use of "Loss Leaders" and Special Pricing
By Skip Williams
the price we charge for our Services and Products is both an
"Art" and a "Science". The "science"
part is the calculation of "what each service or product
costs us" which we will talk about more next month. The
"art" part is figuring out how much our customers,
(when we talk about sales and marketing, "clients"
becomes "customers) are willing to pay for our services
and products. It is this art of predicting what our customers
pricing expectations are, that we will talk about today.
(potential) customer has a pricing expectation or pricing threshold,
that when exceeded will force them to move their business to
a Spa/Salon that fits within that expectation. That price threshold
moves up (or down) depending on things like service levels,
ambiance, convenience, industry status and product/service offering.
When setting the prices in your Spa/Salon be sure to take full
advantage of these assets, for maximum return of your investment.
But what about discounts and deals that we offer to our customers?
Leader (definition) - A popular article that is sold at
a very low price or at a loss for the purpose of attracting
customers and generating additional sales.
consumers terms a "Sale" would fall into this category.
You see this all the time at the grocery store; they sell you
a case of Pepsi at or below their cost in the hope that you
will buy enough other items at full mark-up to make their profit.
in our industry we offer services that do NOT have full mark-up
with the same hope. As I consult and calculate the cost and
profit of services in many Spas/Salons I often point out a treatment
or two that is not very profitable or worse yet taking a loss.
Without knocking the profession, only the price structure, the
one treatment that I often find lacking in the profit department
I ask why the less profitable treatment is offered at the less
profitable price the answer often comes back "if I charged
any more I would lose that business". Logically, I then
ask why they would care if they lost this less profitable business
the answer inevitably comes back "If the customer can not
get that service done here, I risk losing all their business".
are playing the "Loss Leader" game. Sometimes Spa/Salon
Owners are taking deeper losses than they realize with these
treatments and have not thought through (or calculated) the
consequences. Having the basic cost of treatment information
is essential before we do ANY discounting.
we have done our homework and know our costs, we may decide
that we are ready to tease a few customers away from our competition
with some type of discount.
Loss Leaders a viable marketing tool in this industry?
Picking (definition) Is when consumers jump from
store to store, buying only the items (services) that are on
Picking is widely seen as limiting the effect of Loss Leader
pricing. In our industry, even if we are successful in selling
this "cherry picking" customer other services, which
is doubtful, the likelihood of them being a "loyal customer"
is even more doubtful.
are two types of customers, one is "price sensitive"
and the other is "price insensitive". Note:
sensitivity of a customer on average MAY vary with affluence,
but both types of customers cross the economic lines.
we look at the price sensitive customer we find they are far
more susceptible to "cherry picking", which makes
it difficult to make any long term profits. These one-time sales
will increase the overall revenue of the facility but do little
to contribute to "profitability". Of course we all
wish we had the second type (price insensitive), but with these
customers, loyalty levels are high, and it is difficult to lure
them away from their present Spa/Salon and to your Spa/Salon
with pricing alone.
what, if anything, can we do with discount pricing can we do
to attract new customers?
I would make sure ALL services and products yield a profit,
some may make more, some may make less but be sure none are
taking a loss. We do not have all the impulse advantages that
grocery stores have. If you have services that do not yield
a profit, and your competition is charging roughly the same
price, let him/her take the loss for a while. Raise your prices
or discontinue the service.
I would not discount the same services that Spa/Salon "X"
down the street has on special; this only creates competition
for the same exact customers. It is better to offer a tease
on a completely different service, maybe your signature service,
so they can really see the advantage of coming to your Spa/Salon
while attracting a different customer altogether.
I would urge you to be very careful when setting up any discount
that could be used by an employee to embezzle any cash from
the business, discounts can make this very easy to do, please
see my article: Curbing
Fraud in your Spa/Salon, Dermascope Feb, 2000.
and most importantly, only do discounts and promotions
that encourage long term loyalty, and higher average sales tickets.
Instead of giving a special price for a one-time service, give
the special price for:
series of treatments
package of treatments
over a certain amount
yet, if we give todays customer a discount that applies
to their NEXT visit, we have helped to insured two visits and
started to build customer loyalty.
types of discounts will go a long way to enhancing your profitability
and long term growth. Also remember "Up-selling" begins
at the front desk, when the appointment is made, if we offer
a "Special" to every customer that calls for an appointment,
chances are we will sell it to at least 10% of the callers.
If we wait for the Providers to cross-sell or up-sell when our
appointment book is now more full, we may not be able to accommodate
the customer and the additional sale.
conclusion, it is easy to bring in more revenue, for example
if we sold dollar bills for 85 cents we would have more business
than we can handle, it is more difficult to make a profit. Through
the use of both the "art" and "science"
of determining the proper price to charge, we can make sure
that when we sell a dollars worth of service for 85 cents that
there is still room for the PROFIT.
only way to make those determinations is to figure out what
the customer is willing to pay and how much you will need to
charge, more on the latter next time.
me know what you think, feel free to write me at firstname.lastname@example.org
Leaders, Store Traffic and Cherry Picking"
Xavier Etienne Uriel Marie Dreze