Setting prices doesn't have to be a horror story. A look at the science of pricing.

In an earlier post, I talked about the need for portrait photographers to separate themselves from the rising tide of amateurs entering the field, due to the low cost of entry. Good, professional-level cameras are affordable and ubiquitous, making it possible for anyone to try their hand at running a portrait photography business. Add to this the increasing number of photography franchises in malls, plus Walmart, and you’ll quickly see that competing for the bottom end of the market makes no sense. How can you compete with someone whose entire overhead is a single digital SLR? And why would you even think of competing with Walmart?

In a sluggish economy, it may seem that the smart thing to do is to offer lower prices. That may have been possible in the pre-digital days, for photographers. For artists of all kinds, the Web has lowered the cost of entry so drastically that competition for the low end is simply staggering. Anyone can have a website. Since it costs nothing to start a business, every field is being flooded with rank amateurs posing as professionals. As Seth Godin says in his bestseller The Dip: A Little Book That Teaches You When to Quit (and When to Stick),

The problem with infinity is that there’s too much of it. And in just about every market, the number of choices is approaching infinity. Faced with infinity, people panic. Sometimes they don’t buy anything. Sometimes they buy the cheapest one of whatever they’re shopping for.

Godin’s suggested solution: “Be the best in the world”. By that, he means be the best in your niche. And that means, of course, that you need to get your business out of the race to the bottom and find your niche. If you’re a portrait photographer, that could mean becoming a boutique or high-end studio. If you’re a digital artist, it could mean creating stunning, unique works that go viral on the Web, helping you to rise above the crowd and make a name for yourself.

The good news, I think, is that you are no longer a high-volume business working around the clock just to stay afloat. Instead, you can focus on your core talents, the unique skill set you alone have, and polish it up until it shines so brightly people can’t help but talk about you to their friends. When people just have to have your product or service, they will be willing to pay a premium for it. And you will be paid well to do what you love to do.

Sounds great, you may be saying, but how do I get started? I’ve gathered a few articles within this post to help you do just that. For photographers, a good place to start is this article on the Professional Photographer Magazine site, which tells the story of how Tim and Beverly Walden found their niche and built a high-end studio.

They needed to define a photographic niche with a style distinctly their own. Unlike high school senior portraits and wedding photography—things everyone needs and anticipates having to pay for— they settled on a style of portraiture that aroused the customer’s desire to own something original, personal, unique. Dubbed “relationship portraiture,” the Waldens’ distinctive brand of intimate black-and-white portraiture didn’t come together overnight. But having defined a niche and committed to refining their photographic style, the Waldens laid the foundation for a new and profitable business model, based not on pricing or customer need or a season of the year, but on the perceived value of their work.

A recent post on the Photofocus blog, “What Photographers Can Learn From Apple,” is directed towards photographers, but the lesson applies to anyone trying to create a successful business: even in this economy, you can prosper if you offer products or services that are unique and high quality. As one blogger put it:

If you price for profit and give your clients the best quality and service you possibly can, you will survive this time. Matter of fact, if you’re like Apple, you might be better off than ever before. Apple just had one of its best non-holiday quarters ever, in one of the worst economies ever.

People still have money. They are still spending their money. Stay steady and you will ride out this storm.

For help on pricing your work, photographers will find this blog post helpful. Note that the author points out that your highest-priced package should never actually sell: it’s there to make all your other prices seem more reasonable in comparison. A similar practice is used in retail when selling big-ticket items, according to Ellen Ruppel Shell, author of Cheap: The High Cost of Discount Culture:

How many of us, for example, have ever paid full price for a mattress? There’s an object, you know, it’s always, quote, unquote, on sale. Well, it’s really not on a sale. That’s the real price of the mattress. The other mattresses in that department store have higher prices, but the merchant doesn’t really expect to sell those mattresses. He rotates all his mattresses into the sale pile, and he expects to sell them at that sale price, which is actually the full price.

I like to pass that story along to my photography studio clients when they ask how much to charge for a photo painting I’ve done for them. I point out that they need to charge a premium for the painting, but that it shouldn’t be the most expensive item on their price list, or it won’t sell. You may want to keep that in mind as you set up your prices.

Price communicates an item’s value to the customer. Don’t think in terms of “what’s the most I can ask for this without scaring people away?” Instead, when pricing high-end goods and services, consider that a low price might actually be seen as a negative. Remember that it’s the high price of Apple products that help build their cachet. If you’re offering something no one else has, or that no one else does as well, you can name your price.