There is an article in The New York Times about some New York small businesses operated from people’s homes. Business owners who cannot afford the rent and operating expenses of running businesses from a correctly zoned business centers are moving back home. One such business is hair salons. Stylists with skill sets are able to offer their services to their customers at much lower prices than the traditional salon prices. Since these home based stylists get to keep all their earnings compared to just a share when they rent stations in other established salons, they are happy with this arrangement as well. The customers are also happy to get low priced quality service without.
Ms. Pitt said she now earns more than she did as a salon stylist. Then, the house took 50 percent of her earnings, an industry standard. She also charges less than her clients are used to, because of the low overhead of the apartment setting.
But one player in this ecosystem is not happy with this arrangement – salon operators. Zoning and rental clauses aside, the salons that continue to operate in the usual way are concerned about the low prices charged by these home based operators.
Salon owners do not appreciate that distinction.
“It is a serious drain on the business community,” said Joseph Strafaci, the owner of Joseph Martin Salon on East 57th Street in Manhattan. “Every downturn, every retraction, those individuals who do freelance work swoop in. Businesses can’t compete with individuals who have no operating expenses.”
There is absolutely no valid reason for them to complain. Instead of being concerned about the freelance businesses swooping in they should look at who their customers are, why they go to salons, and what they value. It is classic marketing myopia to see the only reason people go to salons is for “beauty”. If they target customers who are price sensitive, they cannot expect the customers to pay a surcharge for the salon’s high operating expenses. The salons need to target those segments that value the brand, the experience, and the rest of the differentiated components their salon offers over the home bases services or for that matter other similar salons.
With the change in their customer mix, the salons need to look at their customer data to see if there is opportunity for higher profit by increasing prices since those who continue to prefer their salons tend to be less price sensitive. If they indeed want to keep their price sensitive customers they should look at “Unbundling the salon“, so they are not cannibalizing current profits.
The net is, your operating expenses are immaterial to your customers. There will always be competitors undercutting your prices. You will not be able to stop all of them from stealing market share from you, but you definitely can control your profit share of the market, by understanding what your customers value and charging for it.