Cutting It Too Close

Salons, surprisingly, practice effective price management more often than most other businesses. Sometime back I wrote about unbundling, and multi-version pricing in salons. It came as a bigger surprise to me to see the article in The Wall Street Journal about more people are cutting their salon trips and moving to cutting their hair at home. Salon market is highly fragmented and there are too many players. There is not much growth (other than population growth) – you cannot convince people to cut more often. Now this, recession will be cutting down volume.

I hope salons do not react by resorting to cutting prices. Once they are cut it is not going to be easy to grow them back to original levels as customers become trained to expect lower prices. They should continue to look at further unbundling and add versioning if their current practice is simply based on length.

Some New York salons are unbundling the stylists from the salon. This helps to create different versions of the product and helps preserve reference price in the minds of customers.

Another method is using the power of the middle. For instance, simply change the current single price for haircut into 3 different prices. There need not be any real differentiation but you need to create differentiation in the minds of customers. The lowest advertised price will bring customers in but presented with 3 options customers will be nudged to pick the middle option.

The problem however is that in this fragmented market there is going to rush to steal market share and this is going to cause a price war.