Chris Parker – SAHJ
In this third article on pricing we wrap things up. In the previous two articles we asked the question of how it is sustainable for some salons to have such cheap pricing, especially for services that have high costs associated with them. This question raised the bigger question on how to go about pricing your products and services as a strategy.
In order to answer these questions we identified that pricing, rather than gut feel, can be quite a scientific process and that many theoretical pricing methods and factors could be taken into consideration when deciding on pricing. In the context of a hair salon we identified “cost-plus pricing” and “competitor based pricing” as probably the two most influential methods used by most because of the fact that we need to cover costs before we can start making a profit and also our pricing needs to be competitive in the market place so that clients would perceive fair value for the products and services they were buying from the salon.
We also looked at how you might “position” yourself in the salon market and whether you were a value for money (budget) brand focusing on more price-sensitive clients or whether you would position yourself as a premium brand, where clients are not as price sensitive and you were able to justify your higher prices by the perceived higher quality / value of your products and services.
We also took note of the fact that hair salons sell both services and retail products and that with retail there was less room for pricing variation apart from stocking brands that may be less or more expensive than other brands.
In ending the series I would like to highlight some different theoretical pricing strategies that can be put into practise for varying reasons and at different times and stages of your business lifecycle.
Penetration pricing is when a business sets a low price in order to increase sales and gain market share. This may only be for a short time and then once the goal of increasing sales and/or market share has been achieved then the prices may be increased.
This is commonly used when a new business is opened. For example, a new business might run a 25% off special on some or all of its products and services in order to make themselves known to the market. Once the have sufficient clients gained they will then start adjusting prices back to normal.
Therefore, if you are opening a first salon or expanding by opening more branches then you may consider running a special price on various items for the first few weeks.
I think the idea behind some of the group couponing companies that offered amazing deals to their database of clients was explained as a way to penetrate the market. However, for businesses that made use of these services they found that they didn’t actually win the clients because the clients just followed the group discount supplier to the next deal at another business.
Bundled pricing is when a business groups together more than one product and/or service and offers a better price or gives one away for free. An example might be a buy one get one free or buy one service and get a product at a reduced rate.
Bundled pricing can be very useful when it comes to special occasions like mother’s day or Valentine’s Day special. If you salon offers things like nail services then you could bundle a hair service with a nail service. Alternatively you could bundle together related stock items in to gift hampers and sell them at a better rate than if you were to sell them separately.
You may also bundle items that are paid for upfront but redeemed over a period of time. For example, pay for 10 haircuts or blow dry’s upfront and redeem them over time and receive a discount for doing so. This kind of bundling could be likened to loyalty because (like loyalty) you are rewarding repeat visits, however, in bundle pricing you are rewarding the loyalty upfront because the client is essentially pre-paying for their future services and you are rewarding them for doing so.
Psychologic pricing is when the seller sets the price to play on how the buyer thinks about the price. For example, charging R299 instead of R300. We all know that this is the oldest trick but it enables the client to say they bought something for under R300, rather than R300. Somehow this does affect our psychology towards pricing.
Premium pricing is set to reflect the exclusiveness of the service or product. The idea is that a client would not easily be able to find the equivalent quality at a lower price and would be willing to pay the higher price because of its perceived exclusivity.
In retail this may be a particular brand that not many other salons stock and is of a very high quality. For services I think this is already happening as mentioned in my previous article by the fact that you get different pricing within the same salon depending on who the stylist is. If a stylist is perceived to be more of a “premium” brand because of awards they have won, celebrities they have worked on, or simply because of their skill or popularity then you may be able to charge a premium for their services.
A loss leader is an item that is sold at or below cost in order to attract clients so that they can purchase other items at their normal prices. This is similar in a way to penetration pricing, which leads with lower priced items to gain market share.
As you can see there are many different pricing strategies (even more than mentioned in these articles) and it may be very confusing to figure out where to start. I think that if you stick to the basics and get those right then you will be able to start to “play” with some of the other strategies available to you. This implies the obvious, have a set price list. Ensure that you have factored in all the direct costs related to those prices and and keep looking at those costs so that you know your margins in case they are affected by things like supplier price increases. Increase your prices to keep up with inflation. Use price increases as a opportunities for promotions with your clients, ie by now and beat the price increase. Be sure of who you are in the market place, ie how you are positioned as a brand so that you do not panic simply because another salon has cheaper pricing. There are only two things that influence your turnover performance and those are the number of feet through the door and the spend per visit. If you are going to charge less you will need to increase feet through the door. If you are going to charge more then you will need to convince clients your services and products are worth it. Finding the balance between feet through the door and spend per visit is the key and once you have a good balance benchmark it and monitor it over time to keep yourself on track.