Herr Haar

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Hair Replacement and Salon Business Plan

Market Analysis Summary

Hair Replacement Market
The hair replacement industry earns more than $1 billion/year in the United States alone. Millions of hair-loss sufferers are reduced to trying quack remedies they see on TV because there are no professional hair replacement services in their area. When presented with real treatments that work, many clients are amazed, having given up on really receiving help.

Herr Haar is committed to helping hair loss sufferers of both genders in the Anytown area reclaim their looks, their self-respect, and their dignity by providing professional services that will remedy their problems.

Salon and Beauty Spa Market
Herr Haar's expanded product and service offerings will also place it in the even larger spa and beauty salon industry. In 2001, according to the U.S. Census, beauty salons reached revenue of $20.8 billion within the United States.

A typical full-service hair and salon business offers most of the following services:

  • Hair: haircuts, trims and styling; highlights/foils & weaving; hair & scalp treatments; relaxers, perms; colors; shampoo and conditioning; curling, reconstructing, permanent waving.
  • Nails: manicures, pedicures, polish, sculptured nails, nail repair, hand conditioning treatments.
  • Skin Care: Facials, body waxing, massage.
  • Sale of professional hair/beauty products: Many salon businesses also offer a wide range of hair and beauty products in order to provide everything a customer needs in one convenient location.

Herr Haar will not offer manicures or pedicures in the next two years, although we will consider expanding our services to include these if customer demand and cash flows warrant it. There are three nail salons within 10 minutes of Herr Haar, so competition is high.

4.1 Market Segmentation

According to the U.S. Census, in 2000, Anytown had an overall population of 360,890. Of these, the majority are caucasian (80%), and roughly half were married couples, with or without children. 60% of Anytown population owned their own house, and the median household income was $45,081. The local economy is based heavily on tourism, although it has recently gained a strong foothold in the electronics, high-technology, and manufacturing industries. Anytown has seen a strong population growth over the last 25 years.

Herr Haar will target customers with an average to above-average income level ($50,000 to $150,000 household incomes), seeking hair replacement and hair, skin, and bodycare services. Although our clients need different services, their underlying needs are much the same: to be treated with respect and dignity; to feel good about their appearance; and to be pampered now and then.

Hair replacement clients
About 50% of the general population will suffer some hair loss by the age of 50; many expect and tolerate this. However, for some people, especially women, hair loss is a dramatic and traumatic event. When hair loss accompanies a major illness, such as cancer, it is even more devastating. The numbers in the following table reflect potential hair replacement clients within 1 hour's drive of our location.

  • Cancer patients: Anytown has a world-renowned cancer center, and is just one hour from the University of Colorado's cancer treatment center in Aurora. We will advertise our presence more visibly to doctors, therapists, and patients at these centers, to let them know how we can help patients maintain a sense of normalcy during the stress of cancer treatment.

  • Female hair loss: Over 25 million American women suffer the effects of female hair loss, and many have no idea what causes it or how to treat it. By integrating hair replacement services into the context of a traditional "salon," we hope to turn what could be a stigmatizing experience into just another day at the beauty parlor.

  • Male pattern baldness: Once considered just a fact of life, male pattern baldness is now being viewed as a treatable disease. Men are also paying more attention to their personal grooming, and professional men are willing to pay higher prices for the luxury of a salon atmosphere and the reassurance of using professionally-trained cosmetologists. We will market to this target segment with the promise of a better, more attractive appearance.

Salon clients (hair styling, skin care, and body work)
Going to the beauty salon has been a female tradition for the last 100 years, whether for a haircut, styling before a big event, or a simple indulgence. The growing interest in professional hair and skin care among men has expanded our client base greatly. The following table includes potential clients within Anytown.

Market Analysis
2004 2005 2006 2007 2008
Potential Customers Growth CAGR
Hair replacement clients 3% 275,000 283,250 291,748 300,500 309,515 3.00%
Salon Services Clients 5% 200,000 210,000 220,500 231,525 243,101 5.00%
Total 3.86% 475,000 493,250 512,248 532,025 552,616 3.86%

4.2 Target Market Segment Strategy

Our target market segments are fairly broad, in part because our services appeal to such a wide range of people. We are focusing on a slightly upscale target market, who can afford our salon services on a regular basis and not just as an occasional treat, because satisfied repeat customers are the backbone of the salon industry.

For the hair replacement services, we are targeting three different groups: cancer patients, women with hair loss, and men with male-pattern baldness. Although we have listed these together in the market analysis table, we will use slightly different marketing tactics with each group. Many of these customers will come to us only a few times, especially if their hair loss is temporary (post-natal hair loss and cancer patients, especially). Others will remain loyal customers for years, coming in for repeat treatments or new wigs. In both cases, our marketing efforts need to establish our reputation as legitimate, skilled professionals who can solve their hair loss problems.

4.3 Service Business Analysis

The beauty spa and salon industry is decentralized, and contains numerous small businesses and franchises. As a more upscale salon, and especially as one with a significant focus on male beauty needs, Herr Haar does not fit the "chain" model. Similar businesses gain initial clientele through print and media advertising, but maintain and expand their clientele by consistently satisfying their customers, generating not only repeat business, but word of mouth referrals. Many people will switch salons if a friend or relative is getting consistently good haircuts and expressing satisfaction with the services of a particular salon.

Most similar salons are owner operated, with additional hairstyling or station employees, or with independently contracted stylists who work on commission. (Herr Haar uses a mix of these two models.)

The hair replacement industry is split between large, international chains offering drugs, dyes, and other products, and smaller local businesses specializing in customized treatment, including surgery. We clearly fit into the latter category, and buy some of our products from the national chains.

4.3.1 Competition and Buying Patterns

Hair replacement
In Anytown, there really is no serious competition for hair replacement. There are a few salons that offer some forms of extensions, but not with the years of experience available at Herr Haar.

Beauty Salon
We commonly hear complaints from Anytown residents that there are few salons that take care of the whole person with the services Herr Haar will offer. Clients have also expressed the wish for a salon that is not only professional looking, but also has the skill to back up the salon.

Potential clients seeking a good salon experience are looking for good quality, professional, clean and luxurious atmosphere, and skilled staff. Among our target market, they are quite willing to pay more for such elements. In fact, the price premium gives our service the feeling of being an affordable luxury, like gourmet coffee, which enhances our customers' identities as upscale, trendy people.

The most important factor, hands down, for the success of a salon is satisfied customers. Word of mouth is our biggest way of building clientele.