Finding a Solution to Our Camera Failure Problems at Images Studio
Images Studio is a full service photography studio offering multiple photography services. For more than 15 years, Images Studio has been capturing life's memorable moments. Our creativity, knowledge and caring, professional service provide our clients with images of the highest quality. Our clientele choose Images Studio because they can be assured we deliver on our promises of exceptional quality and service.
While we specialize in elegant wedding photography, we also photograph family portraits, children, senior portraits, special events, executive portraiture, sports, glamour shots, high-definition (HD) video services, commercial and aerial photography. Images Studio offers both in-studio and on-location services.
Since expanding our mix of photographic services in 2007, our revenues have grown steadily with the demand for our additional services. We have accommodated this additional demand by adding personnel and equipment. By hiring two additional full-time photographers and one full-time and one part-time videographer, we have been able to grow our business and expand into new markets. Our total bookings have grown by more than 50% since 2007 (see Figure 1). In spite of the recession we continue to grow. Our business plans calls for continued expansion, both geographically to serve more on-location customers, and horizontally to broaden our service mix.
Currently wedding and portrait photography account for just over 50% of Images Studio's bookings. Our business plan calls for Images to double commercial and special photography by 2012. Since the beginning of 2011 we have not aggressively pursued the commercial market because of uncertainty about the status of our equipment. Our commitment to excellent quality images and unequaled customer service is such that we have postponed further expansion until we can be certain that we have the equipment necessary for these projects. This wait-and-see approach was necessary to minimize customer service and quality control issues, but as one might expect, it is not the ideal strategy for a company that is looking to continue growing and increasing market share.
Figure 1. Studio Bookings by Photography Service Type
Introduction and Statement of the Problem
With increased business volume, Images Studio has seen increased wear and tear on our photographic equipment, particularly our older standard-definition (SD) cameras. Out-of warranty repair costs doubled in 2010, climbing to $9,800. For cameras that are still under warranty, they are repaired at no cost; however equipment downtime can and does result in lost business and lost sales.
Equipment failures can result in total loss of photographic images, as well as lack of detail in blurred out of focus images. In both cases we end up with poor quality images and potentially unhappy customers. In addition to spending more on equipment repairs, the number of refunds that Images Studio issued due to poor image quality also climbed significantly from just a handful over the years to 4 occurrences in 2010 alone. Fortunately we routinely operate more than one camera at most events and so we were able to salvage almost all the occasions where our cameras failed. In each case where refunds were necessary due to deteriorating performance of our older cameras, we voluntarily refunded the customers' payments. Not only do we lose income when we refund customer payments, but our reputation suffers. It is very difficult to establish how much business we lose when a customer is dissatisfied because there is no way to know how many potential customers they may drive away or fail to refer to us. For this reason we make a point of giving additional compensation to those customers for whom our equipment failure caused a loss of images. In each case we gave our refund customers additional photography services at reduced or no cost; the value of those goodwill efforts came to just under $19,000 in 2010 alone.
In addition to the costs of refunds, there are other costs associated with camera failures. There is an opportunity cost associated with lost business while our cameras are being repaired. We calculate those costs by multiplying the revenue per average booking times the number of occurrences. Or, if we hand off those jobs to another photography studio, then the cost of subcontracting those jobs to other photography studios is used to calculate the true cost of equipment failures. In some instances we actually lose money if the subcontracted studio charges more than the price we already quoted to our customer. Likewise, we have had to turn down several high end projects because our digital cameras were outdated and could not produce the format that customers required. These missed opportunities are more difficult to quantify, but given that repeat business is a large percentage of our revenues, it is safe to say that we miss out on tens of thousands of dollars annually.
Because we lack newer state-of-the-art cameras with more advanced features, and because we don't have enough cameras, we are missing opportunities and losing business.
As Figure 1 shows, our bookings have increased significantly over the last four to five years. While our sales staff is excellent at bringing in new business, we also know that a significant amount of our business comes from repeat business and word of mouth advertising by satisfied customers. Not only do we want to expand our business to attract new customers, but we want to keep our existing customers happy and providing referrals. The purchase of new camera equipment will put Images Studio in a position to achieve both these goals.
Newer cameras provide cleaner, sharper digital images, as well as additional ability to manipulate images during the shoot or in the post-production phase, all of which result in increased productivity for our staff. We did a fair amount of research to determine which cameras offer the features and functionality we need for the photography services that images studio offers. We found that camera experts enthusiastically recommend the Hasselblad H4D series for the "high-end commercial photographer who requires the ultimate in image quality" (Current, 2009). The Hasselblad H4D-60 camera (Figure 2) provides features that our existing equipment lacks, including choosing between working tethered to a computer, or untethered and storing images on a compact flash card, along with significantly improved image quality (Stephen, 2010). This flexibility is important for event photography, such as corporate meetings and trade shows, where we shoot on-site, then edit images from multiple feeds and project the images in near real time slideshows.
The Sony HXC100K (Figure 3) camera also has user-friendly features that our current equipment lacks ("Affordable cameras," n.d.). This camera offers both standard- and high-definition output, which gives us additional production flexibility for both video and still photography.
Figure 21. Newer SD/HD camera with additional features.
Figure 32. Newer video camera with additional features.
1 Image retrieved online from http://www.hasselblad.com/media/2231320/uk_h4d-40_datasheet_v8.pdf
2 Image retrieved online from http://pro.sony.com/bbsc/ssr/cat-broadcastcameras/cat-hdstudio/product-HXC100K/
Course of Action
Images Studio is considering three options to acquire new equipment that we are considering, the Hasselblad H4D-40 camera, retail price $41, 990, and the SONY HXC100K camera, retail price $29,900. We can purchase the cameras outright for cash, we can lease them, or we can rent them on an as-needed basis. There is also the option of doing nothing at present. To determine the best option, we will perform the following tasks.
1. Assess how much it costs us to continue doing business without the necessary equipment. By analyzing our sales data, we can determine the value of the average sale as well as how many bookings we refused or subcontracted out over the past 12 months. When we total customer refunds and goodwill adjustments and lost sales, we will have an accurate idea of the opportunity cost and lost revenue that result from continuing with the status quo.
2. Determine our options for solving the problem. We have the option of continuing to do business as usual. Although this option means lost revenue, it eliminates the risk that comes with spending almost $93,000 on additional camera equipment and software. Given the state of the economy, we acknowledge that this decision, investing in new equipment, might be better postponed until after the effects of the recession have lessened. On the other hand, if we decide to proceed with the purchases, we have several options, purchase, lease-purchase or rental (Financing photography equipment, 2008). We would seek the advice of our accountant to determine which of those options provides the optimum cash flow and tax treatment.
3. Comparison shop for best prices. We may be able to get better prices by shopping with other equipment suppliers. The retail prices we quote in this proposal do not include any discounts.
4. Determine which option represents the best use of capital. We will apply our standard return on investment (ROI) criteria to both the equipment and opportunity costs to decide both the best financing option, and to calculate repair and opportunity costs.
5. Evaluate and rank each option. Our evaluation will keep in mind that some intangible factors are hard to measure, like damage to our reputation when…