Ask Harriete

Pricing and the Dilemna of discounts, coupons, or reduced prices?

Chairity © 2006
steel
Artist: Timothy Adam

Recently I listened to a program by Timothy Adam of Handmadeology about using the Internet and social networking to give more visibility to your art and craft. He has lots of great ideas and really knows about working the system of online social networking sites. On the other hand, a recent post at Timothy Adam Designs about "Search trends during the holiday shopping season" is very disconcerting as he focuses on discounts, coupons, and free shipping as promotional strategies.

Living Steel Jewelry Display
steel
Artist: Timothy Adam

I think discounts, sale coupons, holiday sales, etc. have little effect in stimulating a sale of art or craft and instead have a negative impact that adversely erodes your retail prices permanently.  I believe it is a fallacy to think that a buyer who is already considering a purchase of your work will change their mind just because of a small discount or not.  And anyone who wasn't interested in the first place won't care about discount offers whatsoever.  Furthermore, lowering your effective price with discounts or coupons sends a signal that all your work can be discounted and that this lower price is the true market value of your work.  In effect you are saying that the original retail price was inflated to begin with.[For more information about Discounts read the Professional Guidelines document.]  

It is vitally important that we should not fall into the trap of appearing to be just another mass produced commodity. The arts and crafts market can not afford and should not adopt discounting and similar pricing strategies that are frequently used in the general consumer market like K-Mart and Macy's.  First of all, don't kid yourself, all of these giant chains double or triple the wholesale price to absorb these discounts.  They have designed their products to be easily mass produced and cheap.  It may be a great value for the consumer, but it lacks any differentiation from what thousands or millions of other people buy.   

Pink Dot Pin
Recycled tin cans
Harriete Estel Berman

Instead, the handmade object should be promoted for its unique attributes or value.  By its very nature, a handmade object is a limited edition or one of a kind object. Ideally, art and craft exhibit skilled craftsmanship, personal attention to details, and distinctive creativity.  A buyer is attracted to the work because it reflects and reinforces the buyer's desires, self-identity, and expression of character that they wish to show to the world.  It is unlikely that a small shift in price will alter these perceptions.

Stimulus Plan Pins © 2009
Recycled tin Cans
Harriete Estel Berman

People who buy from the local artist (whether on Etsy or The Artful Home or at the local crafts festival) are making a decision by their very action. Their purchase creates an identity for themselves.  They may want to know the artist or know the inspiration behind the work.  They may admire this alternative lifestyle and want to participate, even vicariously, just for the afternoon. Every time they wear or use their handmade item, they feel richer for the experience.

Forest Spirit Bracelet © 2009
polymer clay
2 Roses

John Rose from 2 Roses offered this observation:
"We did indeed see a lot of discounting this year. Much of it panic motivated. Anecdotal surveys reinforced that buying volume was equal or above last year's for most artists we spoke to. However arbitrary discounting reduced profits. 

This really points to a fundamental lack of product offering flexibility by the artists we spoke to. Instead of adjusting their product offering to offer lower priced lines and protecting their margins, most simply discounted their regular lines. This is one of those textbook "business 101" mistakes. 

Our reaction to the shift in the economy was to analyze buyer behavior relating to luxury goods and discretionary purchasing. What we found was that there was plenty of buying going on, but shoppers were placing much higher emphasis on "value". By augmenting our regular priced lines with items manufactured to specifically offer a high value at a lower price point AND maintain normal margins, our sales exceeded last years in both volume and profit. The introduction of lower priced lines allowed us to pick up market share and maintain the value perception of our regular priced lines.
BTW this is a classic Fabrege tactic.

A lot of artists just don't understand how badly they hurt themselves and the entire industry when they resort to arbitrary discounting." END QUOTE

Green Leaves © 2004
Recycled vintage doll house
Harriete Estel Berman

Sell the appeal of your work at its full value.  The mass market chains really can't compete at this level.  

Harriete Estel Berman
Riding the Long Tail on a grand adventure (without discounts.)

Etsy  
Twitter
Objectfetish
crafthaus
flickr
Facebook
LinkedIn

My gallery asked if I would share a discount. What shall I do?

If you have been asked to share a discount with your gallery, here is a sample letter that you can copy (amend or alter) and send to your gallery. In addition, read the previous post, and the Discounts document in the Professional Guidelines to understand the full impact of discounts.

Dear Gallery,
I fully understand the tough economic times, but a “discount sale” on one of a kind or limited production work does more harm than good.  It may generate short term cash but it erodes the current and long term value of yours and my entire portfolio of work.   It is shortsighted to offer a discount to try to close a sale quickly. 

My material and labor costs are already expended in this work and you are asking me to accept a loss.  That is bad enough, but even worse, I am more concerned about how the remainder of my portfolio will be cheapened because of anticipated or expected discounting.  A “discount sale” either sets a precedent or reinforces a discount mentality on all future transactions in your gallery and on my work.  I cannot afford it – and it is unproductive for the art community.

My material and living expenses have risen dramatically in the past few years.  Perhaps your expenses have risen as well.  My share of the retail price barely covers my expenses.   Consequently, a discount approach would ultimately drive me and most other artists to bankruptcy.  That is not good for your business.

Furthermore, most buyers and collectors buy art primarily because they like the intrinsic qualities of the work.  Price is important but is not the primary factor.  By refusing to discount the price, you may lose one out of ten sales.  But if discounts become routine, you will lose the value of the discount in 100% of the transactions.  That is not good for business either. 

Ultimately, the practice of discounting would cause both artists and galleries to inflate the retail price to anticipate the discounting so that both can make a living and stay in business.  Do any of us want to waste our time in this type of price game?

Consequently, I decline to participate in any discounting of my art work/jewelry.  I would also like to appeal to your sense of good business practices and ask you to refuse to offer discounts in all your gallery transactions.  After all, both of us want to build and maintain reputations of quality.
Sincerely,
(your name)

Have you been asked to offer a discount for the holidays?

Have you been asked to offer a discount for the holidays?

Has your gallery asked you to participate in a discount?
DON'T DO IT!

What is happening here?
Discounts say that the work wasn't worth the retail price in the first place.
Is that the message you want to send?
Discounts erode the market!
Our prices are not inflated, most artists don't even earn what a plumber or waitress earns. The prices for our work represents many hours of hard work, in addition to artistic vision and technical skill. The prices are not inflated with executive salaries, luxury offices, retirement funds, etc.

Artists AND galleries need to support their retail prices. Its better for the entire community.

Do we want a flea market mentality in our galleries? Does Apple discount its products?

JUST SAY "NO"! The gallery should sell the attractive and amazing elements and details of the work, not how cheap it is.

If you aren't sure why or how to do this, read the Professional Guidelines document about Discounts which can be found at:

http://www.snagmetalsmith.org/Publications/Professional_Guidelines/
or
http://www.harriete-estel-berman.info/profguidelines/discounts.html

Open your eyes to the real impact of discounts. Read this document
Harriete Estel Berman

Discount Question

Dear Harriete:

Everyone is hurting in this economy with high gas prices and sinking housing prices. I am being pressured by a gallery that exhibits my work to accept "special" customer discounts that bite into both the gallery's retail price and my wholesale price even though our contract spells out that discounts are not allowed, period. I strongly feel that discounting can be a slippery slope but do not want to lose the sales or this gallery as an outlet. What's an artist to do about discounts?

Hurting on the Bottom Line

Dear Hurting on the Bottom Line,

You are right, discounts are a slippery slope. In my opinion, the “On Sale/Discount” price reduction mentality of our consumer society is becoming pervasive. Shoppers are conditioned to buy from “low price” outlets with marked down prices. But it seems to me that a work of art should not be put in the same category as the mass produced goods in K-Mart.

Discounts begin with pricing—and pricing artwork is not a science. The artist and gallery agree on a “retail price.” Usually the “artist’s price” or wholesale is 50% of retail. The wholesale price covers the artist’s costs of production—primarily labor, materials, and overhead. The gallery’s share of the retail price covers the gallery’s costs of doing business—rent, promotion, salaries and insurance. It is the job of both the artist and the gallery to communicate the value of the artist’s work (by virtue of its uniqueness, craftsmanship, reputation and quality), and this value is reflected in the retail price.

It has become increasingly common for galleries to offer discounts from their retail prices. At one time, the practice of giving discounts applied only to major works of art at very high prices (e.g. at tens of thousands of dollars and higher). Discounts were rarely offered, except to very important collectors. Requests for discounts have increased, and the prices at which buyers request them have dropped. Discounts of up to 10% are not unusual. It seems that increasingly, gallery retail prices are assumed to be negotiable, and some galleries expect artists to share the financial impact. Artwork selling at lower price points, under $250 retail, often has very little profit for the artist. Common sense makes discounting inappropriate for less expensive work.

Another consideration is the importance for an artist to maintain consistent pricing wherever their work is shown: galleries, museums, non-profit exhibition spaces, or even from their studios. Price consistency assures all galleries and retail spaces that they won’t be undercut. Price consistency establishes a predictable expectation of value for an artist’s work. Many collectors travel extensively, and they look at art and craft wherever they go. If collectors find different prices for similar pieces, they may feel cheated, and come to mistrust the artist’s work or the gallery’s prices.

Discounts can create disadvantages to both the artist and the gallery. The “Discounts” document in the Professional Guidelines provides a more thorough discussion. To find the document go to: http://www.harriete-estel-berman.info/profguidelines/profguide.html. SCROLL DOWN the page.

Here are two important points about discounts: 1) Discounts create uncertainty about the VALUE of the artwork. Discounting gives the message that the work was perhaps not worth its retail price and may diminish what customers are willing to pay for all of the other work in the gallery or from the artist. Thus, in the long run, discounting can erode value. By not discounting, a consistent value is maintained for the work. 2) Discounting creates the impression that art should be bargained for, like items sold by resellers in a flea market. Many craftspeople find this highly undignified.

You stated in your question that your contract does not allow discounts. If the gallery is offering discounts then I would recommend the following steps. 1) Write a clear, very polite letter to the gallery that clarifies the clause in the contract that specifies the no discount policy. Ask why they are offering a discount. State that your prices are based on your expenses plus a small profit and that you can not absorb a discount on the wholesale price. Ask about their justification for not following the contract, and why they needed to offer a discount. 2) Have more than one person read your letter (before sending it) to assure that it sounds polite and professional. Mail the letter. Follow up with a phone call.

 At this point: 1) The gallery either agrees to honor the contract that states no discount. 2) The artist decides to withdraw their work. 3) The gallery could decide to buy your work outright at full wholesale at which point their decision to discount the work is outside of a consignment contract because they own the work. 4) The artist and gallery decide on a compromise agreement and write a new contract.

This reply is based upon the Professional Guidelines document about “Discounts.”

Respectfully, 

Harriete Estel Berman

Discounts at a museum trunk show? Who should absorb this expense, the artist or the museum?

The San Francisco Museum of Modern Art hosts trunk shows for its members offering a 20% discount to its members.

I would like to comment on the fact that the trunk show discount to the members comes out of the artist's pocket. Since this trunk show is supposed to be a "perk" for membership with the museum, and represents the relationship of the museum with the membership specifically, it is a total rip off that the discount comes from the artist's percent of the retail purchase price. The discount to the members should come out of the museum's profit, not the artists.

Yes, I realize the museum is sponsoring the event with promotion and using it's space; on the other hand, artist's have expenses for travel, accommodation's, and retail display. The artists are coming to work not go on a vacation.

Usually the artist's invited are emerging artists. They are excited, even thrilled to be invited to sell their work at the S.F. Museum of Modern Art. It sounds totally "cool" to be selling their work at the San Francisco Museum of Modern Art. The reality is that they are not showing their work in the museum. They are not  part of the  elite group of artists showing work within the museums exhibition space. They are selling their work as part of a trunk show on one day.

The trunk show is promoted as a benefit to the members on the announcement and as part of membership information. If these trunk shows are a part of a unique benefit to members from the museum, the museum should absorb the discount.       

There is definitely more to say about this topic, but will wait to see how many toes I've stepped on already.

If you would like to learn more about the impact of Discounts, read the Discounts document in the Professional Guidelines.

Signed,

Harriete Estel Berman

bermaid@harriete-estel-berman.info

www.harriete-estel-berman.info