Spa Services

How to Plan an Effective Spa Discounting Strategy

Are you struggling to fill your spa appointment books, but not sure about the discounting route?  Proceeding with a cautious spa discounting strategy is the best plan.

Spa Discounting Strategy

Discounted pricing has become an important marketing tool in the battle to attract new clients, and keep the ones you’ve got.  But it’s an undeniable fact that discounts eat into your already slim profit margins, and can negatively affect cash flow.

You’ve no doubt heard some of the horror stories generated by Groupon experiences, which share a similar theme.  A small 4-treatment room spa that needs more clients decides to participate in a Groupon or similar promotion and ends up selling 400 vouchers.  The 400 “new clients” descend on the spa, which is unprepared to handle them.  There are not enough therapists, they’re not well-trained, and there is not enough laundry or front desk staff to ensure a smooth visit.  The clients have a mediocre experience (what they expect for $50 is another story) and vow never to return.  Some of them go so far as to post negative reviews on Yelp.  The spa closes soon after.

Happily, the Groupon obsession seems to have subsided, and not all spas that participated in these types of promotions went out of business.  But the fact remains that when you focus your marketing efforts strictly on price, you attract clients who are interested in price before all else; quality, ambiance, experience, the overall value that you can provide.

However, the concept of paying full retail for anything these days is not a given, especially for the millennial that are your clients.   This is the brave new world we inhabit; trying to build a brand and attract clientele, give them an experience that at a minimum meets their spa expectations, and preserve your cash flow and profit margins all at the same time.

Ever since WWII, Americans have been in love with the idea of discounts.  The thrill of getting something for less than the advertised price is more important than the acquisition, for many people.  Or at least for people who are focused on price, rather than quality.  Now our recent economic situation has created a new iteration on the discount strategy, the membership program.

No finer example of that exists in our industry than Massage Envy; over 700 locations, each grossing over a million dollars a year, and still growing.   Volume like that inspires a lot of wanna-be’s, hoping to cash in on this concept, but I think the Massage Envy ship has already sailed.  Not that you can’t have a discount membership program at your spa, but building an entire business around this concept has been done, and done well.

Certain industries have ingrained the discount message into consumers; just look at what is happening at department store JCPenney.  Penney’s hired the innovative executive Ron Johnson, the former Sr. V.P. of Retailing for Apple, to be the CEO last fall.  Johnson is credited with creating one of the highest sales-per-square-foot environments in the retail world at Apple, and Penney’s felt like it needed some innovation.  The idea was that Penneys would shed its discount and coupon-driven mantle, and focus on providing everyday low prices and value, and staying away from the “sale” word.  Turns out, folks that shop at Penneys like prowling the aisles for deals, and they’ve been staying away from the store in droves.  The jury is still out on whether this experiment to transform the company and its reputation will be successful, but I give Johnson credit for bravery.  I’m guessing it’s going to take more than just a few months to retrain the consumer on Penney’s new value proposition.  Why?  Because humans are creatures of habit.

So what does this mean for spas?

It means we need to be very careful about the message and image we convey to our target audience.  If we start training guests that our prices are as malleable as they are at the department store, we risk beginning a dangerous downward spiral.  Consider this interesting article, “Customers Will Pay More For Less,” by Alexander Chernev, in Harvard Business Review, in which two researchers discovered that consumers were willing to pay more for two separate items than they were willing to pay when the items were bundled together.  For instance, people were willing to spend $225 and $54, respectively, on two pieces of luggage when purchased separately, but when they were bundled together, consumers were only willing to pay $165!  The reason is attributed to a thought process called categorical reasoning and is especially present when an expensive item is bundled with a less-expensive one.

If you are creating special offers that pair higher-priced spa services with less expensive ones, you may be devaluing both of them in the eyes of the consumer.  Be strategic and consistent with your pricing, and you won’t run the risk of thoroughly confusing the consumer about your true value proposition.

Do you need help identifying a solid discounting strategy? We can help. Our team has worked with leading spas across the globe. Contact us for a complimentary needs assessment.



How To Explain To Customers Why You Dont Do Deal Sites

Circling the Discount Drain

Is social media now just about bargain-hunting–sharing discounts, steals and deals with your friends? We know from past studies that discounts do not lead to loyalty. They lead to the expectation of more discounts. Which means, that shiny new customer will linger only if you can undersell your competition. Where’s the so-called wisdom of crowds? It appears to be circling the discount drain.

When it comes to saving money, the wisdom of crowds looks more like the mojo of mobs. To those of us who have enjoyed being “value add” artistes, creating differentiated experiences for discerning guests, the whole thing just looks like a hideous tag sale. High overhead businesses are being thrown onto the bus alongside their bargain basement counterparts, heading down the road to dusty, hardscrabble Camp Discount. The only activity at this camp is a pitiless game called “How Low Will You Go.”

Pitiless, because the companies who are inflicting this torment on us bricks-and-mortar fatties are internet marketing creatures. They have sweaty crushes on their “users” but throw spitballs at the very businesses that are providing the value that endears the users to them. They also have an unfortunate tendency to tell businesses what’s good for them, as if they actually know. And it’s a word I’ve heard a lot: “Exposure.” As I like to say, you can die of exposure.

“It’s your job to retain them,” discounters tell you. Gosh, your only challenge is to make them happy, and they’ll gratefully morph into a loyal, full-price client. Riiiiiight. And the next month, there’s your competitor on Groupon, with a deeply discounted offer. But, if we’ve done our job right, they’ll stick with us. Riiiiight.

The discountante lives for deals. She doesn’t want to bond with your business. She wants to flit from flower to flower, yelping the entire time. Remember, these are the kids who grew up with the concept of “friends with benefits.” Commitment isn’t in their DNA.

But consumers are not the only group out there with some clout. Small businesses scored a victory this week against a user-worshipping company that’s been easy to hate. That’s right, Yelp was squirming this morning as the hot breath of a lawsuit by businesses tickled its backside. They were accused of manipulating ratings based on whether a business advertised with them or not. Frankly, I don’t think Yelp was misbehaving, but I think it underestimated the venomous hatred they’ve inspired in legions of small business owners.

Yelp announced that we’ll be able to see those positive reviews they deem so un-Yelplike (the one-off rave that your client wrote, just for you, which in the past would disappear after about 90 days.) They’ll just be hidden away in a little basket labeled, more or less, “suspect.” Yelp has been trying to walk a very fine line, torn between appearing to pander to users while attempting to convince businesses to give them advertising revenue.

You’ve probably noticed, Yelp has made more and more of their business services free, a positive step that has helped many businesses make peace with them. If you’re not using these free tools, you’re really missing out. And whether you like them or not, Yelp is boosting your search rankings thanks to their their heavily trafficked site. (I know, I know, you almost picture yourself standing there while you’re being slapped across the face, mumbling, “Thank you sir, may I have another?”)

Fitting right in with the current mania for vampire chic, discounters like Groupon and their ilk are feeding off spas’ desperation to fill their schedules. They’re causing quite a stir, but in this case “stir” may just be another word for “churn.” I’d love to hear from spas who have been able to attract and retain guests using this type of program. Please contact me and share your stories.

Our experience with Spa Week at our own spa suggested that the folks who jumped on this promotion were, by and large, geographically unqualified to be regular spa guests. A year later, not one guest who came to us through this promotion was retained. And a couple of the little darlings left us unpleasant souvenirs in the form of snarky Yelp reviews. (Cheap and ungrateful–a winning combination.)

Compared to our normal retention rate of over 30%, this was a glaring example of the destructive nature of D-bombing. Aggressive promotions can create volume, but that volume may simply be churn: money-losing “volume” that saps your customer service resources and puts your regular guests in the back seat.

The jury is still out on Spa Finder Deal Days, until we see the 90 day retention statistics. Even Spa Finder feels compelled to embrace the discount mindset, but they promised a more retention-oriented promotion. I’m not sure how they engineered this, but time will tell if they hit the sweet spot. Participating in the heavily-discounted Deal Days while not accepting Spa Finder gift cards for the promotion, alas, created some pretty awkward moments with customers for many of us. We’re not sure how Spa Finder could rectify this in the future. We had much lower turnout than with Spa Week, but hopefully they were higher quality guests. Time will tell.

I haven’t written off Groupon yet, but I can tell you after two-plus decades in business, I’m dubious about their claims. They’ve graciously offered to put me in touch with some spas that have been happy with their results. I look forward to seeing the retention numbers and reporting back to you!