Asked on 06 Jan 2020
What's their business model?
Upsell for other services once seated. Captive audience
Further mark-up on products
More volume despite lower margins - I usually see queues at the Bedok outlet
By lowering price, customer acquisition cost at $3.90 is likely much cheaper compared to paying for FB and Google ads that might not give a good ROI
Rental locations tend to be in the heartlands - lower cost compared to central area
I believe the 3.80 haircut's used as a loss-leader to get customers into the store before they try to sell them the higher margin products/services. Rental in the heartlands' also cheap so less overhead cost as well, thus enabling the business model.
If you have frequented enough places that promote haircut at $3.80 or $5 you will notice that most of these salons will try to engage in the following tactics to earn more money from you.
Upsell - they will sell you packages like $38 for 10 haircuts or $50 for 10 haircuts. Because at any point in time, there are always "unredeemed" haircuts which means that these hair salons can capitalise on future earnings in some sense.
Cross-sell - they will sell you other services like hair colouring, wash and blow, hair scalp treatment, hair care products which can sometimes cost hundreds of dollars.
To tie everything together, when these hair salons lock you in for 10 haircuts, it provides them plenty of opportunities to up-sell and cross-sell you the abovementioned. The basic hair-cut is just a bait, the real money is made from the other haircare services and sale of hair care products.
There are various marketing strategies involved. For instance, they apply the concept on the law of large numbers . By lowering the price, they are able to attract more customers. Accordingly, they are able to generate more sales per hour.
Furthermore, they may sell you hair related products, where they mark-up the price to earn a profit from it.
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