Lessons from Uber: Demand Based Pricing for Haircutters
A gallon of milk is the same price every day… Until the tank truck drivers union goes on strike and then the cost of milk goes up.
Gasoline is always the same price… Until the summer driving season kicks in, the OPEC guys get squirrely or we get close to an election.
If there are 120 seats on an airplane odds are no two tickets were sold for the same price. The airlines have done a terrific job of tweaking seat prices around every conceivable adjustment in purchase details.
Supply and demand, a basic law of economics, dictates pricing in most industries. We haircutters have a lot to learn.
The best example of the modern application of demand based pricing is with the ride sharing app Uber. From its very inception we have understood that at times of peak demand the cost of a ride goes up. We have never questioned this. We simple play along. When more people are seeking rides and fewer drivers are available it only makes sense that rides should cost more. Customers make choices. Some simply pay the higher rates. Others opt to go with a conventional Taxi. Still others choose to change their travel plan or their mode of transportation. The system works and no one complains.
Perhaps the time is long overdue for haircutters to adopt a few simple demand based pricing tactics to maximize income opportunities and to balance our traffic flow.
Here are my top five tips for managing a demand based pricing model for haircutters.
- Analyze your traffic to determine days and times of peak client flow and slow haircut activity. Implement a slightly higher “peak time” price during periods of excess demand. Look beyond just weekly flow. Periods of pre-holiday haircut enthusiasm are great times to levy a surcharge.
- Limit the times of day and days of the week when senior and child discounts are honored. (Many of you know I am vocal advocate against offering discounts. I know many of you do not listen to me on this point). It is foolish to do off-price work during times of peak demand.
- If you choose to offer coupons or discounts narrow the offerings to slow days and times when these can be used to build traffic where you need it. If there is ever a good reason to offer discounts filling slack time is one of the best.
- Post information on the parameters of your demand based pricing in high visibility locations in the shop. Use a flyer or a menu card to explain your program. Clients will be happy to pay more (or less) but they do not like surprises.
- Use social tools like Twitter, Facebook, Instagram, or wherever your clients prefer to pay attention, to effectively communicate your pricing program. Explain what you are doing and why you are doing it. Clear communication will be the key to client acceptance of demand based pricing. These in-the-moment tools are also great for trumpeting empty spaces and off peak opportunities as they ebb and flow throughout the work week.
Bonus – Special note – Near and dear to me is the subject of price increases. It is important to acknowledge that a demand based pricing system makes the implementation of general price increases amazingly easy to execute. When the time comes simply increase the peak time price first positioned as a response to demand. Stagger the increases so later the off-peak price can go up, too with little or no resistance or even comment from clients.
Now, during the holidays, during our busiest season is a great time to consider demand based pricing. You need it now more than ever. Reach out to me if I can help you implement a program.