The psychology of pricing for hair salons for maximum profit
Again and again, salon company owners treat service pricing a little like some kind of game. Despite the unbelievable amount of info out there, as well as education (for instance, masterclasses) that’s available, it seems that salon owners are still putting it in the “too hard” basket and resorting to the ring around game to establish their prices. Well the aim of this site post isn’t to attempt to alter your mind about how you establish your prices, but to let you in on a psychological trick that just might help you use pricing to increase your salons bottom line.
Most salons don’t have the resources of big business, to have access to a whole section dedicated to creating optimum pricing strategies. Nevertheless, there are a number of simple consumer pricing mental strategies which you can easily implement into your salon’s pricing structure. The strategy I ‘m about to share with you is based on exhaustive testing of human behaviour and is called PRICE ANCHORING.
Just what is cost anchoring? Well it is based on an area of psychology. To supply you with the Psychology For Dummies variation, cognitive bias is an incredibly important area of study in psychology that was first explored in the 1970’s. It’s defined as a “routine of deviation in judgment that develops in particular situations.” What that means in simple terms is that cognitive bias occurs when individuals are presented with information that is certainly irrelevant or unsuitable to making a decision about something, and that decision is subsequently influenced by the inconsequential advice, despite the fact that it really shouldn’t!
When the first bit of information that is presented to the consumer, anchoring has more emphasis placed on it and this skews how they think about every piece of advice that is observed after by them. The effect of cognitive bias , i.e. anchoring is so powerful that even after being told about this mental behavior it is still nearly impossible to alter the effect it’s on the matter’s mind.
We see examples of price anchoring in use in our lives. The RRP (recommended retail price). Now my challenge to you is make an effort to locate someone selling something for above the RRP. We all know the RRP is really just a suggested cost from provider or producer of the merchandise. It doesn’t mean a retail establishment must stick to that special cost. Like the name says, it’s simply a recommendation or suggestion.
The real purpose of RRP is to use cost anchoring. When you see the plasma television with a RRP of $ 1599 being reduced to $999 and feel that that is a great deal, what the retailer has done is create a cognitive bias. The purpose of using cost anchoring is that the first cost that a consumer sees will be created as the main reference point for all the other prices set by the retail establishment. All costs that are lower are considered a bargain by having the higher RRP as the baseline. The exact same goes for sizing and pricing. Looks like a real bargain if you’ve got a 48 inch plasma television selling for $1599 afterward the 50 inch unit that’s selling for $1199.
Then have a look at the layout of your local electronics stores catalogue notably the television section. That advice is presented exactly to you and it is geared towards making the sale of certain things happen.
How can this apply in a salon situation? OK let’s say you are wanting to sell a facial pamper package you have created for $120. Depending on how rich $120, a customer your salon typically pulls might be a little more than your typical customer is willing to pay. So you could do a pared down introductory bundle for $99. Problem is, the $99 bundle is presented by you and that then becomes the core cost in the customer’s thoughts. If you are trying to upsell them to your $120 package it just looks like an alternative that is overpriced.
But if you start out by presenting a $199 deluxe pamper package which includes a few extras compared to your routine pamper package to the customer, you create your anchor cost at that higher amount. So when you present the regular $120 package, it now seems more like a buy. And if you do determine to still offer an introductory bundle for $99, it now looks like an absolute steal!