Great haircuts, not so great business

I've had the same woman cutting my hair for the last 15 years. As a product of the 80s, I'm forever scarred by memories of bad haircuts (spikes were NOT a good decision!) so I'm nervous at the prospect of having a stranger cut my hair. Anna is my hair-cutter (not sure if that's a word, but she's not a 'barber' and certainly not a 'stylist') and I've followed her around to the various shops she's worked at over these 15 years, always choosing her over the shop. I know she has a number of other customers that have also been following her around during this time.

Anna does a great job, she's very personable, and I can trust what I'm going to get. Including the tip, it costs me 25 bucks and I'm good for about 6 weeks. I was in there this past week and I got thinking about the business relationship we have. It occurred to me that Anna is leaving money on the table every time I walk out of there.

Why?

Because if she doubled her prices I'd still keep coming back to her every 6 weeks. I don't go to her because of the price, I go because I trust her service. Even if she doubled her prices, I don't use the service often enough to really notice. I have no doubt that a large segment of her customer base feels the same way.

In fact, she's doing both of us a disservice by NOT charging more.

With a little quick math, I can see that Anna needs to stay really busy in order to make any decent money in this business. There's certainly nothing wrong with working hard, but if people are working hard all the time and not getting anywhere, eventually they get fed up. The worst thing that could happen, for me, is for Anna to get fed up and decide to get out of the business. By keeping her prices low, Anna isn't making as much off of me as she could, and that introduces the risk that she might get fed up and quit the industry. I would much rather pay her more now and have less risk of her leaving, than pay less now and have more risk later on.

Now, I'm sure there's a segment of her client base that wouldn't pay more than the going rate. I'm sure those people would be aghast if she raised her rates and would go elsewhere. But is that really a problem? I don't think so. The bulk of her business is repeat customers that come for her specific service. That revenue is supplemented with the walk-ins, but those are unpredictable. Many of them would still pay above average rates because once they're standing in the shop, they're less inclined to go hunting for a cheaper price.

Of course, Anna can't double her rates overnight. But even if she increased them by 40 or 50% annually, she'd be making a whole lot more without losing many customers. The pricing game always requires a fair bit of trial and error to find the sweet spot, so bumping the rates over time would allow for some testing of the market. As well, there's always the brand advantage that comes from pricing your service higher - "we're the best and our rates reflect it".

Okay, so what does any of that have to do with trucking or driver development?

Well, Anna is making assumptions about what's important to her customer base, but those assumptions are based on incorrect information. She's assuming that her customers are motivated by price, but they're not. Her customers have demonstrated through their loyalty that there are other things that are more important to them. In fact, the best customers are the ones who are least motivated by price. Anna is giving away money unnecessarily.

This is a trap that's easy to fall into. It's temptingly easy to assume that money is the most important factor in business decisions, even though it rarely is. Whether we're talking about pricing our products and services, or pay packages for drivers, money is almost never the most important element. The total package is what influences the decision, and quite often people would rather take a short term hit if it means long term payoff.

I suppose I should be a good customer and tell Anna that, eh?

Let me know your thoughts.