We raised prices to preserve our business model

This quote comes to us from Ms. Allie Webb, the Founder and CEO of Drybar a blow dry only salon. A blow dry salon is not like any hair salon. It offers, just as name indicates, blow dry and styling. Drybar is a pioneer in this niche and does $40 million in revenue a year. In an interview with The Wall Street Journal she was asked why  she raised her prices recently. And she offered this answer,

Ms. Webb: We always were $40 in New York. We tried to keep prices $35 [elsewhere] as long as we could, but you know things go up: rent, health insurance, incentives. There’s just a lot of different things that got more expensive. We had to raise the prices to keep the business model as it was.

I am willing to bet that someone as innovative and entrepreneurial like Ms. Webb, one who invented the category getting customers to pay for something they do for free, knows exactly why she raised her prices and is simply saying the best answer one could give to explain price increases. You have seen this done perfectly by Starbucks and repeatedly too.

We are increasing prices because …. ( anything but we found out customers value and charge that price).

blowdry

Ms. Webb does just that, citing cost reasons, rent and salaries. I don’t have to repeat that a customer could care less about a marketer’s cost. Ms. Webb would be the first to admit that a customer getting their hair blown out does not think about offsetting Drybar’s rent. However using cost reasons to correct your past pricing sins is a perfect tool. It does allay customer concerns and push backs.

However what Ms. Webb added in the end is concerning.

We had to raise prices to keep the business model as it was

Again I believe she does not believe that statement. And no business should. You never raise prices to preserve your business model. Because your business model is nothing more than – how do you get your fair share of value you created for the customer. Pricing is the simplest way to capture the value created. If you are increasing prices without increasing value you are simply getting more than fair share of what you created. Such a business model is unstable and will be disrupted.

 

Value Equation

No one can preserve their model, let alone preserve it by raising prices. Someone else will always find a way to deliver customers more value, do it cheaper than you could and share a greater portion of that value with customers that you do. Your option is to do that before others do it to you.