Recently I went to get my haircut in Islamabad, Pakistan. I went for a barber that had a simple mirror hung on a tree. No bricks and mortar. No fancy showers to wash your hair. The cost of the haircut was Rs. 30 (45 US cents). The month before that I had my haircut at a fancy barbershop at Jumeriah Beach Residence in Dubai. The cost 75 AED ($20). It made me think about why there is such a price differential around the world. Did my hair look 40 times better having it cut in a fancy neighborhood in Dubai than a downbeat open air barbershop in Islamabad?
The end result wasn’t much different. Unfortunately the 40 times more expensive place in Dubai didn’t make me look 40 times better. But the truth is the experience was different. At the barbershop in Islamabad it was an individual entrepreneur that worked for himself. He told me he started around 9 in the morning and ended when the it got dark (there was no electricity at the open air barbershop). In Dubai the hair-cut was given by an employee – an owner cutting hair all day is not using her time well as to setup in an expensive neighborhood you need quite a bit of financing.
In Dubai, I was served coffee while being attended to. The barbershop had a brand. They asked if I wanted to wash the hair first and the temperature of the water was just right before they washed it. After the haircut they used a clean towel to dry. At the exit the employee up-sold me AED 100 (USD 30) special “must have” shampoo that is good for me. The barber punched in the numbers at the cash register so that owner could keep her accounts and know her profit margins at the end of the month. I paid using my credit card.
In Pakistan, there was no brand to the barber shop. The guy just had a name – “Imran” and it wasn’t written anywhere. He was in an underdeveloped area of the city and said the authorities just let him setup by the tree and didn’t bother him for rent. He had no electricity bills as there was no connection there – he used daylight. He “upsold” me a shave after cutting my hair for RS 20 (USD 0.22). He used a clean blade to shave me but told me that the towel he used to clean the foam off my face he washed every two to three days. He took cash only and said he didn’t count how much he made but roughly made Rs 400 ($5) per day and enough to cover his house rent and keep him happy (mandatory “Alhumdillah” – thank allah for what I have was inserted into the conversation).
As a natural consultant I started to think about how Imran the barber could make more money from his business. And frankly speaking I was stuck on what advice to give him. Have a clean towel for every customer might be an easy recommendation to give, but then he would have had to raise his price and cut out most of the laborers that were his target market. He already did the up-selling by offering a shave and told me the only other products that sold were the hair coloring kits. His customer relationship skills were already amazing – as he said once a customer came to him, they always came back the next month. Would facebook/twitter or a website help him market better? Probably not as most of his target customers didn’t use it. The biggest impact on his pricing was his location – if he was setup in a fancy neighborhood in Pakistan he would also be charging higher prices as the customers entering could afford the service. Being where he was though, he was surrounded by people that didn’t have much money but his costs were also low.
There are some industries that will be relatively protected even though the internet might advance around the world. You can’t have Imran the barber compete against Franz the Swiss barber as Franz already has his shop setup in Switzerland and work visa’s will protect him against competition. You can’t order a haircut online like you can a book. Barbers in the fancy Jumeriah Beach Residence neighborhood can relax as they won’t lose their jobs to the Imrans of the world as haircuts need a physical presence.
Bookstores in fancy neighborhood though do need to panic due to the internet. The likes of Amazon can setup their warehouses in cheap parts of the country and have a bigger and better collection of books. This presents opportunities for the Imrans of the world in different industries. They can be living in their poor neighborhoods in developing world and market products to the richer parts of the world. If the price of a product or service is 40 times higher somewhere else around the world than why not market to that part of the world for your services?
This is how the likes of odesk and elance are enabling hundreds of thousands of entrepreneurs to make millions of dollars. They allow graphic designers, content writers, video editors and other virtual service providers to compete from Imran’s neighborhoods around the world and target customers that go for haircuts in Jumeriah Beach Residence in Dubai.
The easiest way to become rich is to move to where the rich people are. Millions of people move to New York or London as there are ample amount of rich customers to buy their products or services. The cost to move and work there might be a lot higher but so is what customers are willing to pay. Imagine the profit margins though if your costs stay like they are as you are based in a developing world but the market you are servicing has the premium they can afford to pay. This can actually put entrepreneurs in developing world at an advantage over the “developed” world.
The only ways to compete against this competition that will enter your marketplace is to be more innovative (continuous innovation is harder to copy), create brands (a Nike will always be a Nike no matter how good you make a copy) or be ruthlessly more efficient and productive in servicing your customers (the Imran’s of the world can work for a much lower salary than you can but if what you produce is much quicker than you can continue to keep your higher salary).
The internet is changing many industries – is where you are working safe or should you move to a cheaper neighborhood?