For years I’ve been going to the same barber shop and getting my hair cut by the same person, Dana. Their service has never been complaint worthy but I’ve always found them a little expensive. The accountant looking over my transaction history has no way to knowing I am dissatisfied, all he sees are monthly transactions of $25 through a card ending in 6849.
But then, one day, I didn’t go. On my morning walk I discovered another shop (a few blocks away) with a neon light advertising a $16 cut. When I walked in I definitely noticed a different vibe; it was a first-come-first-serve model and people were walking in and out pretty quick. Their staff of six was bigger than the other place that had two people. I was also used to a little bit of chit chat and the customary question, “So how’s your wife doing?” After the cut I walked to the counter and paid. When I tried to add a tip the owner said “ah, no need for tip”. At first I felt guilty but then realized tips were not part of this new place’s business model. In effect, the new place works out to be 46% cheaper. The question is, what is Dana thinking?
I bet she’s not worried. Here’s way, she probably surveyed the new place and said “nothing to worry about here. They are cheaper but their shop looks horrible with gaudy designs. They run the place like a factory and don’t assign stylists to customers. Factoring in for our nice clean shop, superior products and personalized service anyone should understand why our price is a real bargain.” Dana is right, all the added elements to her business certainly justify why she charges $30 but Dana would do herself a huge favor if she had a few steepness nights. I don’t know the owner’s name (let’s call him Steve) of the new place but he’s a brilliant man. He has managed to slash his price without eliminating a single item that I care about. I don’t care about having the same barber cut my hair, I don’t care the store does high volume as long as I don’t have to wait and I certainly don’t care about chit chat. Dana and Steve are price engineering from two entirely different perspectives. Dana is looking at her price and then justifying it and Steve is reading external market needs to determine pricing. In downtown Chicago most office people come down for a quick trim so they can go back and continue work. And Steve gets that.
Engineering price-points based on ever changing customer dynamics is a key strategy for a retailer. Only if you base your price-point on what’s going on at the customer’s end can you get a reading of trends. Dana’s rent, two person cost of operation and shampoos are fixed numbers and since they determine pricing she will never know when a tectonic shift takes place, until it’s too late.
If a retailer can figure out a way to reduce price without diluting the customer experience they must either tweak their pricing or add to the customer experience.