3 Common Pricing Strategies for Salon Services

The pricing strategies you choose for your services will affect the demand for your services. Often, you will need to have several pricing strategies in place to effectively run your salon business. Here is a rundown of your options:

Price Skimming.

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This pricing strategy involves charging a relatively high price over a short period of time when a new, innovative, or much-improved product is launched into the market. The goal with skimming is to “skim” off customers who are willing to pay more to have the product sooner. The prices are then lowered later when demand from the “early adopters” falls.

Such was the case with Keratin Smoothing Treatments. These treatments were initially offered for up to $400 per service. Within a year or two, the price settled, and this same service is now available for $100 to $200. Once those early adopters have had the service and preached it’s benefits to the masses, then the price reduction makes the service more appealing to price sensitive clients. The same thing happened in the acrylic nail industry. I remember in the 90’s charging $70 for a set of nails and was only one of three salons to offer it in a suburb that had 40 salons. Today, the same service can be found in just about any salon for around $35. The prices halved since it appealed to the masses, and now the industry competes on price rather than service.

Penetration Pricing.

Price Penetration Pricing

With penetration pricing, the price of a new product is initially set at a price lower than the eventual market price to quickly achieve a high volume of sales. This sort of strategy is not aimed at the luxury market at all. It is a commonly found in cost cutting salons. Prices are such that it appeals to a broader range of people, low income families, or those for whom price is a major concern in their buying decision.

This sort of pricing may be viable in order to get more people in the door, since more people equals more money. But, you will only gain with this strategy if you carry it out meticulously. The profit margins are low, and the execution of services has to run on a strict time schedule to fit the price point.

The advantage with penetration pricing is that due to the tight profit margins, the first salon within an area to offer these discount services is more likely to be successful since others will be discouraged from adopting the same pricing strategy.

The best example of penetration pricing in action was in the 80’s when a local chain of $8 salons opened. They were first to market, offering every service for $8. Some salons noticed a downturn in client numbers, and within very short time, other salons started to follow this pricing structure. It didn’t take long before some of these copy cat salons closed their doors. You see, they were not first to market. The discount chain gathered a large client base immediately, and the salons that followed were left charging their clients less, yet didn’t have the systems and economies of scale in place to make a profit.

The original $8 chain operators had done their research. They were meticulous in their pricing, everything had a charge from the shampoo, to the cut, to the blow dry. Timing was important too. Everything had to be performed like clockwork, and wages were kept to a minimum. Products were sourced in bulk, and because they had a number of locations, their buying power was much greater than a single salon. Extra special service was nonexistent; this was a purely price-based business.

Today, this particular discount chain is all but gone. But, they made a significant impact on the hairdressing scene for almost 20 years.

Image Pricing.

With image pricing (also known as prestige pricing), your customers value the image of your brand and the features of your services over those of your competitors, and this allows you to capture value despite your actual costs or the quality of your services. These services can be targeted at the high end client market, and can communicate luxury and exclusivity. Clients in this case may be more than willing to pay more for these services because of the value they place on it.

This is clearly evident in “Celebrity Stylist” and their salons. One person that immediately comes to mind is Ted Gibson. Ted is the stylist on the show What Not To Wear in the USA, and he has a long list of famous clientele including runway models and big Hollywood names. If you are wealthy, in New York, and into fashion then chances are you want Ted Gibson to be your hairdresser. Ted is currently charging $1200 for a haircut. But when you have your hair cut by Ted Gibson, you not only share that chair with Hollywood starlets and other rich and famous people, but Ted offers incredible value. You see, Ted washes your hair for you, he doesn’t pass you off to an assistant. Ted blow dries your hair, not someone else. The hour to an hour and a half that you spend in the salon for your hair cut you get to spend with Ted Gibson. Now the fact that Ted Gibson is also a gifted stylist is just a bonus.

In Ted’s salon, they also offer a tiered pricing structure. A hair cut starts at $75 and increments up to the $1200 that gets you an appointment with Ted himself. This is an even greater example of perceived value. A client telling her family and friends that she goes to Ted Gibson’s salon has the image of exclusivity, but may only be paying $75 for that “privilege”.

Profitable Pricing-2As you can see from the examples above, the client’s perceived value of your services is subjective, yet it can greatly impact your pricing structure. This is the only time that your pricing strategy is more of a work of opinion than based on solid figures such as expenses plus profit.

Pricing is an issue forever in the minds of salon owners, booth renters and stylists alike. It is one of the key parts to creating a successful salon business. If you would like to delve into more depth on pricing, pricing strategy, determining your service costs and getting your pricing right check out my first digital workshop “Profitable Pricing”.

10 Pricing Mistakes to Avoid

Pricing mistakes are common, not only because of the many different pricing strategies, but because some pricing practices don’t seem to make sense on the surface. When business owners don’t fully explore all the ramifications of their pricing mistakes, customers can be driven away and profits inevitably drop. Dig a little deeper into why certain pricing policies work even if they seem counter intuitive by taking into account the following pricing mistakes:

Not being realistic about how much your product is worth

You probably have a lot of passion about your product, which makes it difficult to objectively determine it’s worth. Rather than setting the price passed on what the product is worth to you, study market trends and research prices for similar products. Make sure to set a realistic number based on these results. Ultimately, remember that your product is only worth what the market says it’s worth; it doesn’t matter how your product is if no one buys it because it is priced too high.

Not researching ideal customers with due diligence

If you ask business owners who their ideal customer is, most will respond with, “Anyone who pays.” These owners often price their products based on making a certain percentage of profit on each item. While this may seem like a good strategy to ensure a profit, it ignores the customers most likely to purchase your product.

Avoid this mistake by determining your ideal customer. Consider what type of person you want to attract by using common sense and market research. Look for attributes such as age, sex, occupation, and income that make someone an ideal customer. Set your prices using these constraints in order to avoid driving potential customers away.

Increasing or decreasing prices with explanation

Customers notice even the smallest increases in price, and businesses that raise prices are often inundated with angry phone calls. The assumption is usually that you raise your prices simply to make a higher profit; but the people complaining are often not taking into account such issues as inflation or increasing overhead costs. Be sure to inform your customers why you are raising your prices to avoid inadvertently angering your customers.

You might think that lowering prices would increase customer satisfaction, but in fact the opposite may be true. Suddenly lowering your prices without explanation gives the impression that your product was overpriced, even if you changed it for an entirely innocent reason like a decreasing demand for the product. Thus, make sure that you also inform your customers about price decreases and not just increases.

Not watching competitors

Your competitors are constantly trying to get an advantage and will often implement different pricing strategies to attempt to increase their sales. Constantly monitoring your competitors strategies allows you to react quickly and take advantage of any opportunities that may arise. This allows you to get a good overall feel for the market, so that you can anticipate any changes due to demand or economic shifts.

Undervaluing your product

While overpricing can cost you sales, pricing your products too low can be just as detrimental to your business. When some people see a low price, they automatically believe that the product is of inferior quality. Instead, price your product to be somewhere between the highest and lowest priced comparable items. This will increase sales without compromising the public perception of your product; when people are presented with three choices, they tend to avoid purchasing those priced at either extreme.

Lack of growth anticipation

You can’t only base your prices based upon the the cost of your products; you need to consider how prices will change as time goes on. Sales volume may increase and decrease, so you need to make sure to base your prices with these events in mind. You also need to consider how much your overhead will change as your business grows. Overhead prices may increase and you might need to price products differently in other markets.

Not considering the diversity of different markets

Prices vary depending on the value of your product to the nearest community. For example, if you are selling shovels in Alaska, you can set a higher price than if you are selling them in Arizona because shovels provide much more value to people living in cold weather climates. Take into account the community you are serving, when you are setting prices. If you are selling products in different markets, consider pricing them differently based on need.

Too much automation

Just because you are successful doesn’t mean you can rest on your laurels. The market is constantly changing, and this affects your prices. You need to be constantly aware of what products have high demand and adjust your products to maximize profits. Conversely, products falling out of public favor need to have lower prices in order to ensure some sales. Stay on your toes and don’t lose business because of complacency.

Picking fights that you can’t win

Companies such as Walmart and Target are able to offer low prices because they are given discounts for bulk orders. Furthermore, if a product doesn’t sell they can absorb the loss with minimal harm to the business. Since you don’t have these luxuries, you need to set your price points higher and purchase carefully because you don’t have as much “wiggle room” for failure; one big loss can kill your business. Don’t try to compete with the big boys in the market. Instead, focus on offering what they can’t, such as great, personalized customer service.

Not putting your best foot forward when describing your product

The more value people think they get from your product, the more you can charge for it. In order to increase this perceived value, emphasize why it is better than competitors. This can be anything from better functionality or better customer service. The goal of this is to brand your product in a way that makes it synonymous with a quality experience.

If you would like to delve into more depth on pricing, pricing strategy, determining your service costs and getting your pricing right check out my first digital workshop “Profitable Pricing“.

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About Anthony Presotto

Currently one of only two Australian hairstylists who are members of the Hairdressing World Expert Panel, Anthony Presotto is on a mission to empower salon owners, sharing his expertise as an author, international speaker and salon business strategist.

2 Comments

  1. Thank You, this was honestly the most helpful article for a pricing assessment that I’m doing and it was literally exactly what I was looking for to answer a question. Thank god for google

  2. Nice strategies! Pricing a product is what everyone is concerned about. Wrong pricing strategies can certainly harm a business. Pricing strategies which you have explained in your post have certainly added an useful information about how to choose a potential customer, how to implement these strategies, thereby resulting in profits.

    Thanks for sharing..

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