Customers are more powerful than ever. Because of changes in technology, particularly the interactive internet (Web 2.0), there has been a fundamental and irreversible shift of power in favour of consumers.
The bad news is that businesses that deny or ignore these changes by continuing to regard customers as passive targets will fail.
'New Business Models in the Creative Industries' was the subject of my keynote speech to the Media and Message conference of indepedent TV producers and media professionals in Finland.
We need to be innovative about how we do business and devise new business models centred on demanding, talkative and creative customers.
Presentation by David Parrish at Media & Message, Finland. Watch the video here (if the embedded video above does not play) [or go to the Media & Message site and click "Puheenvuorot" (speeches). It's the last one.]
Thanks to Natalie Bolton from Lion Eyes Television for telling me about this amusing video.
It's fun to watch - and it raises some important issues about pricing and customers for creative businesses and cultural enterprises.
If customers believe they can get a discount from you, it's because they think they can go elsewhere and get the same thing cheaper. If they can in fact get the same thing cheaper elsewhere, then you are in a marketplace with lots of competitors offering similar products or services, all competing on price. So you are in a poor negotiating position. It's a losing battle.
Instead, build your business around those goods and services at which you excel in relation to the competition. Better still, focus on your uniqueness, providing goods and services that nobody else can. Customers will then have nowhere else to go and your negotiating strength increases dramatically.
To do this requires an understanding of your competitors and your market positioning. It means that you need to choose your customers carefully, selecting those people who want what you can uniquely offer.
So be prepared to say No when people ask for a discount. Only the wrong kind of customers will walk away, which is good because you can never build a thriving business around them. The right kind of customers - the ones who recognise the how special you are - will pay the price. These are the kind of customers to build your creative enterprise around.
- What's your business policy when it comes to giving discounts? - Do you know how special you are? In other words, do you know at which products/services you excel in relation to the competition? - Do you target those only those customers who want what you are especially good at?
It's only when you have devised your own unique business formula, based on your speciality and your special customers, that you can say No to customers asking for discounts.
The Creative Business is a series of 12 modules of information about developing creative enterprises, written especially for people running businesses in the creative industries.
The information is particularly relevant to creative businesses and cultural enterprises in the fields of Advertising, Literature and Publishing, Visual Arts, Performing Arts, Music, Design, Cultural Heritage, and Crafts.
Published on the Creative Choices website, this series of 12 articles covers a range of business issues facing creative entrepreneurs:
Raising finance from loans or investments can be a major challenge for all types of businesses, and it’s especially difficult when credit is scarce and investors are feeling the pinch. So any alternative ways of raising funds are worth exploring.
Enterprises in the creative, cultural and digital sector have creativity at the centre of their products and services, yet don’t always apply that same creativity to the business side of things, such as marketing, leadership or finance. But some do. True ‘creative entrepreneurs’ are not just creative people doing business – they are creative with business too. Some of these creative entrepreneurs - especially in music and film - are exploring innovative ways of raising serious amounts of money by asking lots of people for modest investments. This ‘Crowd-Financing’approach can be labelled ‘Fan-Financing’ when fans are the focus for investments. Here are some examples:
Australian musician Clint Crighton has devised a way of raising funds from his fans to record his next album. For 100 Australian dollars (about £50) you can join an exclusive club of fans which gives you special privileges: a lifetime free entrance pass to all his live gigs, a signed pre-release version of his next album, and a chance to win a trip to Los Angeles to be there at the recording of his next album. A membership of 1,000 true fans will raise the 100,000 Australian dollars he needs.
In the USA, singer-songwriter Jill Sobule invites fans to invest in her enterprise at different levels to receive a range of different benefits. From just 10 US dollars for a digital download, the investment levels rise in steps to 1,000 USD for a specially-written song for your voicemail greeting. For 5,000 USD she will perform a concert in your home and if you want to invest 10,000 USD you can sing along with her on her next album.
In the UK, Slice the Pie is a sophisticated music investment site which allows you to invest in the future success of a wide range of musicians. (I’ve invested £100 in Sarah Grace.) This model also uses a voting system to find and filter talent and then voters are invited to invest. Like the X-Factor and Britain’s Got Talent, this model cleverly involves the ‘crowds’ in voting - and at the same time builds a base of followers who eventually become customers or investors.
Three British teenagers raised £105,000 by selling credits in their film - for just £1 you can have your name listed in the closing credits. Award-winning Merseyside writer and film director Fiona Maher sold bit-parts in her film on eBay to raise money for her first full-length feature film. A new film called The Age of Stupid is using crowd-financing to raise investment from the public by selling shares priced £10,000 which entitle investors to a share of the profits.
Music and film are leading the way with fan-financing in the creative industries, but surely other enterprises - in the creative sectors and elsewhere - could adapt these models to their own situations and raise much-needed cash by adopting this crowd-financing approach.
Steve Messam is a talented artist - and a shrewd creative entrepreneur.
Steve was approached by Cumbria Tourism in the UK to create an art installation to help publicise the launch of their campaign for cultural tourism. The budget offered was a modest £4,000 GBP so Steve put together a business case for a bigger budget. He knew that the client wanted publicity and so argued that a bigger investment in a more impressive work of art would pay dividends in terms of 'Advertising Equivalent Value' (AEV) - in other words, the cost of the publicity in column inches if it were paid for as advertising.
Steve pitched his idea and business case to the PR Agency Colman Getty, who specialise in arts related work and had been commissioned by Cumbria Tourism to publicise the art installation and campaign for cultural tourism. Using data from previous projects, Steve calculated that the Advertising Equivalent Value should be at least £150,000 GBP and possibly as high as £250,000 GBP, provided the budget for his art installation was increased six-fold. Colman Getty understood the commercial value of the PR that could be generated and helped Steve to convince the client to invest accordingly.
The result was a spectacular installation called 'Drop', a huge inflatable sculpture modelled on a drop of water. The sculpture was installed at various scenic locations in the English Lake District. Part of the publicity campaign was to encourage tourists to take and publish photos of the huge silver sculpture and this viral marketing helped to promote the campaign further. See photo below. More images of Drop can be seen in this pool of photos on Flickr.
With the help of Steve Messam's art, the campaign was highly successful and exceeded its targets in terms of publicity. In one weekend alone, over 10,500 people went to see it. News and images even reached the world's biggest circulation newspaper, China Daily.
Steve's reputation - and his creative enterprise - goes from strength to strength. He will be exhibiting his latest art installation at the Venice Biennale in June 2009, raising finance in a similar way using the business case of Advertising Equivalent Value, rather than an application for an arts grant.
How do you raise finance for a feature film? (Or any other creative enterprise, for that matter.)
It's an expensive business, but some creative entrepreneurs think imaginatively about raising money, including raising small amounts from lots of people. Like 'crowd-sourcing', 'crowd financing' allows many people to participate in a small way to have a great collective effect. This 'crowd-financing' approach is now more feasible than ever before because of online networks and ecommerce technology.
Fiona Maher sold bit-parts in her film on eBay and now three British teenagers have raised £105,000 (105,000 GBP) so far, by selling credits in their film for just £1 (1 GBP) each, according to this article in the Guardian.
Congratulations to these entrepreneurs for using their creativity to think also about finance as well as their film projects !
PS: Thanks to Felix Holm for his reply on the discussion forum, letting us know about 'Boy Called Twist', a South African film financed this way.
PPS: Thanks also to Hannah Rudman for providing links to the excellent site The Age of Stupid (Crowd Financed film with funding models, budgets etc) and the fundraising/campaigning site The Point.
A useful and readable 'Creative, Cultural and Digital Industries Guide' has been published by Business Link West Midlands
It is available in hardcopy from Business Link West Midlands and downloadable as a free eBook in PDF format below.
This creative business guide was written by David Parrish, author of the book 'T-Shirts and Suits: A Guide to the Business of Creativity'.
The 48 page publication covers a range of issues relevant to enterprises in the creative, cultural and digital sectors.
Sections include: - Strategic Planning - Understanding your Customers - Profiting from your Ideas - Organisational Structures - People and Skills - Promoting your Products / Services - Financial Management - Legal and other issues - Links to useful organisations and resources for creative enterprises
There are also four case studies featuring creative enterprises from the West Midlands region: 383 Project, Stan's Cafe, Gas Street Works, and Capsule.
Similar creative business guides can be written for other organisations in the creative, cultural and digital sectors. Contact David Parrish to discuss options and possibilities for your own version of this creative industries guide.
How will creative businesses cope in the economic downturn?
That’s a question that I have been asked many times recently, both in the UK and overseas.
In response, I make the following points:
Though the general economic situation is difficult, the recession will not affect all businesses equally. It is not inevitable that all businesses will suffer. So individual entrepreneurs need to look at their own specific circumstances. There are opportunities as well as threats in times of economic hardship.
Hard times affect competitors too. If your competitors are hit harder than you, then the economic climate can provide some competitive advantage. In my book T-Shirts and Suits I use the analogy of running uphill to point out that though it hurts, you can still get ahead of your rivals if it hurts them even more and you are fitter at uphill running. Some businesses will become insolvent – make sure you survive when your competitors don’t.
In a meeting in Liverpool with the UK Minister responsible for creative industries, Barbara Follett MP, several creative enterprises reported that the recession had prompted them to tighten up their systems and practices, especially credit control, which actually helped them to make their businesses more efficient and financially stronger. In some ways, the recession is a blessing in disguise.
The economic downturn will undoubtedly put pressure on businesses in the creative sector. This pressure will reveal weaknesses in individual firms that have so far gone undetected. Various crucial aspects of business will be tested, for example: customer relationships, fixed/flexible cost structures, credit control and cash flow, customer base (eg overseas clients), staff loyalty and commitment, and other factors.
Now, more than ever, businesses need to concentrate on the basics. - Focus on the products and services at which you excel and make you stand out from the crowd. Play to your strengths and make the most of your competitive advantage. - Keep your existing customers and build on the client relationships you have nurtured. - Pay close attention to cash flow planning and management – “cash is reality”.
There is no better time than now to focus on the essentials of your business strategy.
For some creative businesses, the economic downturn will be a time for winning, not losing.
Financing a feature film can be a complex and expensive business, and most talented film directors never get a chance to make a full-length feature film because of lack of finance.
But with her 'can-do' attitude, resourcefulness and determination, Fiona Maher has made a film on a micro-budget, raising cash from a variety of sources, calling in favours and getting in-kind support from suppliers and a wide range of talented people in her network.
'The Tree of Death' is a comedy feature, described as 'Blair Witch meets Spinal Tap' The film will be released later in 2008. In the mean time, here's a teaser from YouTube...
Would you pay 50,620 Euros for a bed? (That's over £40,000 GBP, about $78,000 USD)
Probably not. But apparently some people do. Why? What's going on here?
I'm fascinated by pricing strategies and run workshops for creative businesses on the subject. There are different ways to decide on your pricing strategy and I'll be writing more about them soon. Certainly, customers are often buying more than the just the bare object - they are buying into something much bigger. See What are you selling, really?
In the case of a Hastens bed, you are invited to buy into the story of a small family firm in Sweden.
The advert asks "Who would spend 50,620 Euros on a bed?" It continues "Most people would not or could not. A select few could and would..."
Are you one of the select few?
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I'm interested to hear from you about pricing strategies - especially about businesses in the creative industries.
