In November 1990, Carolyn Kimball, owner of the "A Cut Above Hair Design" beauty salon in Wolfville, Nova Scotia, was undertaking an extensive review of her firm's marketing strategy. The industry data before her indicated that small, privately-owned beauty salons like hers were progressively losing ground to a growing number of national franchises. Furthermore, according to the most recent figures provided by the Nova Scotia Association of Hairdressers, there were almost twice as many beauty salons per thousand residents in Wolfville as compared to the Halifax-Dartmouth area. In other words, Wolfville had become a very competitive market. In order to deal with these new challenges, "A Cut Above Hair Design" needed to capitalize on its strength and develop a strong positioning strategy.

Background

Born in Windsor, Nova Scotia, Carolyn went to Hants Regional Vocational School where she graduated as a master hairdresser in June 1982. She started her career working for Girl Power, a small beauty parlour in Wolfville, NS.

This case was prepared by Professor Helen Mallette of Mount Saint Vincent University for the Atlantic Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management.

Copyright 0 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.

With experience came the desire to start and operate her own business. After many discussions with friends, workmates, and acquaintances, she finally decided to open her own beauty salon. Three of her workmates decided to follow her in this new venture. Having worked with Carolyn for almost six years, they knew that they would get along very well. As far as risk was concerned, they trusted that their regular clients would follow them as long as they stayed in Wolfville.

"A Cut Above Hair Design" opened in November 1987. The new venture was profitable from the start. Most of the regular clients followed their hairdressers. The salon managed quite well and reached profitability within three months. Business grew steadily with another full-time hair stylist being hired.

The Customers

"A Cut Above Hair Design" catered mainly to clients from Wolfville, with a few also coming from Grand Pre (10km away) and Greenwich (3km away). In the summer, the salon drew from tourists and during the school year, it attracted students and professors from Acadia University, located in the town. It was a family beauty parlour servicing a clientele made up of 70% females and 30% males. Students represented about 10% of the total clientele. Exhibit 1 summarizes the average client return by age group.

The Service

"A Cut Above Hair Design" offered a full range of services - colouring, perms, etc - but its major drawing card was customer service. Each customer was warmly greeted and offered a cup of coffee while waiting. Special attention was provided to seniors. Every effort was made to make them feel as comfortable as possible. Children were offered candies and were provided with toys while waiting. Appointments were scheduled to minimize customer waiting time. For more convenience, the salon was open six days a week as well as Tuesday, Thursday, and Friday evenings until 8.30. The salon also serviced one nursing home in town: The Wolfville Nursing Home. One day a week either Carolyn or Linda (an experienced hairdresser who had seniority over other employees) went over to the nursing home to provide services to those senior citizens unable to come to the salon. Since all the appointments were made for the same day, all hair care services were provided on site at no extra charge. On request, Carolyn also provided services at home. However, in this case an extra fee was charged to cover travelling expenses.

According to Carolyn, three things were needed to guarantee quality of hairdressing services:

• quality products,
• professional and well-trained hair stylists, and
• dedicated employees.

Quality Products

In her salon, Carolyn always used top-quality, brand-name beauty products. She made sure that she and her staff knew the products well before using them. Suppliers introducing new products were required to provide on-site training sessions. Whenever possible, employees were encouraged to try the beauty products themselves before using them on their clients. To that effect, all employees were provided with free samples of new products, and all products were available at cost for their own personal use. Although many beauty salons operated in the Wolfville area, only a few salons actually used these high-quality products in providing hair-care services.

Professional, Well-Trained Hair Stylists

Carolyn encouraged her hairstylists to attend special training sessions when they were available. She was very selective when hiring new employees. For example, when she decided to hire a new hairdresser six months ago, she considered only those candidates who had the required qualification of "master hairdresser" and at least one year of experience in a beauty salon.

Committed Employees

Realizing that to have satisfied customers one needs first of all to have satisfied employees, Carolyn made it a point to maintain and develop a good working climate. She always tried to listen to her employees, encouraged them to make suggestions and to participate in decision making. When hiring a new employee, she was particularly attentive to the personality of the candidates as well as to their customer orientation. She wanted a hairstylist that would take care of her clients and also get along well with the other employees.

The Employee Compensation Program

Creating a pleasant working atmosphere was important to get committed employees but so was employee compensation. Carolyn's policy was to pay competitive wages. In the hairdressing industry, as in any other sector of service retailing, three types of compensation schemes were generally recognized: straight salary, straight commission, and a combination of salary and commission.

Carolyn adopted a combination of salary and commission. Employees were guaranteed a minimum wage until they brought in a minimum of $11.50 of sales per hour during any given week. When they reached that level, they were paid strictly on a commission basis. The commission rate increased with sales per hour. On average, it took a new hairstylist one year to reach the minimum level of sales per hour on a regular basis.

Carolyn felt that a compensation scheme based on a combination of salary and commission had two major benefits. The guaranteed basic hourly rate tempered overly-aggressive selling, while the commission rate made pay contingent on performance. However, since 1987 she had not revised the sales per hour rates, although she had increased retail prices regularly by approximately 5% per year. Consequently, it had become progressively easier for employees to earn the higher commission rates.

Sometimes Carolyn felt that it might be worthwhile changing to a profit-sharing program involving straight commission with a guaranteed minimum wage per hour. She worked out the basic structure of the plan she had in mind (see Exhibit 2). Under this approach, she would deduct from the employee's sales per hour an average variable cost to account for supplies used in delivering the services, an average fixed cost per hour to take into account the use of the premises (rent, insurance, taxes, etc) and a guaranteed minimum wage of $5.00 per hour. The difference would then be shared proportionately by the employee and herself. This would provide compensation for the capital she invested in the business as well as her time spent doing administrative work (bookkeeping, ordering supplies, recruiting, etc).

By providing for a shared contribution to the salon's fixed and variable costs, this new compensation scheme would not only stimulate employees to increase sales but also motivate them to keep tight control over costs. She wondered if it would be worth hiring an accountant to develop it further. However, whatever the program, she was determined to ensure that none of her employees would suffer any decrease in wages.

Advertising and Promotion

The advertising budget had always been very small at less than 1% of sales. Advertisements were placed in the local newspaper at special times during the year, such as St Valentine's Day, Easter, and during Wolfville's annual festivals. Twice a year, she advertised special discounts in the University Newspaper to attract the students. (See Exhibit 5 for examples of ads.)

The Location

The location was good, but it was not the best. When Carolyn had decided to open her salon two years ago, no space was available with an entrance directly on Main Street. She was able to get a site in the back of a commercial building with a side entrance. To get to her salon, clients had to walk down from Main Street about fifty feet into a side lane adjacent to the IGA. This lane was well-frequented because it lead to a major parking lot where most shoppers left their cars to shop in downtown Wolfville. Although her entrance was not directly on Main Street, her sign was visible from Main Street.

She was able to get this site because the dentist who occupied it decided to relocate. It was just the right size for five chairs. It had a separate waiting room, a little office for the receptionist, and another closed room used as an employee rest area. The premises were clean and tidy and decorated with taste.