I have talked about what portion of your business faces the most pressure in this economy in my first post on pricing. However, this brings up another point — what is the effect of all of the new competitors entering the market?
The answer is not good for those of you in the service side of creative business. Service side would include event planners, photographers, videographers and designers (interior, event and graphic) to name a few. Those of you that rely heavily on providing products which require a significant capital investment to get started are a little safer (but not much). For purposes of this post though, I am going to focus on service providers.
For service providers, there are practically no barriers to entry to your field. All you really need to get going is a phone, a computer, a little bit of know-how and a lot of moxie. For people recently unemployed, your businesses offer an attractive opportunity at being an entrepreneur. Arguments can be made about the value of experience and reputation, etc. However, the truth is that it is (and will continue to be) very hard for potential clients to tell the difference between providers, especially in the middle tier (i.e., not the absolute highest or lowest end).
Your service will become increasingly commodotized, meaning that, all other things being equal, potential clients will base their purchasing decisions mostly on price. The more price sensitive a potential client, the harder it will be to create value for them in areas other than price. This has the effect of resetting the market permanently lower, posing a large (and lasting) threat to those of you who have been in business for a while and do have overhead. New entrants, who have little or no overhead and are getting business, are making money. It is just that they are willing to make a lot less than many existing competitors. Long term, some of the new entrants may go away, but a lot will stay. More competition, based heavily on price, will reset the market for your services lower — permanently.
So what to do? Try to put a price on your experience. If you have been in business for a while (i.e., 4+ years) with any sort of success, you have developed and nurtured professional relationships with vendors, associates and related businesses. These relationships are what is most valuable today, if only because your new competitors don’t have the history with these folks that you do. Figuring out what you can provide to your industry relationships to help their businesses and ensure referrals is helpful, but will likely not abate the pricing pressure you face. Instead, why not form partnerships with vendors, associates and related businesses to create new offers for both of your clients that highlight the value of the business experience each of you possess? For instance, a graphic designer getting together with a planner to come up with a cost effective way to create a logo for clients. If you can get potential clients to pay for this new service, you can not only get paid but may be successful in demonstrating the value of your experience vis a vis your newer competition. And, if you are able to do that, you will likely be more effective in resisting pricing pressure from new competitors for the services you both offer. In the end, differentiating your brand in a meaningful, tangible way (i.e., other than just by saying you are different or have more experience) will be the key to lasting relevance in today’s marketplace.
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Great post as usual. I wonder if the new players understand that resetting pricing lower is not good for them or those with experience. This could be the reason for their complaint that they are not welcomed by the community when they start their businesses. It’s like a neighbor that brings down the value of the neighborhood.
Low pricing may have been fine when the economy was great and it was extra money. But that low salary that newbies set may become the main income if the partner loses a job. And I don’t agree that prices have to be lower when you first start. When a new Mercedes dealer opens, they don’t sell the cars at half-price. They make sure they are qualified to provide the services. Treat it like a real business from the start.
This is a thought provoking post, Sean. Experience means a WHOLE lot in the grand scheme of things – as a planner, my 16+ years can seriously trump out someone with less than 3. I’m also able to think clearly, concisely and lucidly on my feet when a problem occurs and not stand there looking like a deer caught in the proverbial headlights.
That level of knowledge and experience I have (along with my team) is something we tout consistently because it matters. The vendors we work with are acutely aware of this and have no problems in recommending us to potential clients because of that very same reason.
I have integrated select ancillary “services” into our pricing structure that takes advantage of the skill sets and offerings my trusted vendors possess and we have found it to be quite profitable. Our bottom line is simple – we’re not out to lose money. The respective businesses we own are how we live and support our families and lifestyles, so we value the worth of our experience. Judging from the quality of our clients – they do too.
Very interesting~ I recently blogged about some of these same issues, although the post was geared towards the consumer.
I agree completely with the idea of building upon solid, existing relationships with other service providers – this can result in some great benefits, such as cross marketing and reduced overhead. Many vendors in my market are already doing this, while others are taking it a step further and creating one-stop shops and new joint ventures – it will be interesting to see how these ‘strategic alliances’ fare.
Incredible post. Very accurate and I think thought provoking in a good way – forcing many of us to step up our game and think differently instead of just wining about competition that is undercutting us…it’s wise.
Thanks!!
Sean as another poster said this might be a tad controversial. I just can’t lower my prices to compete with some of these other newer planners because they are setting the pricing so low that it’s not even worth for me to spend the time working on a wedding when my overall profit will be $200. I may be ready to just throw in the towel because in all honesty, being away from my family on a weekend and busting my butt during the week is not worth $200 as a profit after all is said and done. If feels to me that since brides are getting married just once they seem to look for the cheap, quick fix vs. the experience.
I may be looking at the strategic alliance with a florist or a stationer…. or both. But let’s just say the amount of leads that have come back to me in the last two weeks saying “you are out of my budget” is quite scary.
I have always believed that for any of us engaged in a creative service,(whether or not it includes a product besides us), half of our career is education. I am a full time civil celebrant; I am far from being the least expensive way to legalize a wedding or civil union. Many of my clients view their ‘untraditional’ ceremony as a nebulous and abstract 20 minutes that preceed the cocktail hour, (something that Aunt Mary could easily perform if she went online and got ordained) so much of my “sales” efforts revolve around dispelling the myth that ‘anything goes’.
For me to book my couples at the pricing that makes professional sense for me, I need to convince them that their ceremony is the reason for the day. It needs to be written as an inspiring gift to both the couple and their guests, not just a collection of hackneyed words that get everyone from point A to point B.
We are all being challenged to be the most creative with our time and our talents and our networking. If we manage that process well, we will all be the stronger for it.