My barber recently left the salon he had worked at for the past 25 years and relocated. I visited him earlier this week at his new location and he shared his journey and why he chose this particular spot.
I thought there were some interesting lessons to take from his experience and that I’d share them with you.
He checked out three different salons.
The first place he investigated was a good location but according to Antonio “ was not well maintained…. there were chairs with rips in them….my customers would not be happy in that place”. I happened to walk by that place today and would agree with Antonio. Even if the price was cheaper, I would not like going to that place at all; it was rundown.
Then he described the next stop on his search, “…..a great location, but they charge $40 bucks for a haircut….I told them that my customers wouldn’t go for that……they’ll pay $4-5 more, but not $40 for a haircut. The owners said to me that was their price and they were sticking to it…..they wear bow ties…..i bet that’s to justify $40 bucks!” We had a good laugh and as a customer I agreed that $40 was a lot more than I was willing to pay.
That lead Antonio to his final destination located closeby in a Fairmont hotel. ”Good location and the price is $4 more than what I was charging before…. $4-5 to my customers…..they don’t mind”. And in my case he is right. I’ve been seeing Antonio for 12 years, I enjoy seeing him; it’s like a little break from the hubbub. We talk about restaurants and travel and our families, at Christmas he sneaks me a glass of wine. You get the idea, it’s personal.
Antonio’s story included wisdom as well as an example of a typical behavior that leads to missed opportunities when it comes to pricing. I have summarized it into 3 lessons:
Lesson 1: A Good value proposition consists of many components and price is only one of them
Antonio instinctively knew what wouldn’t work for his customers. The first salon was in poor repair and “was not right for his customers” even if the price was cheaper. He also knew that the high end location that charged 60% more was too much for his customers even though it was a fantastic location.
Lesson 2: Segmentation is the name of the game
The salon that charged $40 for a haircut stuck to its pricing strategy; they knew their value proposition and did not deviate. You need to know who your core customers are and stick with them. If they are Wall Street bankers then go ahead and charge $40, put on a bow tie and feel good about it.
Lesson 3: We are usually too risk averse when it comes to pricing, thus forgoing significant opportunities
He knew he could charge his customers $4-5 more and they “would not mind”. Based on this insight Antonio missed a golden opportunity. He should have adjusted prices at the old salon 12 months earlier.