In May I wrote a post, It’s Ok to Raise Your Prices Now. Some states were starting to reopen, but many personal services were at reduced capacity. I argued that there was pent-up customer demand for things like bars, restaurants, hair salons, etc. Customers wanted those services, and, since capacity was limited, they would pay extra for them. For the most vulnerable businesses, I believe it is even more important to increase prices now if they haven’t already done so.
Personal Services
In late May, barbershops and hair salons in my area were allowed to open, so I called a local salon to schedule a haircut. They were fully booked the next few days, but the barber was able to see me later that week. Everything was done by appointment only, so there were no walkup customers.
All customers and staff were required to wear masks. After each cut, the barber or stylist disinfected each chair and counter, along with the scissors, clippers, and combs. In my case, I only waited a few minutes, while the cleaning process was completed, but the salon felt less active. I asked the barber if he was seeing the same number of customers, and he said fewer. Cleaning took more time than in the past, but more importantly, he needed a break from wearing his mask. He said he did not get enough air with his mask on.
When I went to pay, the price I was quoted was identical to the pre-Covid price. I suggested the barber could raise his prices. I said we all wanted our hair cut, and we understood that business had changed. He said he liked the idea. Last week I went back for another cut, and sure enough, the barber had increased prices – about 10%. I asked if anyone had objected and he said nobody had.
The dry cleaner we previously used closed their doors permanently. People working from home just don’t need as much dry cleaning, so there is not enough business to cover their fixed costs. I also spoke to the owner of a mobile auto detailing service. He said volumes were down. Even though all their work is outside, people are not traveling as much and don’t need their cars cleaned as often.
Dining
I have eaten at only a few restaurants and a golf club since reopening. I don’t have before and after price lists or data, but I could tell that one restaurant had kept their prices the same – it was the same old laminated menu. The menus had changed at two of the restaurants, but it seemed like cocktail prices were slightly higher, and entrées seemed slightly downgraded. In all the restaurants, they were less than half full and had many tables blocked for social distancing.
Survival
The common theme in these examples is lower volumes of customers because of Covid-19. In my opinion, personal services businesses are vulnerable, and many will not survive, let alone turn a profit. Compliance with new regulations limits their capacity to serve customers. If they want to survive, they need to raise prices and capture more revenue per customer. Although customers generally do not care about their service providers’ costs, they also will not be bothered by moderate price increases. Customers’ decisions to buy or not will be determined more by their comfort (or not) with the health risk than with the price of the service.
All these examples are just anecdotes – they are not data. Pricing is never a “set it and forget it” process. These businesses need to monitor their results. If the number of customers drops below their newly limited capacity, and competitors seem busier than ever, they can adjust prices back down.
The critical point is these vulnerable businesses want to survive. It appears Covid-19 will be with us for months. If the business can’t hang on at restricted capacity with current prices, they have nothing to lose by raising their prices. And, they have everything to gain. If you are a consumer of personal services, don’t complain or begrudge them their price hikes. Let’s help them survive.