Trista is a salon owner in Dickinson, North Dakota, contemplating offering a new blowout1 service to her
Question:
Trista is a salon owner in Dickinson, North Dakota, contemplating offering a new ‘blowout’1 service to her clients. She needs help, however, in making the decision to offer or not to offer the service. The salon has earned a good reputation for the quality of services provided and until recently was operating at full capacity. However, the local market has become increasingly competitive, leading to some customer migration from Chop Chop. Consequently, Chop Chop now operates below its full capacity. To attract new customers Trista wonders if she should expand the salon’s offerings by providing blowout services. The blowout service has become well-established in much larger cities. Trista's salon would be among the first to offer this service in the local market. This critical incident presents students the challenges commonly faced by small business owners in decisions (1) involving expanding the product mix, and (2) if choosing to do so, on pricing the new product. The Critical Incident Trista Kurrian owns and operates Chop Chop, a boutique hair salon in Dickinson, North Dakota. Trista manages the business and also works as a stylist. She employs five other full-time (40 hours per week) salaried stylists at $12/hour. Trista and her employees each have more than 12 years of salon experience and all are well-respected in the town and surrounding communities for their skills and creativity. Trista and her employees work well together and have built a very positive brand image for Chop Chop. Their current clientele includes three distinct groups: approximately 60% of their customers are female working professionals aged 35-55; 20% of their customers are older, wealthy women; and the remaining 20% of the customer base includes younger women, teens, and the occasional male client. When she started the salon 7 years ago in 2006, Trista chose the name Chop Chop to convey not only the primary service provided (haircuts) but also the efficiency with which the service was provided. The name particularly resonated with professional women who she was targeting. These customers, often starved for time given their myriad professional and family demands, generally place a high value on the efficiency of services provided to them, and Chop Chop stylists met that expectation while also providing high quality service. Salon operating hours also cater to these busy working women: 6 am-8 pm on weekdays and 1 pm-5 pm on Saturdays. Saturday mornings are reserved for bridal parties, proms, and other special events. Chop Chop not only appeals to the clients' desire for efficiency but also provides a feeling of luxurious care. In keeping with the profiles of her clientele, Trista designed the interior of the salon to project an upscale image. Prices charged for services at Chop Chop are generally 20% above the average charged by other salons in town. Even so, Chop Chop has consistently enjoyed a loyal and steady stream of clients with relatively full appointment books thanks to the speed, quality, and service hours provided. 1 A ‘blowout’ is a means of styling hair with a round brush as it is blown dry - no curling iron or flat iron needed. 2 Though Chop Chop has been operating at almost full capacity since inception, the recent growth in new salons in Dickinson2 has prompted intense price competition. Many of the competitor salons are one-person operations3 that seek clients through word of mouth and social media, offering special discounts for new customers. Consequently, Chop Chop has lost some of its more price-conscious customers, which has resulted in spare capacity in the salon. Trista and her salaried stylists have their own assigned stations, the salon also has two additional stations (complete with sink and styling equipment) that have been used in the past but are now standing empty due to attrition of some stylists. While recognizing that she needs to take action to replace the lost customers, Trista is vehemently opposed to competing on price to attract more customers. Having established Chop Chop as a boutique salon, she refuses to let Chop Chop’s boutique image be blemished by lowering the salon’s prices. She had recently learned of the new blowout service offered by salons in larger cities such as Kansas City, St. Louis, Denver, Minneapolis, etc. The blowout is a means of styling wet hair with a round brush as it is blown dry - no curling iron or flat iron needed. Depending on their hair type, a client's hair can hold a blowout style for up to five days, with only a quick touch-up in the morning needed to look and feel polished, a boon to busy working professional women and particularly to those with young children. Clients can choose a full blowout service that includes having their hair shampooed at the blowout salon, or they can wash their hair at home and simply show up to the salon to have their wet hair blown dry and styled. Trista was intrigued and her research found that working professionals in these larger cities loved the blowout services as it saved them significant time in getting ready for work. On average, women in these cities were using the blowout services once a week. Her conversations with fellow professionals at an industry conference she recently attended in Chicago revealed another interesting aspect of blowout services: these services are often provided by fresh graduates out of hair-stylist colleges because they have yet to develop the high level of skills required to color and style demanded by working professional women. As far as Trista knows, only one other salon in Dickinson currently offers this service, pricing its blowout services at $15/blowout for partial and $25 for full. Trista believes adding this service could be a way for her to fully utilize her salon capacity. Trista has been talking informally with some of her clients to gauge their interest in the blowout service. Some of her older, wealthier clients indicated they would likely use the full-service (shampoo and blowout styling) once a week, while several of the working professionals thought the partial service (shampoo at home and show up at the salon with wet hair) would likely best fit their needs. Some clients indicated they'd have a blowout in the morning on their way to work. Trista also checked with a local contractor and learned she could add two more styling booths dedicated to providing blowouts for an approximate total cost of $2,000.
Trista is faced with a decision to make:
Should she offer this new blowout service to utilize her excess capacity and what other factors should Trista consider as she ponders adding this new service for the clients?
