after the sale is complete, ask the buyer if the price were $50 or so higher, would they have still purchased it? Use this information to inform your pricing structure.

Some pricing losers, or common misconceptions

•  Price=Cost+standard margin. Not an ideal equation.
• Price is set by the competition
• The objective of pricing is to win every order (commission, sale of artwork, gig, etc)
• Customers only care about low price
• Raising prices risks loss of business

 The Concept of Value

• Customer value=perceived benefits-perceived price
• The higher the perceived benefits (look, quality, service), the higher the perceived price
• When the buyer sees no difference in perceived benefits, they will opt for the lowest priced product or service.
• Mike related a story about a research study that showed the effect price level has on perception of value: a gallery in two locations had the same vase for sale, one location priced it at $45 and the other at $9. Exit surveys asked buyers about perception of quality for the vase they just bought. Overwhelmingly the surveys showed that the perception of quality for the $9 vase was lower than the $45 vase, even though they were the same exact product. Also noted were buyers who chose not to purchase the $9 vase because they perceived it to be of low quality-based mainly on the $9 price tag.

These are all interesting items to consider as you set your pricing, or restructure your prices for your artwork or creative services.  One of the most important points that came out of this discussion, as well as a COSE Arts Network Roundtable discussion led by Diane Helbig, is that in this downturn economy, there will be a shift back to quality: the best artwork and those artist entrepreneurs with the highest perceived value of their work, will rise to the top.   When the economy does improve, the innovative and high quality artists and their work will survive and be in the best position to be successful business people and entrepreneurs.