The Lesson My Barber Taught Me About Confidence And The Economy

Last week my barber gave me a first hand lesson in how confidence impacts the economy.  As I usually do, I asked when I got in the chair, “How’s business?”  His response was that it was down.  “How could that be?” I asked, “Everyone needs a haircut.”  His response captured the confidence problem that is sweeping the country. 

“Assume 1,000 customers,” he said, “who usually get their haircut every four weeks, but because of their confidence in how things are going, they decide to put off their haircut by one week.  What does that do?”  I did some quick math.  If a person gets a hair cut every four weeks, that is 13 haircuts a year (52/4 =13).  If he does it every five weeks, that is 10.4 haircuts a year (52/5 =10.4). The result is a 20% drop in business (10.4/13 = .8).  Assuming an average bill of $16.00 (not counting any tip), a 20% decline in the number of haircuts translates to a $41,600 revenue decline.  Tony’s business is not off 20%, but the point was made.

So, because some of his customers are unsure where the economy is going, and feel that it may be best to economize, they are cutting back a little.  This has ripple effects through-out the economy.  Tony and Jim probably won’t take the boat or RV trip they thought about in the spring.  Their purchase of supplies is down. And their fixed costs are edging up.  To offset this they are now open to 7:00 PM on Thursday, and have kept their prices stable for over a year.

The lesson learned from this is that how the decision maker feels about the economy is often the key to a purchase or not.  If he/she can feels that this is the time to hold back, due to a lack of confidence on where things are going, they will do so, whether it be a haircut, a new set of tires for the car, a new dress, or going out to eat.  If they are confident that things are going to be better, then they may be more likely to get their hair cut every 4 weeks.

This applies to those who control the purse strings in companies.  If they personally feel that the economy is trending down, they may re-think purchases and/or commitments.  Certainly Dick and I have seen this behavior in our consulting business.

The net of all these delayed haircuts is that the economy continues to settle to a new, lower equilibrium or steady state.  After all, men do have to get their haircut sometime, and tires and cars do wear out, and new capital equipment has to be purchased.  For the CMO, this means that his product or service has to be top of mind when the purchase decision is made.  And that the product/service sold surpasses the buyer’s expectations.

I will continue to go to Tony, as I have been going there for over a decade, and it is where I learn basic economics.  But I wonder how the other product/service providers are positioning themselves as their markets sort themselves out.

My advice to help turn the economy around…go get a haircut!

 

RHM  8/11/2011   

5 comments to The Lesson My Barber Taught Me About Confidence And The Economy

  • Debashis Sengupta

    I wonder if more people are also going bald. Okay, jokes aside your point is very well made. I can't wait for the gasolene price to edge down, that will have a widely positive ripple effect on economy.

  • Robert Mannal

    Debashis,

    Unfortunately I don’t think gas prices are going to fall significantly, as the economies in the BRICK countries (Brazil, Russia, India, China, Korea) will keep the demand high, thereby taking this potential deflationary element out of our control.

  • Rita Advani

    http://www.eia.gov/steo/
    The short term energy outlook indicates a continued marginal drop in fuel prices. But I don't see prices going down below $3.00 levels.
    People choose different things to cut back on during times of economic uncertainty. The smart thing for companies to do is to focus on improving their product line and offering added value products to their customers. To take the example of the barber, a value add would be a head or neck and shoulder massage. Manicurists in New York City routinely offer manicures at very low prices and throw in a neck and shoulder massage for a few minutes while your nail polish dries. There are a few who do that in the Boston area as well!

  • Ryan Coombs

    As for my experience, I moved to Boston and  used my smartphone to find a barber near me. After paying the barber $15 with an additional tip, I realized I could go to a local retailer and buy a razor at $30. I now cut my own hair.
    My experience displays how innovative processes and increasing customer buying power change the market. The consumer today is different then the consumer of years past. Often, business owners feel frustrated for having to change their marketing plans so often, or even their business models. The truth is, if you don't evolve, you take the risk of becoming obsolete. 
    My advice to your barber….marketing. Research, innovation (growth models), brand loyalty, value proposition, etc. Be positve and creative. Realize that while the economy has hit us hard, there are also new opportunities available. Be confident and you will realize confidence will return.

  • Robert Mannal

    Ryan,

    You solved your problem, but many do not have the skill or time to cut their own hair, hence the need for barbers. Convenience, cleanliness and word of mouth recommendations play a key role in determining who your barber (or hair stylist) is. Tony and Jim are positive and creative. But, as they point out you can’t force someone to get their hair cut, nor can you change styles…which for young people today is going back to longer hair.

    Thanks for the comments and thoughts.

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