The Price
of Art. The Art of Price
“The desire to own, the desire to
behold, the desire to learn, the desire to have
– they never changed. We have a rich tradition
of collecting. What IS different is that there
are more people now who play in the market. Why?
It’s sexy. It’s fun. It’s engaging,
fast-paced, opportunistic. It’s of your
culture and your time. It confers value on you
to have objects that other people perceive as
important, valuable, cultural.”
Thea Westreich, New York art advisor.
On 26 May last year, a major warehouse fire destroyed
up to 100 artworks from The Saatchi Collection.
Once again, modern art – its patrons and
enfants terribles – made the front pages.
During the media frenzy, it came to light than
one of Saatchi’s main sources of controversy
– Damien Hirst – had recently bought
back some of his own work from the ad man, funding
these purchases from the £11m he had generated
from sales in 2003.
According to web site www.thisislondon.co.uk
the work he reclaimed included “the rotting
cow’s head, the tank full of flies, a sliced
and pickled pig and many of his spot paintings.
The rotting cow’s head was bought by Saatchi
for around £50,000, but is now believed
to be worth up to £2 million.”
Even if you understand the work, art prices are
bewildering. Try these: in 1993 Christie’s
set an auction record of $82.5m for “The
Portrait of Dr Gachet” by Van Gough. On
5 May this year, Sotheby’s reset the level
by selling Picasso’s “Boy with a Pipe”
for $104m.
The quotation at the start of this memo comes
from a BBC documentary on the current art market.
Westreich’s explanation of prices combines
classical economics (‘there are more people
who now play the market’) with more modern
thinking on value propositions. And boy, is art
a value purchase! Re-read Westreich’s last
sentence; her clients buy because art conveys
a message about themselves to others. The work
has no practical value; it is purely an emotional
statement. If your market believes, then you can
sell just about anything to anyone.
(This applies even if you see art as an investment.
You just have to hope that prices hold up, that
Mr Saatchi doesn’t flood the market, and
that there’ll always be someone else willing
to pay more for your pickled pig. This is known
as the ‘Greater Fool Model’.)
However, don’t think that the art world
is a parallel universe with no relevance for us
normal folk. It’s this month’s focus
because some of its extremes highlight one of
the key – and much ignored – issues
of business marketing: the art of setting a price.
Why ‘ignored’? Well, on a recent
visit to Waterstone’s flagship bookstore
in Piccadilly I went to the business section.
There are 18 shelves of marketing books, with
about 25 different titles per shelf. There are
four shelves on branding. There are three shelves
on advertising and two on PR. There are five shelves
of books on strategy, planning and plans. There
is one on pricing.
Not one shelf; one book.
Now, given the number of times that you have
lost a deal because of price, doesn’t the
lack of publications on the subject in a major
London bookstore seem, well, odd?
Let me be clear – this is not a swipe at
Waterstone’s. It really is a very fine shop.
Rather, the absence of pricing literature is a
reflection of supply and demand. It’s not
on the shelves because no one’s buying.
So, as a first step in personal campaign to encourage
businesses to spend more time thinking about price,
consider the following:
Pricing is revenue. All other marketing
activity adds cost.
Pricing is strategy. It is the most
important marketing decision that any business
can make. It’s the point where all the variables
come together into a single statement about the
product, the service and the company.
Pricing is communication. It reinforces
the positioning of the offer, creating a proposition
of value. And like any other communication, it
must be expressed with supreme clarity –
especially in a complex B2B environment. If not,
customers will automatically assume the worst.
Pricing is art. ‘Who needs a book
on pricing, when I have Excel?” Yet data
analysis is only part of the decision process.
More than anything else, to set prices a business
needs to listen to the market – to customers,
to resellers, to competitors. Find out what is
happening, then adjust your proposition appropriately.
The art of price is a constant dance with multiple
variables, with you always looking for the next
creative step to increase value to the customer.
Pricing is complex. It takes time to
get it right (meaning maximum value and maximum
profit). So, beyond covering your costs and assessing
the competition, here are a few questions to get
you started.
1 What’s my strategy?
- Skimming: entry into a new
market to take premium revenues from early adopters
- Penetrating: low price ‘special’
into existing market to encourage customer trial
- Follow-the-leader: sitting
on the shoulder of the #1 player, following
their moves and taking share of the disaffected
- Late strike: entering late
and cutting prices to hurt the early players
2 What does the market expect?
- Customers: is there already
a pricing structure in place (eg the recruitment
market)? Have promises already been made and
expectations set?
- Channels: what is the history
of achieved prices through different routes
to market? What offers have delivered in the
past?
3 How to customers view the offer?
- Product: what’s the
value of the new features and capability? How
much cost does it save / revenue does it generate?
- Vendor: how does the customer
view your business? What value-add do they achieve
by buying from you, not a competitor?
- Macro factors: is there any
legislation or regulation that is forcing a
decision?
My ‘campaign’ is not a lone voice.
Pricing seems to be creeping up the business agenda,
especially in the US. Analyst at IDC report that
the market for pricing software tools is growing
30% this year. Vendavo Inc - just one of many
players in the space - recently raised 4th round
funding, bringing its total to $44m. And the Professional
Pricing Society boasts record membership. You’ll
find them at www.pricingsociety.com
As for the book, it’s still on the shelf
at Piccadilly. I already have a copy. I wouldn’t
want you to think it was too expensive...
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