Chris Parker – SAHJ
A Hair Journal reader recently wrote into the magazine about salons in his area and the extremely low prices they are offering and how is this sustainable to a salon and where are corners being cut? He also mentioned he knows of a few salons who’ve recently closed their doors.
It’s a very good question, if the salon down the road or in the same shopping centre charges more or less than you do for the same product or service what should you do? How can you compete?
When asked to write on this topic I thought at first that it was going to be a very difficult and time consuming task get to the bottom of it because of the need to examine salons in detail on an individual basis. However, when looking at some of the theory behind a pricing strategy we can actually get some good guidance on how to go about deciding on pricing structures for your salon.
Let’s start with the question of why we even care about this topic? The reader who wrote in to raise the topic in the first place hit the nail on the head when asking the question: “How is this sustainable to a salon” (ie cheap pricing).
I think that perhaps he had begun to answer his own question without realising it, ie by the fact that he noticed some salons had closed their doors leading to a possible conclusion that if you charge prices that so low that they are not sustainable then you will eventually have to close your doors.
The point is that pricing can make or break you, if you charge too much then clients may not come. If you charge too little then you may not be able to make enough money to cover your costs.
So, how do you go about pricing? Is this something you know inherently? Is it something you learn over time with experience or do you get out the magic 8 ball and ask it? Well, I went to ask8ball.net to ask the question “should I raise my prices?’ The answer I got was “Most likely”
Ok, so there must be more to it than this – but how do you know what to charge?
It turns out deciding on your prices is not a just a matter of gut feel but rather the process can actually be quite scientific. Scientific is good as this implies a formula, something precise and measurable. So what’s the formula so you can all use it and move on ..? Well, maybe it’s not quite as simple a formula and we might need to decode a few terms like Cost Plus Pricing, Competitor Based Pricing, Price Elasticity, Sticky Prices, Supply and Demand and so on to get closer to deciding on how to set your pricing.
Before we decide on pricing we need to start with our overall objective. If we take our readers perspective then the objective of right pricing is to sustain, ie to remain in business. This seems like a very negative or limited way to look at things because we generally think about our businesses in terms of achieving growth and making heaps of money while hardly doing any work at all. However, when examined further sustaining your business actually implies that you are being successful because in order to sustain you need to keep clients coming back, pay (and grow) salaries, pay overheads, pay suppliers, compete with other salons and after all of this make enough profit to recoup your investment or the investment of other shareholders in your business. So, sustainability seems imply growth as well.
A point worth mentioning at this point is that salons sell both services and retail products. When considering the pricing of these we need to realise the implications. Hairdressing is very interesting in this regard. We have things like Junior Stylist, Senior Stylist and then some guy called John (often the owner) in the price list. So you could come in for a service and pay one price for a Junior, another price for a Senior and then another for a stylist called John.
When it comes to this there is a perception (and hopefully some reality to match) that the gents cut from John for R285 is actually worth it when compared to a regular stylist charging R165, for example. Here you have an example of internal pricing strategies where the same service is being charged at different rates and you have the same challenges about getting pricing right so that clients will be happy to pay and keep coming back.
When comparing with competitor salons then you may be comparing senior stylist to senior stylist, but maybe the other salon doesn’t differentiate in the same way, they only have one price …
Retail on the other hand has less wiggle room. For example, if you sell the same product as a competitor for a higher price then how will you explain that? I can more easily understand if two different brands have different pricing or two different items for the same brand have different pricing but not the same item.
It kind of reminds me of petrol companies that advertise on TV that their product is superior. I’m told that they all generally get it at the same source but then add some of their own special ingredients to make theirs superior. When last did you make a decision to fill up at one station over another because of what they advertised on TV about what was actually in their petrol? You are much more likely to make your decision based on convenience, or service quality or cash back rewards.
So, this is the first article and hopefully we will go further into this topic in order to actually get something usable, but for now if there is one thing that we can take away it’s this quote from Warren Buffet “Price is what you pay. Value is what you get.”
Whatever the prices you set your clients need to believe that the price they are paying matches the value they are getting and so not a matter of the cheapest price but rather the right price.