It could therefore be argued that the beauty salon industry operates under monopolistically competitive market structure. What this means is that there are a large number of salons serving the market, and while individual salons have some flexibility in setting their prices, they are also able to secure a niche for themselves in the market. Here are some key reasons why the beauty salon industry fits this type of market:Here are some key reasons why the beauty salon industry fits this type of market:
Another factor that can be attributed to the high level of volatility is the fact that most players in the industry experience low barriers to entry and exit.
The entry and exit barriers to this industry are not very high; this means that it does not take a lot of effort to open a new beauty salon or close one that is already in the market. Overhead expenses are low, no specific license is needed apart from a business one, and there are many retail spaces for the salons. This leads to many small competing salons opening and at times closing down mostly due to cut-throat competition.
Differentiation
Most salons provide similar basic traditional services such as hair cutting, coloring, waxing, etc but each tries to establish a niche in the market. This is done through the atmosphere, the way they treat customers, prices and offers, particular types of services, unique products, etc. This differentiation is best understood in the context of each salon’s competitive marketing plan.
Influence Over Prices
Although, pricing is influenced by competitive forces, individual salons may have the influence or options of charging certain prices to its customers. They have a unique price strategy that depends on their positioning, the income level of the target group and the rates of similar organizations located nearby. Prices affect the profit since it controls the amount that can be charged that is why salons work hard to find the right balance between the price of services and the number of people they are able to serve.
Many Competitors
It is often the case that there are many small competitors in a particular geographic region offering similar services of a salon. For instance, a small town may require the services of hair and nail salons and this may result to having several salons within the town. And the number of competitors increases steadily in metropolitan areas. This diverse competitive environment thus renders marketing, customer maintenance and cost control a very crucial reality.
Inelastic Demand
While beauty services are not necessities in the conventional sense, people’s appetite for salon services does not drop drastically even during a downturn. The salon clients perceive many of the treatments, such as a haircut or color, as basic grooming needs. And diversification of salon services enables cost substitution for other treatments whenever the individual clients are cutting down on the service. Therefore, even though growth is lower during recessions than during growth periods, overall demand does not reduce significantly.
In terms of mobility, it is also relatively easy for competitors to move between categories as they are not strictly defined by product type.
Since customers are not loyal to any salons through contracts or memberships, they can easily switch between the salons in the area. Customer loyalty is thus a function of the quality of each visit. Hence, salons need to ensure their staff are frequently updated on new techniques and service delivery needs to be exceptionally good. Sustaining small mistakes may lead customers to look for the services of other companies.
To sum up, the conditions such as openness of the entry and exit, presence of different competitors, control over the prices of their goods or services, and where consumers are relatively free to switch from one seller to another, make the beauty salon industry a perfect example of a monopolistically competitive market. All these factors play a major role in the competitive strategy for individual salon operations.