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United States financial history was changed forever when the Standard and Poors credit rating agency downgraded the U.S. government’s top notch debt rating from AAA to AA+ for the first time ever. This will have a very similar impact on the United States economy as a Credit Score decrease for your personal or business credit would have on your salon. The interest expense of borrowing money will rise for the nation and that will have a ripple effect to small business and consumers. Now, the “full faith and credit of the United States of America” is given the same value as countries the size of Belgium and New Zealand! People can expect higher interest rates on mortgages, auto loans, and credit cards as well as smaller wage increases and less money available overall.

Although all of this sounds very bleak, there have been similar situations in other countries that we can learn from. In fact, there are certain key concepts that will actually show how salons can benefit from the recent U.S. debt downgrade. We recently sat down with two successful entrepreneurs to discuss how this recent U.S. debt downgrade can be embraced as a strategic growth opportunity rather than feared as an negative economic indicator.

Above all, salon professionals and entrepreneurs alike should remember that this downgrade is only temporary. Many developed nations have been downgraded in the past and their AAA rating has always eventually been restored. The strong business and professionals will always prevail in the long term.

Expect an Increase in Interest Rates

Because the interest rates that the U.S. will have to pay on borrowing future money has increased, so too will interest rates from banks, credit card, and other financial institutions. As importantly, less credit will be available to your clients who may not be as credit worthy. This will have several important impacts on your salon business:

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  • Your more affluent clients will become increasingly important to your long term success
  • Your less affluent clients will become increasingly price conscious
  • Your local competitors will continue to gouge prices to attract your less affluent clients
  • The more affluent clients will receive poorer service from your competitors and seek alternatives

Tip 1: Compete and Don’t Retreat

“Now is the time to grab market share by targeting the clients you want to retain long term” says Tracia Harris, the Chicago based successful entrepreneur. “Differentiate your offerings in a way that will appeal to the affluent. Focus your attention on attracting and retaining quality clients that can afford your level of service in the long term rather than attracting the masses that will only find alternatives for coming into your shop whenever they can save money,” Harris continues.

Scott Mitchell, Chief Executive Officer of Organic Salon Systems and serial entrepreneur agrees “when there is change there is opportunity. Now is the time to relentlessly compete and not to cowardly retreat.” as Mitchell explains that truly great businesses enjoy their most significant growth during periods of challenge and change. Mitchell goes on to predict that “Over the next 12 to 18 months salons will be slashing their prices as they attempt to appeal to the masses. In doing so, they will be neglecting their most valuable, sustainable, and most profitable clients. It is the salons that stand ready, prepared, and dedicated to serving and pampering these clients that will enjoy sustainable success.”

Tip 2: Differentiate and Don’t Compete like a Commodity

A commodity is a product or service that can be easily interchanged or compared to a product or service offered by another provider. So, for example, if I want to buy a pound of sugar, it is easy for me to quickly compare prices between two providers for the same pound of sugar. Therefore, sugar is a commodity product.

“There are two things that I am certain will remain critically important to every salon professional. The first is that they will not want to have their clients compare their products and services as a commodity and the second is that they will not want to see their products diverted to the drugstore shelf.” says Scott Mitchell.

If your salon is using L’Oreal, Redken, Wella, Joico, Schwarzkopf, or any other line that can be found in 15 different salons within your town; your service is a commodity and you will be subject to your clients price shopping. Using a niche, boutique, non-diverted line like Organic Color Systems will protect your service from becoming a commodity.

To avoid your salon services from being compared or viewed as a commodity by your clients, it must be as fundamentally different to those services offered by other salon professionals in your local marketplace. Differentiating your products and services is how your product and services will be accepted as niche, boutique, specialized products or services that are associated with pricing premiums and price protections. When you are able to eliminate the ability for clients to quickly and easily compare your products and services to the exact same product and services as others, you are providing price protection to yourself. The only way to do this is to differentiate.

Tip 3: Appeal to more Affluent Clients

“Interestingly enough, it is the most affluent customers who change their service providers most during tighter economic times.” says Mitchell, who knows a bit about the affluent marketplace having founding and serving as the CEO and President for the Affluence Social Network (NASD:AFFU) which he took public in 2008 and is known as the Facebook for Billionaires. “Affluent clients will be left by the wayside as their previous salons begin to neglect them. Appeal to their interest, offer differentiated products and services, and serve them well and they will be your clients for life.”

Tip 4: Make them Feel Good About Looking Beautiful

During tougher economic times, the salon business typically enjoys steady growth. This is because people resort to beauty servies rather than expensive spa vacations as a way to feel good about themselves. Mitchell asserts that affluent clients are even more inclined to need to feel good about themselves. “When the rest of the nation is struggling, the Affluent are plagued with a sense of guilt and self doubt” Mitchell asserts. This assertion is most distinctively supported by the huge increase in charitable donations by the affluent during economic downturns. “Provide your affluent clients with socially responsible, environmentally friendly, safe, and healthy products and services which allow them to feel good about looking beautiful and you will have them for life” Mitchell proclaims.

Organic Salon Systems products are known for being the healthiest, most environmentally friendly, socially responsible, safest and healthiest salon products world wide. The newest O’Right wet line features Tree in a Bottle, the world’s first shampoo bottles that, after used, can be planted to grow a tree.

Tip 5: Remember, the Downgrade is Temporary

Many developed nations have been downgraded in the past and their AAA rating has always eventually been restored. The strong business and professionals will always prevail in the long term. As our politicians in Washington DC learn how to exercise the same fiscal discipline that small business owners and salon professionals intuitively understand, our nation’s credit rating will be restored.

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