When the real estate market was hot in 2005, everyone and their grandmas were real estate agents. It got so competitive that real estate agents offered to sell homes for as low as 4% from the conventional 6%.
WOW! To put this into perspective, 2% difference from a $400k home is $8k (33% in discount). Eventually, it got so competitive that many people exited the industry. Now, if you ask to pay a 4% commission, real estate agents will laugh at you. Prices and rates returned to normal (equilibrium).
In the photography industry, lots of newcomers enter the industry. But why don’t the price and rate return to equilibrium? Instead, veteran photographers are forced to discount and discount and discount …
Brace yourself. This is a long post. But it applies to all industries.
In reality, this phenomenon is not very surprising if one is adept in basic microeconomics and understands a form of game theory called, “prisoner’s dilemma.”
The bottom line is that low-priced photographers will continue to rise in income and volume, while high-priced photographers will continue to decline in income and volume. Of course, there are outliers – those whom are well-branded.
Below is the explanation for this occurrence. You should read on if you want to be successful.
For the sake of consistency, pretend that you are a wedding photographer. I know that my readers are diverse, but the strategies are applicable to everyone in every industry.
Microeconomics – Supply and Demand
You might have seen the following graph in high school or college. It can look daunting, but I will explain each item. Below is a supply-demand graph for the photo industry.
First, look at P1 and Q1.
- P1 stands for Initial Price
- Q1 stands for Initial Quantity
Where P1 and Q1 meet is the equilibrium point, which means that the optimal number and price of transactions between producers (you) and consumers (clients) happen there. For example, pretend that the sweet spot is $4,000 per wedding for 50% of the market of brides.
Charge above the $4,000 sweet spot and you will see a decline in demand. Charge below the $4,000 sweet spot and you will see so much demand that it’d be silly not to charge more.
However, due to reduction in barriers to entry, more photographers enter the market.
- No more dark rooms – learning curve reduced with instant feedback with LCD previews
- No more costly camera equipment – cameras get cheaper and better
- No education required – do you need a diploma to shoot photography?
This easy-to-do trade had a Malthusian explosion in photographers – 1 leads to 2, 2 leads to 4, 4 leads to 8, … Therefore, the shift in the supply curve (increase in photographers) causes a reduction in optimal price.
Here’s the skinny – Pretend that there’s a pie (number of weddings to shoot). That pie is not going to get any bigger (number of weddings are not going to increase). However, the number of people that wants a piece of that pie is increasing, which means that everyone gets a smaller slice (smaller profits).
More people. Same size pie. Smaller slices.
Increase in Technology
Additionally, an increase in technology allows for a producer (you) to be more efficient. With faster computers, quick Photoshop Actions and Lightroom Presets, you could now, let’s pretend, produce or process twice the number of weddings as in the past!
So, instead of only allowed to handle, let’s say, 20 weddings, you now can handle 40 weddings. This shifts the supply curve more to the right, reducing the optimal price charged.
Here’s the skinny again: Technology makes more efficient people. Same size pie. Even smaller slices.
No One Truly Exits the Industry
Prices will fluctuate lower and lower for expensive photographers and prices will fluctuate higher and higher for cheap photographers until equilibrium is met. When it gets to a point where the small profits don’t make sense, producers (you) will exit the industry. That is the point of diminishing returns.
However, because it’s so easy to maintain a photography business, many photographers won’t really “exit.” I mean, how hard is it to maintain a photography business? Generally speaking, have a website, gear and business cards. Am I missing anything?
With that being the case, equilibrium will always remain low because even full-time photographers will never truly exit and more part-time photographers will continue to enter. Who isn’t willing to sacrifice half a dozen weekends out of the year to make a few grand per shoot?
Prisoner’s dilemma is a game that provides insight into why people fail to cooperate, even if cooperation would benefit everyone.
Examine this example.
You and John got caught for a crime, but there wasn’t enough evidence to convict you two for a serious felony, so the cops try to get one of you two to confess.
They separate you two and offer you each a “deal.” If you confess and John does not, you walk away free and John goes to prison for 30 years. If you stay silent and John confesses, John walks away free and you go to prison for 30 years. If you both confess, you and John each serve 8 years in prison.
If you both stay silent and do not confess, you both go to prison for 1 year because there was not enough evidence to convict you two for a serious felony.
What will you do?
These are your options:
- If you stay silent, you could get 1 year in prison or 30 years in prison
- If you confess, you could get 0 years in prison or 8 years in prison
The dominant strategy is the best strategy regardless of the strategies chosen by the other players (or John). In this case, the best strategy is to confess. It’s the best choice regardless of what John says, even though it would be most beneficial to cooperatively stay silent.
In the case of the photography industry. The only way for prices and profits to remain high is if everyone cooperatively keeps their prices up. However, someone will always use the dominant strategy and offer clients a slightly discounted rate to get the business.
This undermines the collective effort. As a response, someone else will discount to get more business. And someone else will discount too. And eventually, the optimal [and realistic lower] price is reached.
If you like and follow politics, think OPEC and oil oligopolies.
What to Do?
If you’ve read this far, then good for you. The first step is to stay abreast on trends and educate yourself in … everything. Reading my blog is education in marketing and business.
To be honest, there is no simple answer. Everyone’s situations are different. However, there are items that you could work on.
- Diversification – This is risky, but doable. I know of a number of photographers that shoot all sorts of crafts, but united under one brand – a self-brand (e.g., Lawrence Chan brand) – rather than a specific craft (e.g., only weddings). In the end, anyone can say “I only shoot weddings” too, but no one can say, “I am like Lawrence Chan,” except insert your name in lieu of mine.
- Branding – A well-branded company does not compromise. For example, Apple does not discount their products and people, including myself, thank them for taking our money. So, solidify your brand.
- Pricing – Your prices need to be flexible to the changing climate of the industry. Got to adapt as you go.
- Amalgamation – Photography is an extremely valuable skill and easily adaptable. It is not a bad idea to combine this skill with another career choice. For example, you could be a real estate agent with the best dang house photos or a fashion writer with the most stunning portraits.
The Art Center College of Design’s Photography and Imaging “received the largest number of applicants … in its 83-year history. [L]ong tradition of integrating photography with other design disciplines, … applying creative solutions to social impact problems.
–Future of Digital Photography
Anyone could be a better XYZ photographer, but no one can be a better you.
Always leverage your resources and tools. Maximize your efforts. Always think critically. Question everything.
Hope that was insightful. If you have any questions, comment below. I’ll answer them at my earliest convenience.
P.S. The idea for this blog post came from Zack Arias – photo industry thought leader. A little over a month ago, I read a blog post from from him that discussed a photographer’s dilemma, which I believe to be the case for many veteran shooters.
If your business experience[d] the following sales losses, would you say it’s time to close the doors? The numbers are [as follows]:
- This year – sales down 25%
- Last year – sales down 60%
- Year before that – sales down 25%
- Year before that – sales down 12%
Basically four years of large sales losses. Prior to all [of] those losses, I [steadily climbed]. So, is it time to shut it down and move on to something else? Or, what would you do to recover from these losses?
I want to commend the photographer who was brave enough to acknowledge this observation. Having the foresight to see the need to change and adapt is critical in success. I also want to thank Zack for his efforts in the photo industry. Without his Q/A publication, I might not have understood the scope of the issue at hand. Thanks!
P.P.S. Some lovely notes from readers of my psychology to pricing and packaging e-book.
P.P.P.S. I had to eat a pie just to make the photo above. Can you see how much I sacrifice in order to demonstrate a point? 😛
Comment below your favorite pie or dessert. My favorite dessert is french fries. Yes, you heard correct. Not sweet. SALTY.