Dutch auctions for selling photography

2009-01-08

in Economics, Photography

Contemplating the economics of selling photographs in coffee shops and small galleries, I had an idea about how such a sale might be conducted. Selling by means of a Dutch auction could be an effective approach: combining a mechanism to encourage a reasonable return for the photographer with a mechanism allowing buyers to express their preferences through their response to falling prices.

It would work like this:

  • The total cost associated with producing each print would be tallied, inclusive of printing, framing, etc.
  • The display period for the prints would be broken down into a number of periods: say, three.
  • During the first period, prices would be the highest. If, for instance, a print costs $20 and a frame costs $25, the price during the first third might be $90 (cost +100%).
  • During the second period, the profit margin would be reduced – perhaps to cost +2/3 ($75).
  • During the third period, the profit margin would be further reduced – perhaps to cost +1/3 ($60).
  • The periods and costs would all be announced at the outset, and displayed along with the prints.

What the system does for buyers is balances the advantage of waiting for a lower price against the risk that someone will buy at the current price. People will be encouraged to buy on the first day when the print is available at whatever price they consider acceptable. For the seller, the system decreases the risk of losing money on the exhibition. The falling prices make it more likely that most images will be sold, and the high initial profit margins make it more likely that the costs of any unsold prints will be covered by the profits on those that are sold.

Of course, this approach doesn’t consider all the costs associated with the photography. When one factors in equipment costs and the photographer’s time, higher prices (via thicker profit margins) may be justified. That being said, a lot of the photography that gets sold in coffee shops would probably have been taken anyhow, even if the photographer never expected to sell it. As such, the objective of breaking even on the prints themselves and perhaps earning a bit for future equipment purchases might be a realistic one.

{ 14 comments… read them below or add one }

Litty January 8, 2009 at 9:15 pm

Is this purely hypothetical or might you do this?

Tristan January 8, 2009 at 10:31 pm

It’s interesting how we call some costs “fixed” and others variable (i.e. profit).

I think this is a great idea – Dutch style Auctions seem to be the best way to determine the price of things because rather than relying on competition between buyers, they rely on the possibility that someone else will buy it first. Therefore, people purchase things at the maximum price they are willing to exchange.

In fact, the retail selling of anything which is of extremely limited supply is already something like a Dutch Auction – if you see a unique piece of Art in a Coffee shop part of the reason why you might buy it today rather than tommorow (when it will be cheaper due to inflation, although only marginally so – more meaningfully you’ll have had more time to reflect on whether you want it or not), is that it might not be there tomorrow. Thus, the possibility that someone else might snatch it up means you pay more than you might if you know you could always go back later to retrieve it.

Milan January 9, 2009 at 10:46 am

Is this purely hypothetical or might you do this?

I have no specific plans to do this, but may well give it a try if the opportunity arises.

Tristan,

Dutch auctions require less administration than conventional escalating auctions. They do have two special limitations, however. Someone willing to pay significantly more than the first price has no ability to express that preference. Also, someone willing to pay a price between two of those that are offered is not able to do so. As such, a Dutch auction decreases the probability that the person willing to pay most will win the auction.

A Dutch auction heightens the tension between buying now and holding off, given the certainty that an object will be cheaper later. As Antonia pointed out to me, it also risks making people who do buy early feel resentful, as though they wasted money. I disagree on that being a rational perspective (they paid extra for the certainty of winning the auction), but I can see how some psychologies would appreciate the situation otherwise.

Antonia January 9, 2009 at 12:56 pm

In the email correspondence I made a couple of qualifications about the resentment statement, key among those is that this wasn’t likely to arise if the viewers/buyers are all sufficiently notified of the progressively dropping price scheme. I don’t know the venue but, partly because I wasn’t sure how much control Milan would have over the hanging and information displays, I was concerned about how clear the pricing scheme would be to someone taking an initial interest in an image over the heads of a group occupying the adjacent table.

Milan January 9, 2009 at 1:05 pm

I don’t think the explanation would need to be any more complex than this example:

Prices for all prints

  • January 12th to 18th: $90
  • January 19th to 25th: $75
  • January 26th to February 1st: $60

Naturally, the dates, length of each time period, number of periods, and prices would be customized for each sale. No explanation of the history or logic of Dutch auctions would be necessary.

One complication would be selling prints in a venue that collected a share of the revenue. That could be addressed fairly easily by making the profit margins a bit thicker.

Milan January 9, 2009 at 1:21 pm

For a sale of ten prints and the hypothetical prices above, here is the kind of distribution of profits you could see:

If all prints sold in the first week, profits would be $450. If no prints sold at all, total losses would be $450 (provided unsold prints have no value).

Minimum profit with 100% sales: $150
Minimum profit with 75% sales: $30 loss
Minimum profit with 50% sales: $150 loss

Maximum profit with 70% sales: $180
Maximum profit with 50% sales: $0
Maximum profit with 30% sales: $180 loss

Number of lowest-profit sales to cover costs: 8
Number of highest-profit sales to cover costs: 5

Alena January 9, 2009 at 4:09 pm

Those are very reasonable prices and your photos are beautiful. Why not give it a try with the plan to get more equipment from your sales?

Milan January 9, 2009 at 4:15 pm

Eventually, I would like to do so.

Some cash to put towards photographic equipment would be much appreciated. That is especially true given that I am looking at a $650 wide angle zoom lens, telephoto zooms costing between $570 and $1480, and studio lighting kits costing between $360 and $600.

Of course, spending $450 on framed prints that never sell wouldn’t be very helpful.

. January 9, 2009 at 4:35 pm

How to do a coffee house showing????

“There are many things to consider if you want to plan a show. These are pretty much elements of exibiting that would apply wherever you decide to show your work.

The first and most obvious thing would be to see if the shop owner is open to the idea of you showing your work. This might range anywhere from an informal meeting and light chat to a scheduled appointment to show your portfolio.

Once that’s a go, you must determine the show dates as well as the amount of pieces that will be shown.

Costs are also a factor. Some venues act as show sponsors, covering the costs of framing the work (perhaps in exchange for a small commission on any sales) as well as promoting the show (invitations, media announcements, etc.).

Many places will also spring for a show “opening”, a special time set aside to showcase you and your work to invited guests. They may even go so far as to cater it, providing beverages and food for your guests.

Speaking of sales, you need to be clear from the start if the work will be for sale, and if so will it be DURING the show and THROUGH the venue (some would prefer potential customers simply contact you privately), and if so will pieces be TAKEN DOWN off the walls as they are sold, or will all sales be delivered AFTER the show is over.

Another thing to consider is insurance for the work while the show is up. By this I don’t mean an actual policy with a carrier, but rather an understanding of who is responsible if any of your work is stolen or damaged during the show.

My experience has been that few “non-gallery” space owners will take the risk of covering the cost of all of your work. On the other hand, you taking that risk may well be worth it considering what you have to gain from the show…

The key is to carefully consider all of these things, reach a clear understanding with the venue owner, and get the important points IN WRITING.”

. January 9, 2009 at 4:46 pm

Selling Your Photographs

“I know of only one method to price your work and that is to use the following formula:

First, add the cost of all the materials used to create your photograph: the cost of the print (paper + inks or chemicals), the cost of the mat board and the mounting tape if the photograph is matted, the cost of the plastic bag if the photograph is presented in a crystal clear bag, the cost of the frame plus glass and back if it is framed, the cost of the framing supplies (wire, screws, framing staples) etc. Count everything you used since it is part of the final product. Remember that you paid for all these supplies and that you should charge the customer for them.

Second, estimate how many hours it took you to create this photograph and multiply this figure by how much you want to make an hour. Add this to the previous figure.

Third, multiply this figure by 2 at the very minimum (I suggest you multiply your costs by a factor higher than 2 (I do) but how much you want to multiply your costs by is totally up to you). This is your wholesale price. To get the retail price multiply the wholesale price by two.

Fourth, once you have reached the above figure compare it to the prices photographers in your area are charging for work of similar size and quality. If your prices are much higher you may want to look into your costs and reduce them. If your prices are much lower you may want to raise them since people will most likely expect to pay what your competitors are asking. You can under price your competitors (always a good idea) but there is no need to offer the same item at half the price they are asking.”

Tristan January 9, 2009 at 6:23 pm

You can solve the problem of people willing to pay a price between two prices by dividing the price changes by 7 and having the price lower every day (or every hour?). But this seems pretty ridiculous – the stability of price seems to have some value which needs to be weighed against the kind of fluidity which would let you approximate an equilibrium state.

It’s true that someone might be willing to pay much more than the starting cost – but you could figure out empirically how often this causes someone to pay less than they would by graphing sales over time and looking for a spike near the beginning. Although, this might not be empirically verifiable because the customers are wandering in and out day after day largely at random – this phenomena would be more obvious at a dutch auction with many people gathered if the starting prices were set too low.

I’m unsure if this possible resentment is something that the seller needs to worry about – its a result not only of using a dutch auction to sell the goods, but also of the goods not being commodities (they are particulars – you can’t return them, and you can’t buy the same thing at a hundred other places). Whether you sell non-commodities by dutch auction or conventional retail, your decision to purchase something destroys the abilities of others to purchase it – so people will always be worried that “it won’t be there if I come back”.

It might be possible to eliminate this in the sale of photography by retail because it is actually possible to produce an infinite number of prints of any particular image, and you could presumably give refunds. However, as well as the non-hidden costs, switching to this kind of sales model has the hidden cost of turning the art explicitly into a commodity, which invariably makes it less “special” and lowers its value – rarity (perceived or real) is something some are willing to pay a premium for because they enjoy a benefit (satisfaction of exclusivity?) from it.

I guess my point is, the goal shouldn’t be to eliminate the possibility of angst or disappointment, because this is not just an inherent consequence of a market demand, but is itself something the market demands.

Tristan January 9, 2009 at 6:30 pm

High quality prints are not expensive, but the frames are. So, isn’t it logical to outfit yourself to produce frames yourself? You’d need a craft style chopsaw, and the rest is just gluing, fitting and painting. If you could make a frame that normally cost 450$ for 100$, thats another 300$ in your pocket from the final sale. A 100$ chopsaw could be a much better investment than a 500$ lens.

Milan January 9, 2009 at 7:15 pm

So, isn’t it logical to outfit yourself to produce frames yourself?

I don’t think I will be aiming at the kind of market where people spend several hundred dollars on a print or frame.

It seems worth adopting the kit lens approach: include something that is good enough to pass muster, but leave people the option of upgrading to something better later, if they feel so inclined.

Milan January 9, 2009 at 7:23 pm

It might be possible to eliminate this in the sale of photography by retail because it is actually possible to produce an infinite number of prints of any particular image, and you could presumably give refunds.

Any intelligent customer will realize that they could approach the photographer directly and request a custom print. In many ways, it would be advantageous for them, since they could choose the size and framing option.

That being said, I think some venues showing art would be unhappy about being circumvented in that way.

Looking at the example numbers above, I am not sure if I would be comfortable with so high a risk of failing to break even. I would make sure to look into how much previous comparable art sold for, as well as what proportion ended up being sold.

That being said, unsold prints still have value. At the very least, I could hang onto them and use them as gifts.

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