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Know Your Price

July 6, 2011

Roll-Back Pricing

arrowThe prices of goods (excluding food) have fallen for the last 6 months and remain the lowest they have been in over 5 years. Perhaps you’re wondering if your business should do the same. The general rule of thumb is that unless your initial price structure drastically missed the mark, there are only two reasons to permanently reduce your prices: when there is a major exodus of staff (e.g. a group walk-out that leaves you relying upon less experienced replacements), or a major shift in the demographics of your trade area (e.g. living in Windsor during an automotive layoff). Just remember, if you drop your prices by 10%, it will take you 3 to 4 years to get back to where you started.

Capacity Management

Airlines, hotels, restaurants and many other businesses utilize the principle of capacity management by offering discounted prices to fill the gaps in their service business. Salon/spa owners need to perceive “chair time” as a perishable and non-renewable resource. That is, if the chair is empty, the revenue is lost forever. A 6-chair salon that is open 50 hours a week, with 5 employees who work on average 35 hours per week (at a productivity rate of 70% each), is operating at only 41% of its potential capacity.

To put this into perspective, most hotels operate at 60-65% capacity (the best operate above 80%) and many go out of business when they fall below the 50% mark. If the break-even point for most airlines is a capacity rate of 80%, can you imagine them refusing to fill all available seats simply because some of their flight attendants choose to work only during peak hours?”A List” salon and spa operators understand this principal and stagger their employees’ working hours to ensure sufficient staff levels for the entire work week (never turning away a walk-in if a chair is available). They increase their capacity rate by enticing “price sensitive” clientele into non-peak hours using promotional pricing, thereby freeing up prime-time space that is easily filled by other clients.

sofaMany “A List” salons also discourage “chair permanency” and rotate staff throughout the salon, ensuring that all chairs get full usage and the best located chairs (high traffic areas with window visibility) are always occupied with a customer; preferably one that represents the clientele they are trying to attract. Meaning, if your target market is the 25-45 year old affluent career female, this is who you want visible to people on the street.

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From → Positioning, Pricing

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