We Are Sunshine

Know Your Worth: It may be time to consider a strategic pricing overhaul

Saturday, August 20th, 2022

Typical economic conditions make it inevitable that businesses of all types will need to gradually increase prices for their products and services over time. Just like milk doesn’t cost what it did 10 years ago at the supermarket, if you’ve been in the industry long enough, it’s unlikely that you’re selling tanning for the same rates you did 10 or 20 years ago.

You’ll have to adjust prices eventually regardless, but, right now in particular, many states have seen, or will soon see, significant hikes in minimum wage that greatly increase payroll expenses. Most businesses in any sector are also currently experiencing a hiring crisis, as companies scramble to rehire enough workers to stay operational after the economic fallout from the pandemic. That means, even paying a higher minimum wage might not be enough to retain a well-qualified staff.

Whether you’re struggling to keep up, or you’re just looking for ways to increase profits, it may be time to consider whether a comprehensive or partial pricing overhaul could be part of the solution. Just because your competitors want to compete on price doesn’t mean you have to or should. You can’t compete based on price with gyms that offer tanning for $10 a month, so most professional tanning businesses today need to compete on quality.

The key to succeeding without competing on price is understanding and utilizing your “unique value proposition” – what sets you apart from your competition. You don’t have to be cheaper, if you are better and therefore provide better value for the additional cost. In an article for Entrepreneur Magazine, International Sales Expert Grant Cardone explains why you shouldn’t be afraid to raise prices as long you’re confident in the value you provide. He suggests that you should only be concerned if you believe your customer buys only on price, you have lost a sense of your value-added proposition, or your team lacks sales skills and closing techniques.

With a strong sales team, quality equipment in place, the right strategic adjustments, and the ability to explain your worth, an increase can actually be a win-win for your business and your customers.

“Higher prices are good for your company,” Cardone wrote. “Higher prices allow increased compensation for your people, the chance to keep up with higher operating costs and hopefully greater margins for you to increase services to your clients.

Identifying the Perfect Price Point

To decide whether you should increase prices or not, as well as how much you should raise them, you need to know a lot more than your costs and what your competitors charge. Here are some factors you should consider:

What is the customer willing to pay? Many businesses make the mistake of basing their pricing directly off their cost for providing that service or product (i.e. “It costs us a dollar, so we should charge two.”). Instead, start by deciding how much customers are willing to pay.

What kind of customer am I targeting? The answer to the first question depends largely on this one. Do you want to cater to more clients at a lower margin, or make more money per client but limit the size of your market? Ideally, you’ll be able to identify different price points, segment the market, and maintain both types of customers.

How should I react to my competitor’s prices? Your prices shouldn’t revolve around your competition’s, but it’s certainly a consideration. First, honestly identify if your overall experience is better or worse than the competition. If it’s better, decide how much and price upward.

Can I change some price points and not others? With different price points, you can still bring in the cheap crowd, but not miss out on the big dollars from those willing to pay for the best of the best. Perhaps you can benefit most from only raising your base-level tanning price, or only your higher-level prices, or maybe only your sessions and packages need to increase and your memberships stay the same.

How can I fluctuate my prices? Different customers are willing to pay different amounts for the same services, and even the same customer’s willingness will vary based on the purchasing occasion (in-season, off-season, etc.). Pay close attention to customer buying habits to determine when, and for whom, to adjust prices.

Am I giving the customer a reason to pay more? If you want to charge more for a product or service, it’s your job to make sure the customer understands and values the difference between the lower priced option and yours. The difference may be based on pure value, or something more intangible like the environment and overall experience you offer. Just make sure it’s obvious to the customer.

Are intangible benefits part of the equation? As mentioned above, sometimes your differentiation can come from intangibles like great service, environment, and overall customer experience. These elements are often more apparent to customers than having the best equipment or products.

Should I offer discounts? Promotions can be good, but don’t overdo it. If you have to regularly discount products and services, there’s probably a larger problem that you need to address. And once customers get used to a discount, they won’t be happy about paying full price again.

How does the customer want to buy my product or service? Make sure you have strong options for customers that want to pay for individual visits, as well as those that want membership. Both types of customers are valuable in their own ways. But assuming you’d prefer to sell memberships, you’ll have to make that offer attractive enough to secure commitment.

Step it up

Even though the value you provide is probably worth an increase already, it will help to have some “ammunition” when you need to defend a price hike. So, if you’re going to increase prices, you should certainly plan to offer something in return.

“Never try to explain the higher pricing by saying: ‘Due to higher cost, we are having to raise our prices.’ Don’t blame inflation. Instead, increase the value of your offer. No one wants to pay a higher price and get nothing more,” Cardone wrote.

Ideally, a price increase would be tied to the introduction of one or more new pieces of equipment. If you’re already considering introducing new equipment options, it’s definitely time to consider whether increased pricing is necessary or practical.

“When you increase price and offer the same thing you’ve always offered, that’s not a win-win. That’s a tough thing to do. The more likely result of that is less business. Offer more services and they’ll pay the extra dollars,” says PC Tan Vice President of Sales Eric Haynes.

“For someone with just one salon that sees they need to increase prices, they have to find a way to offer more. Their top-level beds probably don’t have body mist or aroma, changing LED lights or LED facial and shoulder tanners. You bring this kind of technology into your salon and customer will pay for it.”

For example, The Cutting Edge & Tanning in Sullivan, MO, purchased a new KBL 5600 in April. Prior to that investment the salon only featured base-level units for which they charged just $7 a session. So, when PC Tan Vice President of Sales Paul Manke encouraged her to charge $25 per session in the new unit, she was concerned that her clients wouldn’t go for it. In the end, she settled at $20 per session, and the unit has been running “non-stop” ever since and bringing in new clients every week who have heard about the new option.

A caveat here is that if you’re willing to invest in new equipment, it does provide the perfect opportunity to increase price points, but you don’t necessarily have to go that route. Today’s most successful salons have most of their members at the top levels because they offer tremendous value for premium equipment and additional services. For many of them, charging less to make the top level a “no brainer” is more profitable than trying to make greater margins off each membership. Even though it requires a significant investment in equipment, moving many clients from your $30 or $40 memberships to $70 or $80 memberships is far more impactful without the need to actually change prices. That said, if you think you need to bump up $5 or $10 to justify the cost of a new unit, most clients should appreciate the new experience enough that they won’t mind the small increase.

“It’s not just increasing price but getting them to move up levels. Level 1 and 2 don’t pay your bills. Focus the dollars on Level 3 and 4 to get customers up to those top levels and give them an experience they don’t want to go without,” Haynes says. “Sometimes you don’t have to increase price, but if your Level 4 before was $69.95 and you add a KBL 8000, you can probably increase it to $79.95 and still have a lot of people migrate up to use that unit. It was only a $10 price increase, but the real bonus comes from getting the lower packages to move up. It can be done with updating UV or sunless equipment and also adding affordable spa services.”

If you’re not bringing in new services or equipment to increase the value of your memberships, you need to offer your clients something to make the increase seem like a benefit rather than just an added cost. Common membership benefits that can be introduced or enhanced include product discounts, free upgrades, free or discounted spray tans, sign-up offers and friend passes.

There are also plenty of less tangible ways to show that you’re not just pocketing clients’ extra hard-earned money but using it to invest in improving their experiences. Spruce up your environment, throw in the little extras and take your service and pampering of clients to the next level. Your additional margins should allow you to do so.

Most new clients won’t even know you increased prices, so your only concern with them is making your value-added proposition clear from the start. With your current client base, it’s a little trickier, and even more so with your EFT members in particular. So, the easiest way to avoid any concerns is to “grandfather in” all of your current members and let them keep the price they originally signed up at.

While letting current customers keep their old rates won’t raise your revenue per member as much, there are other potential benefits. That approach could lead to more because members who normally lapse when they don’t want to tan certain times of year will think twice when you remind them that they’re one of the lucky, valued customers who was grandfathered in, but they won’t be able to get that price again when they come back after cancelling.

But, you’re obviously implementing new pricing for a reason, so to get more of your current members to buy in, you can also consider offering the option to keep their current price or upgrade to the new model that includes additional benefits, like the ones discussed above.

Customers that buy tanning packages or single sessions might be even less likely to accept price increase, and there aren’t many options for adding benefits or value for them. Stepping up your environment, customer service, and finding new ways to pamper them will help, but if you want to increase session prices and not add new equipment, you might have to accept that your session sales will decrease. Hopefully the increased cost per session will make you more than you lose from selling less sessions, but also consider that selling less sessions might not actually be such a bad thing. Those customers obviously like what you offer because they have no commitment yet continue to come back and increasing session prices makes your memberships an even better value. So, you might find that by selling fewer single sessions and packages but converting a decent percentage of those buyers to members, you will still increase revenue. Tell them, “You can tan unlimited for the cost of X sessions, plus all these other benefits!”

Even if you’re looking to raise prices in general, sunless is one sector where you might be better off sticking with your current structure, or even going the opposite direction. There’s much more room for growth with sunless than UV today, so affordable spray tan sessions and memberships are important for creating new spray tanners and getting them to spray more often. If you do want to increase your spray tan prices, you’ll likely want to include some of the options that are typically treated as upgrades in the base price or introduce some new solutions at new price points.

Many salons also find themselves in a rut of discounting products and accepting less MRSP for the vast majority of their product sales. If you’re looking to start working toward getting full retail price for more of your products, make the transition gradual. As long as your average product sale price is climbing and total units sold isn’t falling, you’re on the right track. Consider first bringing in a horde of new products, so clients won’t even know you’re charging “more” for them. With that approach, the best time to start the shift might be at the beginning of next year when the most new products are being launched.

Over time, your older products will start to phase out and be replaced by new ones that you can get better margins on without the customer knowing the difference. Then, with your current products that sell well and you want to keep around, if you want to move closer or to the suggested retail price, refer to the talking points in the next section or simply “appeal to fairness” by explaining that product sales are an important part of the revenue that allows you to sustain and improve your business, and they’re actually just paying full price now rather than getting a discount like before.

You can also aid the transition or permanently implement tanning rebates for product purchases. If you can incentivize more product sales at full price by offering free sessions or points toward sessions or upgrades, that will cost you far less money than heavily discounting products.

Change the Conversation

Adding value and perks is certainly the best way to justify your price increase, but when it comes down to it, convincing clients that what you provide is worth the money is just another form of sales. Just like with selling products or services, you’ll find that some of your salespeople will be more convincing than others. First, however, you have to convince the salespeople themselves. They might be concerned that they’ll sell less and thus make less commission, but remind them that as long as they continue to sell effectively, they’ll actually have the chance to earn more (and make sure your commission structure is percentage-based or adjusted to compensate them for selling for higher prices).

“The challenge with increasing your prices is never convincing the customer but convincing your own people. When I raised our pricing, I didn’t check with our people. I made an executive decision and explained to them when, why and how,” Cardone wrote.

Creating added value that’s easy for staff to explain to clients is most important, but you can also arm them with some additional talking points to help smooth things over. Even without a price change, you surely already have people coming in and questioning why you’re so much more expensive than the gym, so some of these talking points should already be in your repertoire.

Generally speaking, these points are about explaining why you’re worth the money even without new benefits. Disparaging your competition too much might make clients feel you’re “playing dirty,” so stay focused on the positives of your business. Do you have better equipment? Do you provide better service? Do you offer more perks? Do you have better products? Do you have a better environment? Do your employees have the best operator training and offer the best client education to protect their skin and get them the best results?

“We in the service industry want to call ourselves professional. If we truly believe this, then we will believe in our own value and the associated pricing,” wrote Michael Vidan, author of The Marketing Tune Up and Marketing Domination. “Make yourself and your company a promise: price things fairly and profitably. Then stick to it, with a smile and with conviction. Your customers will have more respect for you and you will make more money.”

Here are some applicable talking points Vidan uses in his business:

  • We have been in business for X-amount of years, are fully insured for any occurrence and licensed by X.
  • Our uniformed staff is well-trained, educated in this industry, and we will save you money in the end because of our efficiency and know-how.
  • Due to our standing in the industry, we have exceptional resources and buying power, which we will use to your advantage.
  • We offer a 100% Satisfaction guarantee, if you are not happy, we fix it!

Vidan also reminds us that, “A good customer will pay for value. Remember that not everyone is a good customer.” If you do increase prices, you’ll likely find that the vast majority of your biggest spending customers will be just fine with it, and the majority of those who bicker or don’t come back weren’t spending enough to be a priority anyway.

As long as you’re going to live up to it, you can also use promises for future benefits to defend your prices. Hint that there’s more to come. Emphasize the fact that a marginal increase to them will allow you to greatly improve the customer experience with better equipment, service and extras. Updating your equipment, refreshing your environment and adding new perks are things that tanning businesses should be doing regularly anyway, so living up to this promise shouldn’t actually cost you much or any additional money.

Whether you want to increase prices across the board, increase some options, or even keep the same prices but sell more expensive options, your success depends on showing and telling clients that what you’re offering is worth the cost. If you have good salespeople, know your unique value proposition, continue to work to enhance that value, and train your team to convey it to customers, a reasonable price increase can be not just a way to grow your profits, but also an opportunity to enhance your clients’ appreciation of the great experiences your business provides.