Winning the Discount Wars

Peggy Wynne BorgmanWynne Business Spa Consulting and Education

30 year spa operator in the San Francisco Bay Area

15 year spa consultant and educator

Author and blogger

Why are we here?

• The recession is over but…we still have the hangover

• The world has changed again (and we’re surprised?)

• We don’t understand the new rules

LET’S SET THE STAGE

My spa biz history

• The 80’s: shooting fish in a barrel

• The 90’s: printing money

• The 00’s: market saturation and a meltdown

• The 10’s: “decovery” and new rules

Fun with demographics

• Average US household income is $71,274• It has dropped over $4,500 since its high in 2006• That’s an average of almost $400 per month in consumer spending that is no longer happening!

• Affluent households have annual income of $100,000+

20% of US households are Affluent

• Super-affluent households have annual income of $250,000+

2% of US households are Super Affluent

ULTRA AFFLUENTS

$250K +21%

HENRYs (“High Earners Not Yet Rich”*)$100K-$249.9K

79%

* Unity Marketing Online

Today’s Luxury Consumers

So…what just happened?

• Super affluent consumers are nervous and uncertain about the financial future. Spending is stagnant*

• HENRYs are the new luxury customer

– And they care about price (can you say “Costco”?)

* Pam Danziger, Luxury Marketing Researcher

What just happened?

DISRUPTION BY TECHNOLOGY

• Pricing is transparent. The mystery is gone.

– Even people that didn’t care as much about price care more because it’s so easy to care more

– Admit it, you’ve purchased a discount voucher online

Good news…

• Wellness and quality of life are more important

• The spa industry is growing• But growth is not coming from “traditional” spa sectors

• More consumers are seeking out spa experiences• Affordable, ubiquitous/convenient

• Think of the spa industry like the restaurant industry: fine dining to fast food

Bad news (for traditional luxury spas)

• “Good enough” is the enemy of the “great”– What’s not to like about a one-hour, $29

foot massage?

– The bar for differentiation is higher than ever

– Smaller share of each customer’s self care spending means you need more customers

– Spa industry is now like the restaurant industry (fast food to fine dining)

Here’s all I want to know about your business.

• Your online review rating – Trip Advisor, Yelp,

Google +

• Whether you’ve got a deal for me

Two strategies for responding to changes in consumer buying behavior

1. Listen to the conversation- What are people saying about your spa on social media?

(Not just your reviews). Leverage that language

2. Change the conversation- Differentiate- Talk about value

“The best splurge is also the best value”

3. AND Tell them what they want to hear (deal) and then change the conversation (value)- Get the chance to woo and win them on your own terms

YIELD MANAGEMENT

TIMEthe most perishable product you sell

• You will never get another chance to sell June 21, 2014

• Consumers pay more for hotel rooms and airline tickets based on demand—why shouldn’t spas?

Dynamic Pricing

• Charge more for the same service during peak timesOR• Increase prices overall to enable value pricing for lower-demand times• Dynamic pricing is being used to sell beer, and copies

Dynamic Availability

• Segregates your spa services by profitability

• Offers only your more profitable services during peak demand periods– Example: no manicures on Sat AM

– Manual override should trigger report

• Spa software must be up to the task– Set “rules’ for days/times

– Set “rules” for utilization rate (at 50% utilization, these services are available; at 80% utilization, these services are available)

There’s no one-size-fits-all “yield” strategy

• Yielding tactics vary with– Staffing

– Treatment resource function(s)

– Type of spa

– Guest experience

– Seasonality

• Yield formulas require constant evaluation and adjustment

• Yield management tools– Software

– Apps

Last minute marketing

• Create a separate e mail list for clients interested in last minute offers

– Don’t spam your general list!

• Use your FB page for last minute offers– Postings for specific ee’s get the most comments: “Have you had a hard

day? Our amazing deep tissue therapist Bob has an opening tonight at 7 p.m.!”

• Last minute marketing tools

– WebOpenings

INCENTIVES AND OFFERS: THE GOOD, THE BAD AND THE UGLY

Discounts: the “dumb” incentive

• Discounts make the “offer” (and the conversation purely) about numbers• Discounting is lazy marketing• Discounts and Deals are now an obsession for our culture (sorry)• Discounting can trash your gross profit

An incentive is a more powerful brand builder when it’s a social reward

• Social rewards create exclusivity/scarcity• “Cattle call” discounting is perceived as less valuable• Example:

Summertime Teacher Discounts“Top 200 Guest” Gift with purchase“Hot List” and Facebook Fan offers

• Membership Programs

An incentive is more powerful when it is a behavioral reward

• Be part of our “Hot List” and get last-minute offers• Do-good incentives: For every Healing Touch Massage purchased, we donate $5 to domestic violence agencies• Come to the spa every month and pay less (membership)

Incentive Strategy

• Build offers that protect price points

– They have to pay more to get more

• Offers should focus on most-differentiated and most profitable services, not “base sticker price” offerings

• A deal is forever: new guests “imprint” at the original price point

Value-Add vs. Discounting

• Best: incentives with low direct cost

– “Enjoy a free Infrared Sauna Therapy session with your massage (a $59 value, free)”

• Get your full hourly rate and then add value

– Purchase a 60 minute treatment and receive an additional 30 minutes FREE

• Use products to sell services

– Purchase Wonder Serum and receive our Wonder Peel, free (a $99 value)

Deal Sites are getting a taste of their own medicine

• Groupon, Living Social, Travel Zoo, Spa Week, etc.

• Their pricing model has changed because of…doh! Price competition!

• You can do your own “Deal Site”

• Locbox

Deal Sites(hate ‘em…but they’re here to stay)

• Why participate?– Increase utilization

– Gain exposure and stimulate WOM

– Keep staff engaged

– Build your own internal list for in-house offers

Whether you choose play or not, you have to understand their impact, dangers, opportunity

“Deal Aikido” want to dance with the discount devil?

• Get what YOU need and use their reach

• Don’t expect to find lots of new premium clients

• Set price point high enough to qualify prospects

• Value-add vs. “cutting into muscle”

• Limit redemption times to lower-volume periods

• Pass through minimal discount to staff

• Deliver awesome customer service! Coupon holders may expect to be treated as “second class citizens”

• Sequester funds for cost of sales to manage cash

Anatomy of a Real Deal

REGULAR PRICE SERVICES HARD COSTS LABOR BURDEN SUPPLIES

$112.00 Stone Rose Massage $ 42.40 $ 32.00 $ 4.80 $ 5.60

$ 155.00 OrganiCures Facial $ 54.55 $ 38.00 $ 5.70 $ 10.85

$39.00 Sauna therapy or Browbar

brow and makeup styling $ 5.00

$ 306.00 $ 101.95 TOTAL HARD

COST

$189.00 DEAL PRICE $60.00 SPA PROFIT

$27.05 G RECEIVES $161.95

$161.95 SPA RECEIVES

MEMBERSHIP PROGRAMS

The Strategy

• Increase visit frequency and revenue follows• Marketing message focuses on benefits of well-being,

stress relief, pain relief and self-care• Provide at least three levels/price points of membership• Identify what makes you different, better and special• If you’re a luxury day spa, be sure to position against the

“budget” market:– Guest Experience– Amenities they don’t offer– Timing of services (full hour or 50 m?)– Staff skill and experience

Membership

• Share the discount with team sell them firstimproved/stabilized income

• Guests make a monthly commitment• Add value • Provide a price incentive

Create some new treatments that can’t be price-compared

• Study other programs• Yes, your best regulars will sign up first (ouch)• Most spa software is now capable of managing membership

Service providers should participate in some promos

• “I don’t work for free” vs. “I co-invest with my spa”

• Ask, don’t order them to participate.

• Don’t overdo it. – Anyone whose retention level is X or more

can opt out

– They’ll see busier co-workers and get on board

It’s all about RPH!

• Optimizing employee revenue per hour worked* is your most important business goal

• All yield management, discounting and incentive strategies must roll up to higher RPH!

Do you need to increase prices?

• “Discount culture” demands a higher base price

• You’ve probably waited too long. Your suppliers haven’t.

• You’ll be surprised at how little pushback you get!

Become a Better Marketer

• Create your own round table of non-competing spa businesses to share best practices

• “Go to school” on big competitors’ systems

• Plan, don’t react

• Make “numbers” a part of the daily conversation

Thank you for your attention!

• Time for Q & A

• Please give us your business card to receive a copy of this presentation

• Have a…sensitive question? Ask me via e mail pwb@wynnebusiness.com