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Saturday, December 17, 2011

Rangefinder - Groupon The Erosion of Our Industry

Rangefinder - Groupon The Erosion of Our Industry

Groupon The Erosion of Our Industry

by Sal Cincotta

Sal Cincotta

June 01, 2011 — Let’s just cut right to the chase. I have no hidden agenda here, and I didn’t have a bad experience with Groupon. I am a big believer in our industry and the longevity of our craft. I fundamentally disagree with the Groupon craze and what it represents for our industry.

We are artists providing a unique and valuable service to our clients. “Unique” and “valuable” do not go hand-in-hand with coupons and off-the-wall margins. Groupon gets $0.50 on the dollar just to host your coupon. No matter how rosy your glasses, that’s an insane amount of money to burn.

Let’s break it down into logical pieces, and when it’s all said and done, if you still think participating in this is the right move for your business, I would love to hear all about it.

Horrible Margins
Right out of the gate you are giving up $0.50 on the dollar. So, if you put a coupon out there for $50, Groupon gets $25 just for hosting your coupon! If you’ve listened to us speak or have read any of our previous articles, you know how margins and Cost of Goods (COG) work.

So, not only are you already discounting your services in some cases by 50% of more, you also have additional hard costs that must come out of that $25 you actually receive. Again, I want to emphasize, 50% is lost right out of the gate, not including your discounted price. So, I would guess, when its all said and done, you are losing 75% from your normal pricing before you have delivered a single product or service.

Devaluation of Your Services
Never, and I mean never, operate from a position of desperation. This is a desperation move and one that will ultimately lead to the demise of your brand, and more than likely, your business altogether. If you embark on this path, you will almost never recover from being the low-cost provider in your market. So I guess as an upside, if you are looking to do 600 shoots a year and compete with your local chain studio pumping out $29.99 packages, this might be the right move for your studio.

If you are an artist, you must properly price and value your service. Why? It’s because you are a limited resource, plain and simple. We bring an artistic eye to the table along with unique products that allow us to differentiate our studio from the weekend warriors.

Have you ever seen Rolex go on sale for 50% off? How about Louis Vuitton? Maybe the Ferrari dealership runs a sale like this? Of course not. And the list could go on and on. Pricing has as much to do with your brand as everything else you do. It establishes value—both perceived and real.

You will almost never see these brands embrace a pricing structure like this. If you do, it’s a sign of giving up. You are basically saying, “yep, we don’t know what else to do, so let’s drop our prices and let someone else market our business for us. We give up.”

Commodifying Your Brand
Once your brand/product/service has been devalued you start positioning yourself and your studio as a commodity product/service. What is a commodity product? It’s a product that holds no perceivable difference between that of its competitors, ultimately, competing on price. Translation? You have now entered the slippery slope of price competition, attracting clients who are shopping based on price—not quality or service. Examples include: fast food, household cleaning supplies, gas stations, mall-based photo studios, etc. Are you getting the picture here?

This is the worst possible path to take your business down, and I promise you one of two things will happen: You will ultimately realize you cannot deliver on the high volume that comes your way for a multitude of reasons, or you will realize this is the worst thing you could have done for your business and try and get back to basic business principals. Either way, you will soon abandon this business model.

True Story
There is a studio in my local market that adopted this concept. They were, and are, a very established studio in the mid-market. They jumped on board the Groupon craze. Offered a location-based mini-session at $50, including the negatives. They booked 1000 sessions. You read it right, 1000 sessions. $25,000! [once you subtract Groupon’s take] They were going to be rich! Um, not really!

Let me school you on some math here. That’s 1000 mini session at 30 min per session. That is 500 hours of shoot time, which is not including burning DVDs, any travel whatsoever, scheduling calls, etc. Let’s say for arguments sake you are able to shoot 30 hours a week, which I think is very aggressive, that will take you 16-17 weeks to fulfill all those shoots. Over four months!!! That’s your entire shooting season.

So, they pretty much guaranteed that their entire summer calendar would be filled with these low-end shoots generating no additional revenue (shoot and burn to the maximum).

The unintended consequences of this little exercise? Customer service disappeared. Clients were now rushed through sessions. The “experience” was all but gone. And worst of all, existing clients who were used to paying the normal studio prices and rates bypassed the normal session fee and went the coupon route. And who can blame them? Why pay full price when you can get a deal? So now they’ve managed to cannibalize their existing client base vs. generating new clients and new revenue streams.

As result of this we booked two weddings from their missteps. I am not bragging at all. I want to help my fellow photographers. My point is simple: The clients who came to us told us about this and expressed how they felt rushed, the quality suffered and that was not something they were willing to sacrifice. After this experience they realized that you ultimately get what you pay for.

Back to the Basics
All right, I know what you must be thinking, great points, but if not Groupon, what should we do? We are struggling, competitors are everywhere and we need to make a change.

How about this as a simple solution? Instead of giving a random third party 50% discount on your product or service and then splitting the profits by 50%; take that 75% and reinvest it back into your business.

Please don’t misread my points here. There is nothing wrong with running some special promotions or discounts, but you can’t give away the house and think you are going to remain in business for very long.

We run specials all the time to boost sessions during our slow season. This doesn’t devalue our brand, nor does it impact our overall sales numbers. In fact, it helps the sales numbers by keeping the studio busy during our slowest time of the year.

If things are slow, run a 50% off session fee to get things moving. If that doesn’t work, refresh some of your sample work, refresh your pricing and packages, update your Web site, etc. Take a hard look at why things are slow and ask yourself some tough questions to ensure you are still relevant in your community. Work with local charities or booster clubs and offer some auction items to generate new leads. Check out GoogleAds to target your market online—it’s easy and cost effective.

I just quickly rattled off some simple ways to promote your business, all with a cost that is little to nothing to execute. If you have some dollars to throw away, which is what you will be doing with this coupon to the tune of 75% or more, why not invest that in a slew of things that can help promote and better your studio. Update your branding, update your client area, get a new Web site, send direct mail pieces, start a customer referral program, give gifts to your top ten clients, attend training workshops, upgrade your gear, etc.

Don’t give up and don’t resort to desperate measures for your business without exhausting every possible means available to you. Sure, you might see an instant jump in sales, but long-term, this model will implode on itself and ultimately damage your reputation and our industry.

Competing on price is never easy and unfortunately, this is typically a last resort for many businesses. Don’t let it be yours.

Salvatore Cincotta Photography is based in the St Louis Metro area with a focus on weddings, high school seniors and professional education for photographers. For more information, visit www.behindtheshutter.com

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