Local Marketing, Franchising, Plus a Haircut with Capital Group’s Fred Punke

 

Everyone needs a haircut and identifying and fulfilling basic human needs like this, businesses can build a strong foundation for success. In this episode, we have Fred Punke, the Managing Partner of Capital Group Holdings and owner of 25 hair salons. Fred shares his journey of getting into the hair salon space through franchising. He discusses the world of franchising, including its components and how to get into it successfully. Drawing from his experience and knowledge, Fred offers valuable insights and proven strategies for individuals wanting to get into franchising. Fred also touches on effective marketing models, the marketing funnel, local advertising and marketing, and more. Tune in and hear how haircuts and a basic need for one, have made Fred Punk one of the most successful franchisees and entrepreneurs.

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Local Marketing, Franchising, Plus a Haircut with Capital Group’s Fred Punke

We welcome Fred Punke onto the show. Fred is a Managing Partner at Capital Group Holdings, and 25 hair salons in the greater Indianapolis area. Let’s get into it.

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Fred, welcome to the show. How are you doing?

I’m doing good. Thanks.

It’s March 2nd, 2023. Where do you live? Are you closer to Purdue or the University of Indiana?

I’m right in the middle in what’s called IUPUI country. I’m on the North side of Indianapolis. It’s a combination of the two schools. They have come together and created a joint campus in Indianapolis. It has a great workout room, a great track facility, and things like that. It’s right in the middle. Family is more Purdue-focused. It’s a big rivalry in Indiana. My father-in-law went to Purdue. I’m not a local Indiana guy. My wife is local to the area, but she didn’t go to either one. She went to Ball State. She’s a Cardinal.

We are officially in March Madness approaching. How are you feeling about your team?

Great. Basketball season is always a lot of fun. Indiana is a basketball state. I’m sure most people have seen the movie, Hoosiers, before. That’s a hometown favorite in this area. Basketball is a big deal where we are.

Where are you from originally?

I grew up in Central Illinois. It’s South of Springfield, Illinois in a little small farming community. Basketball was a big deal in our town as well. We were a pretty small school, but basketball was always a lot of fun. I played a lot of basketball and baseball.

You were a cyclist, too, if I understand correctly.

I went to SLU, so I am a Billiken from St. Louis. I got connected to an engineering company. I was doing some surveying work for a couple of years, helping an electrical company upgrade their power distribution system. We were out in the middle of nowhere out in the country in farming communities. There was a guy on the team that was a cyclist. I was young. I ended up getting into cycling and enjoyed that for a while, and have done that for most of my adult life. I enjoyed it.

You have had such an interesting and amazing career, and still found time to be an incredible father to three. I would love to get into how you optimize your work-life balance in order to do both. Thinking back to high school friends, how would your friends have described high school?

Probably fun to be around. I was friends with most of the people that were in my grade in high school. Interestingly enough, I graduated with 21 kids in my high school graduating class. It was a pretty small community. Most people who seem a little surprised about that didn’t grow up in that kind of environment. I knew the kids that I went to school with from kindergarten through high school and all of my adult life. We all played together in a small town of 1,000 people. It wasn’t like there were these cliques that people find.

Even my kids in schools where you have got 3 or 4 friends, everybody hung out and spent time together. If you did something or went to a ballgame, or went to somebody’s birthday party, it was the same kids all the time your entire life. It was most of the kids in your class. It was nice from that perspective. You had little squabbles back and forth between kids for a little while, but you didn’t have a lot of options, so you always found a way to be friends.

That’s awesome. I understand you graduated college in ‘03. I’m doing some LinkedIn sleuthing. I see you joined Microsoft in ‘06. What was your first job? What did you do first after graduating college?

Two weeks after I graduated high school, I started college. I started in the summer. I went year-round until I graduated. For my first job, I went to work for an engineering company. I thought I wanted to do engineering. I had a computer science degree, but I thought I wanted to do engineering, so I got into working in a civil and electrical engineering company and doing high-voltage power distribution.

I started running a survey crew. I’d spend a month in the field doing surveying, and then I’d come back to the office and spend a couple of weeks in the office doing some design work. There were some older salty engineers I’d spent a lot of time with. They were teaching me that business. It was a lot of fun, but I realized I had more of a passion for the technology space. I started transitioning into technology at that point.

You have had an incredible career in technology at Microsoft, Dell, and EMC where you have got to work closely with a favorite coworker of mine. These past couple of years, what I’m super interested in is your experience with Capital Group Holdings. Specifically, you are in the hair salon space. First off, can you tell us a little bit about your transition specifically from EMC to Capital Group Holdings? What interested you about joining the group, and what did you see as the opportunity?

I’m a bit of a workaholic. I have always had side hustles. It’s more around money, management, and the investments that I did as a single guy up until probably 35 when I started dating my wife, and then looking at, “What do I want to do maybe long-term as a family?” Getting to the point of owning a franchise takes a little bit of an interesting path.

I lived in Chicago because I looked after a global business for a long time. I was traveling in and out of the country a lot and all over the US since I needed to be close to a tier-one airport. I met some partners at Accenture, an account where I did some business with. I developed friendships with them. We went in together and started buying rental properties.

I had amassed a rental portfolio in Chicago, and that was doing well. This was all as a side hustle while I was traveling around different spots around the world doing different deals. That was going well. I met my wife, got married, had our first couple of kids, and then decided we were going to move out of the Chicagoland area. We wanted to move closer to home here in Indiana to her family. That was a horse trade that we made because I wanted more kids. In order to have more kids and for us to have a happy life, we wanted to be a little bit closer to her family. That was a fair trade.

I couldn’t be close to my portfolio in Chicago, I wanted to sell it, so I did. I took that capital from the sale of that portfolio and invested it into a franchise space. I knew I wanted to get into franchising because I knew there were some things I was good at and some things I wasn’t. Based on knowing that about myself, the franchising space was a good fit. Then, it was about finding what brand to get into and what type of franchise to get into.

At the time, I didn’t have any passion specifically for the salon space, but it’s somewhat a recession-resilient brand. Everybody needs a haircut. It doesn’t matter if the market’s up or the market’s down. You need a haircut. You cannot spend $5 on a fancy latte at your favorite coffee spot. If you want to be a productive member of society, you still got to get a haircut every four weeks if you are a guy or somewhere around there. That was something that was interesting.

I already knew the service industry. I’d spent most of my career in the service industry. Managing people, managing revenue, and managing operations are all things I knew well. That was a good fit. I had to learn the stylist mentality, people that worked for me, and then how to manage that kind of business with what the operational tempo was and things like that. I knew I needed to learn that, but that wasn’t an easy thing to do.

Did it start with buying one salon? What did that trajectory look like once you decided to get into the hair salon space being an owner of 25 different salons?

I had set a goal when we were living in Chicago. I knew this is what I was going to get into, so I signed my contracts in Chicago. When you get into the franchising space, you buy licenses. I bought three licenses at the time. Getting into that in Chicago, it was a closed market, so there were no spaces available for me to do anything. It was a saturated market. I had to either buy out a franchisee or start to build locations.

When we decided for sure that we were going to move to Indiana, I resigned from my contracts in Indiana and added several territories in Indiana. Within the first two months of moving to Indianapolis, I found a location to build a spot. I started the construction there. I reached out to the other franchisees in the space to introduce myself to them.

One of the franchisees in the space had started and built four stores and wanted to sell those four stores because he wasn’t focused on it. He was doing something else at the time. We negotiated back and forth for about a year. I put together an acquisition with him. I acquired his four stores and built mine at the same time. It took about six months to build a store. Everything came online at about the same time.

Regis, my franchisor, was pretty nervous about that at the time. People weren’t doing those types of things. I assured him it wasn’t going to be a problem. It’s more commonplace to do an acquisition like that, but at the time, it wasn’t. That was in 2016. I started right away. My first store opened, and then within 30 days. I had five open and a bigger, at the time, franchise. It’s a smaller one, but at the time, it was a bigger one.

That’s so interesting. You mentioned you reflected on what you were good at and what you weren’t so good at, which led you down this path. Can you double-click on that a little bit? What skillset is best for getting into the business?

It’s interesting. There are so many different franchises that are out there. My experience is not a one-size-fits-all situation. For those that are interested in getting into franchising, I will give you a high-level overview and my perspective on being a veteran in this, and then I will drill into my personal experience around it and why I did what I did.

In the franchising space, there are a lot of mentalities around selling franchises as a part-time job you can do from home on nights and weekends. That’s, in some cases, true, but it’s going to be a pretty shoddy job if you are only doing it nights and weekends. Don’t believe the hype that it’s a part-time job. It’s a full-time job. If you are a workaholic like me, having two full-time jobs is not a bad deal. The quicker you grow, you have got to start to decide where you want to devote your time and energy to your business or into being an employee somewhere. I don’t think it’s smart to do either halfway.

There’s the mentality of what you are going to do and how you are going to operate that franchise. That’s where being a little bit of an older guy, and I’m in my late-40s, I was seasoned in being an executive and spending time in big companies looking after different businesses. I learned what I was good at. I learned that there are some things I’m really good at. I’m good at operationalizing a business. I’m good at figuring out how to make money. I’m good at managing money and people. I’m good at those types of things.

What I learned early on in my career that I’m not good at is I’m not good at building a brand. I’m not good at building the Acme Motor Company brand and building that brand. That’s not something I have a lot of skill or even a lot of passion around, so I need to hire somebody to do that. I’m also not good at marketing. I remember early in my career having conversations with marketing people, sitting around a table, talking about what we want to market for, and me coming up with ideas and them looking at me and going, “That’s not going to work.” I was realizing that’s something I’m not good at.

I realized in looking at that because I’m not good at branding and I’m not great at marketing, which I have gotten good at it but I wasn’t when I got into the space. Franchising was a great idea so I wanted to get into something that had an established brand that was a recognizable brand already that I didn’t have to go build. They already had a marketing template that I could follow.

I knew I would have to customize it for my space and my market. Nothing is ever a one-size-fits-all, but at least there was a template that I could follow. People had already paved that path and learned, “Here are some things that work and some things that don’t.” I didn’t have to go and learn all of that from ground zero. That led me down the franchising space, and then it was deciding on a brand.

To your point about focus and how it’s a full-time job, I can argue that Chick-fil-A is one of, if not the most, successful franchise models. They only let you own one if I understand correctly.

I know the Chick-fil-A brand and franchise. I went to church and still do with a guy that was the Chick-fil-A representative. I have spoken to Chick-fil-A. I like Chick-fil-A. When I looked at it, my kids were younger. My kids love Chick-fil-A, probably like all kids. That is true for the most part. My neighbor where we are moving, it’s a Chick-fil-A franchising.

You are right. For the most part, Chick-fil-A only lets you have one store. There are a couple of things that are interesting about the Chick-fil-A brand. I’m sure there are lots of people we could bring on that can tell you more than I know about Chick-fil-A. It’s a single focus. You can’t own anything else when you own Chick-fil-A. You can only own one store. If you are really great, you can have two stores. If you are exceptional, they would give you three, but nobody has more than three.

It’s a great business model. You can become very wealthy being a Chick-fil-A franchisee, but it’s not something you can scale to have 30 stores, 20 stores, or something along those lines. There are also some other interesting things about Chick-fil-A, how they manage the business, how franchisees play in that space, your responsibility, and things like that that are interesting and rewarding in the franchisee space. They take good care of their franchisees.

Another interesting thing about Chick-fil-A is that 3-day or 4-day work weeks have become a hotter topic. Chick-fil-A is closed on what arguably could be the busiest day of the week and they are still extremely successful. It’s an interesting case study.

If you look from a marketing perspective at Chick-fil-A, the thing that’s interesting about Chick-fil-A from a marketing perspective is that the way they market their brand is they market to moms. They don’t market to dads. They don’t market to kids. Kids love the food, but they market to moms. It’s the mom’s idea of, “I’m busy. I don’t have time to make a meal for my family, but I want to take them someplace that’s wholesome in good food and, let’s say, a good corporation.”

Deep-fried chicken and deep-fried franchise to serve your kids is not necessarily a great meal from a nutritional perspective. It’s not horrible, but it’s not necessarily the best meal that you can have. They have nicer things on the menu like salads and stuff like that. They have built this brand that moms love the Chick-fil-A brand because of what they have done in the market. They have marketed themselves that way and it is genius.

They can be closed on a Sunday and everybody thinks it’s a wholesome company. They are like, “I go to church and I want to come home. My kids want to stop at Chick-fil-A on the way home from church, but they are not open today because they are a good corporation.” They have done a brilliant job in building their brand.

It’s incredible watching them. I want to hear about you and your brand. It’s interesting. We always love having claimed bad marketers on our marketing show, but you are being self-deprecating. Twenty franchises and you are handed this marketing template to follow. Is that template specific to each local location or is that being a franchise group like, “Here’s what you could lay out for all of your locations at large.”

It’s not per location. You have got to figure that out on your own. Each local market operates a little bit differently. I can give you some examples of that. It’s more of a template around things like social media, like, “Here’s a presence on social media that you can use. Here’s a presence in direct mail and shared mail. Here are the types of things that you can use. Here’s TV spots, radio spots,” and things like that.

In the franchising space, you have two main components that you should think of from a marketing perspective. One is you have national advertising. Not all franchisors do national advertising. Depending on their size, maturity in the space, and focus from a marketing perspective, they may or may not do national advertising.

You have local advertising. Local advertising can be broken up based on regions and local store-based advertising. Depending on the franchise space, they might break that up differently. When you are a franchise, you have got to learn that system. Each franchise might operate a little bit differently, so you learn the system and how the money’s allocated, and then you go to work.

In the franchise space, a lot of times from a national campaign perspective, they might build collateral that you can use in the local marketing space. Figuring out how to leverage that is smart. I will give you an example. In our space, we are about beauty, so we have pretty people that are models. We have different modeling shoots that happen every couple of years.

 

Those models change out. We can decide which models we want to use and which context we want to use them. Some of those contexts are restricted around how we can use them, so we have to build campaigns and leverage the colors, schemes, and models, and rebuild media appropriately. Some of that is templatized to be able to say, “Here’s a good idea for something on social media.” You can or can’t adjust it depending on how your franchise is set up.

That’s interesting. A little bit before we start recording, we were talking about promotions. First off, I’d love to hear your overall perspective on promotions. We will then dive into how many of those are driven by corporate versus what you are able to do on a local level.

Promotions are a big deal, especially when you are fighting for a finite group of customers. You want to win customers from the competition. Everybody’s going to get a haircut. Depending on where you get that haircut is dependent on whether or not I make any money out of that haircut. My people in the company want to make money. In order to get them to make money, I have got to get customers in the door. We are spending money to drive those customers into our brands and into our stores versus the competition. Our competition is doing the same thing.

Figuring out who’s going to win in that model is, a lot of times, depending on what you do from a marketing perspective and how successful you are. Corporate in our franchise is going to spend money. We have a national spend at the national level. We have tried different things at the national campaign level around sponsorships with Major League Baseball.

We had an MLB sponsorship for several years, which was nice. I got to go to some pretty nice games, have nice seats, and things like that. From an MLB perspective, we had all kinds of athletes that were sponsors at the national level that talked about Supercuts and talked about our brand. We would set up haircut booths at MLB games and things like that.

It was a lot of fun for that kind of thing, but did that drive a lot of customers into the store versus other areas? I don’t know, but I can tell you we don’t sponsor Major League Baseball anymore. It’s not because there is any issue with MLB, but we were looking at the spend and whether it was successful in driving additional customers in the door. We used to do things like if there was a walk-off home run, then you got a free haircut. We had different campaigns that were like that where we would have a day of free haircuts if there was a walk-off campaign. We tried different things like that.

It comes down to being in a space that you can take advantage of it as well. At the Major League Baseball level, we don’t have a Major League Baseball team in Indianapolis. We are a basketball community. For us, the sponsor Major League Baseball was great at the brand level but at a local level, I had to transition that into how we can partner with localized or Minor League Baseball teams. There was an MLB sponsorship, but we did it with the Minor League team. You have to transition and think on your feet a little bit in that situation. Overall, it was a good spend for the business, but we don’t sponsor Major League Baseball anymore. That stopped during COVID. Now, we do different things. We are primarily spending all of our money on online advertising at the national level.

When you say we, you speak very much as part of Supercuts, which you are. You are in a lot of them. What is your involvement in national marketing spend? Do other people that own different franchises have a say in how corporate invest their dollars?

It depends on how your contracts are written. I would encourage anybody looking at franchising as this is a conversation that most don’t think to ask in the initial investigation phase of franchising. It’s, “How is that money spent and allocated?” Believe it or not, it can be a pretty significant amount of money that’s contributed at the national level. I won’t get into the values of our franchise and specifically what we contribute because that’s more private. Anybody can look that up when you are in the franchising conversations.

I would encourage folks to look at two points. The first is what do you spend in royalties and kick back as a royalty back to the franchisor? How do they spend that? If they won’t tell you, find someplace else. That should be transparent with the franchise community around how they spend that money. You are in a partnership with them long-term. It’s like very much getting married. Understand how that money’s being spent. That’s a smart conversation to have with their executive team.

 

The second thing is from a marketing perspective. What marketing funds are kicked up from the franchisee to the franchisor, and how is that money allocated and spent? It’s what you have and how that money is allocated and spent. In some franchise systems, you don’t have any say at all. You don’t have any say in how that money is spent. There are no committees you can serve on. There are no committees to take feedback from the franchise community and kick it up to the franchisor. It’s whatever they decide.

Some of those decisions can work out well in your favor. They are good at what they do and you don’t need to worry about it. It’s a fire-and-forget mentality. Some of them are not, and they have made bad decisions in the market. It’s been detrimental to the franchise community. I can talk about a couple of those examples if you like.

In our space specifically, we have communities that are based on brands. Regis Corporation, which is my franchisor, has multiple brands. Within each of those brands, they market a little bit differently. They are consolidated into five different brands in North America, primarily Canada, and the US, but not a lot in Mexico. Some take feedback from the franchisees about how to spend that money.

Notice I said they’d take feedback, and then they make a decision on how to spend it. Not everybody’s going to get on board. It’s like anything else in the community. You try to get as much buy-in as you can, take constructive feedback, and then you got to make a decision and do something. You hope it’s the right decision. If it’s not, react accordingly.

The thing I will say about Regis, my franchisor, from an executive community is that they do take the feedback. They do react quickly to things that are not working and spend money. They at least make an attempt to spend money wisely and try to make changes in real-time to be the most productive and frugal with the amount of money that they have. I don’t always agree with everything that they do. I’m vocal about it because I’m large enough to have a voice.

I choose personally to be selective about what committees I serve on because some of them are productive, and some of them are a waste of time. I’m pretty selective about what communities I spend time in and where I spend my time personally. Marketing is one where I do give a fair amount of feedback through channels and relationships that I have at the corporate level. I choose to serve on other committees other than marketing. I spend a lot of time focused on our local marketing and what works well here.

I spend a lot of time with my vendors. I have great vendor relationships in the local communities, even so much so that they know exactly what I’m looking for. They know how I’m going to measure it. They know how I’m going to decide if it’s successful and how I negotiate based on price. Over the years, they have learned that about me. They come to those conversations prepared so it’s meaningful.

You can measure your success and how you can negotiate based on your relationships with the vendors and communities.

I’d love to zero in a little bit more on what you have seen be successful. Before we do that, when thinking about the marketing funnel, everything from the top of funnel awareness all the way down to sales and returning customers, when thinking about success, what are the success metrics for corporate and what they are spending on? What do you think of as a success metric for what you are spending locally?

I mentioned a little bit earlier about corporate taking feedback. Some of the things that they have done a good job of taking feedback around and have changed over the last couple of years are branding, what their focus should be, and spending money. The amount of money that they have is substantial from a franchise perspective in the amount of money that comes in. They could do a variety of different things. They have taken the feedback from the franchise community and focused on it. They are doing good stuff.

Prior to COVID, the focus was single-minded around two things. It was building a brand and ensuring that the brand is protected and viable and driving new customers into the store. Sales is driven by customers. New customers are what matters. It’s our job to keep them coming back. It was focused on that. I wouldn’t say that every decision that they made was the most productive around those. They tried a few different things. They were on a good path, and then COVID hit.

When COVID hit, we were deemed a non-essential business in the majority of the United States. Whether that was a good decision or not, we can talk about that some other time, but that’s what happened. Interestingly enough, I retained about 95% of my employees coming out of COVID, but over the years it’s been tough to recruit as we grew and tough to recruit employees.

At the national level, we gave feedback to the franchisor to say, “Help us recruit employees.” Some of that national funding was spent on the employee side and helping recruit and retain employees. It was more recruiting rather than retention. That’s been helpful to have some tools and things that we can use at the national level from a recruiting perspective and focus on the brand. It was focused on new employees rather than new customers. It was an interesting dynamic coming out of COVID to see that change and how things work.

I have been quoted in a few different franchise journals and magazines around retaining employees and focusing on those areas. That was something that was a challenge. We tried different things. We got a pretty good model. It’s a business we always will have. We experience it, too, more so in line with the regular community and our peers in turnover post-COVID than we did pre-COVID. Pre-COVID, we didn’t experience turnover. We ran a very clean business. Post-COVID, things have changed. We have more turnover than what we used to in the past. Having that focus on recruiting has been helpful. Do you want me to transition into localized marketing?

I have a quick follow-up question there. When a consumer decides where to get a haircut, what is number one? For me, I go to the same person every single time. I know that they cut my hair. Am I the norm or am I an outlier?

It depends on the answer. When you have those relationships like that and you have been going to the same person, it doesn’t matter if they go to salon A or salon B. You are probably going to follow them. That’s one type of relationship. Honestly, it’s more in the barbering community than the value-brand haircut space with whom you go through. That’s more common in the barbering space for men.

It’s extremely common for women because they have a specific color that they want for their hair or a specific style that they want. They follow a stylist in two different locations. Being in value-branded space, and this is why I got into the value-branded space, their focus is, “I want a quick haircut that’s a good haircut and that is for a fair price. I want it someplace that I can get into and get out of relatively quickly. I don’t necessarily want the cheapest and quickest, but I want something that’s a fair spend.” That’s where we sit from a brand perspective. Is it the norm? It’s half of the norm probably. The other half is, “I want to go get a haircut. I want to go get one now because I have time right now. I want to go to a place that’s going to give me a good haircut for a fair price.” That’s where we sit.

That makes sense. I’m probably a year or two away from getting the type of haircut that I don’t need a special stylist for. I can see that these experience costs and conveniences are going to be my priority.

The ways I have been quoted around this are interesting. When you start to look at money, finance, and things like that, a $20 haircut lasts as long as a $50 haircut. To say that you can line people up and say, “You got a $20 haircut and you got a $50 haircut,” is a farce. It’s the same training. It’s the same people doing that.

 

Ironically, the people that work for somebody like me where, in the Midwest, we have a $20 haircut versus a $50 haircut, they have got the exact same training. Those people that work for me on a $20 haircut, we train them and take care of them. They are going to make more money working for us than they are doing a $50 haircut. It’s this interesting dynamic around volume, pay, and things like that and what goes on in the market. It’s an interesting situation.

I can go into more detail if you are interested. That’s an interesting dynamic around how you win people like that, maybe like yourself, who goes and spends $50 on a haircut with the gal or guy that she is at a relationship with for ten years. How do we win those people into our brand and keep them? It might be that your stylist goes on vacation for a month and they are not available when you want to go get a haircut. It could be they are gone on a two-week vacation and not available when you want a haircut. You don’t want to wait, so you go down the street. If you get a great experience for half the price that you did there, you might consider coming back to us again in the future.

If you can give your customers a great experience for half the price that others offer, they might consider coming back to you.

It’s also related to recruiting. If you recruit Armand, then I’m coming to you. What have been, from your purview, successful recruiting tactics that the corporate has been investing in? From my understanding of what you said pre-COVID was focused on building a brand and driving consumers. Post-COVID, they have been focused more so on recruiting, if I understood what you were saying correctly.

It is recruiting and branding. They are still doing some marketing, online advertising, and things like that. They have spent a lot of time around the online community. They are making sure that the brand is still there, focusing on the brand so people recognize it, and things like that. That’s where corporate spend their time. They have given us some tools on the recruiting side, but the tools are not enough to recruit. It’s nice to have those tools to use as a recruiting engine and have it take advantage of some of that national branding and posting online.

If you go look for a salon that’s out there in your search history, then you are going to be pushed advertisements around, “Come work for Supercuts.” Those kinds of things, corporate takes care of. The actual recruiting effort, the localized-level franchisees take care of. From a franchise perspective, we have done a variety of things in the local community. Some of them work well, and some of them don’t.

Shifting to local and what you are focused on, we should also look at it as a pre-COVID and post-COVID world. What were you focused on pre-COVID? What were your success metrics, and what are they now?

Honestly, from a local perspective, they didn’t change for me. I know what works. It’s always been that focus. It will always stay as that focus. That whole thing could change. It could turn around and we could have robots cut hair sometime in the future or something like that. Until that happens, it’s going to stay the same for us.

I’m single-mindedly focused on two things, and I don’t deviate from them. The first and most important is new customers coming in the door. They are people that haven’t been in our store ever or haven’t been in our store in the last twelve months. That is single-mindedly our focus. Every dollar that I spend from a marketing perspective is tracked around that. You can talk to any of our marketers. If they have worked with me for more than one contract, they know that. They know that’s how I’m going to come to that conversation prepared. It’s, “How did your medium perform in our market?” I’m going to compare you against your peers in the market.

Secondarily, with that spend, it’s knowing that it’s going to do two things. It’s going to bring new customers in the door. It’s also going to bring repeat customers back into the store. That’s the secondary focus. I want to buy new customers coming into the store, and then I’m going to spend money to keep customers coming back to the store.

There’s a certain percentage of customers that come see us in a value-branded space that is only going to come in if there’s a coupon available. You go to Kroger, which is a local Midwest grocer, only going to buy oatmeal if there’s a coupon available. It’s the same thing for haircuts. You are only going to go get a haircut if there’s a coupon out there available. If you are a guy like me, your wife hands you a coupon that says, “Do you need a haircut? Go get a haircut at Supercuts. They have a coupon right now.”

To that point, is it the same tactic that gets a net new customer in the door as it is to get that person coming back? Is it going to be a coupon for both of those groups of people?

For the most part, it’s always a coupon in the value-brand haircut space. For the most part, it’s always a coupon. How you deliver that coupon, whether on social media, some online medium, or direct or shared mail is dependent on a couple of things. One is the maturity of your store. How long has your store been around? What kind of relationship do you have in the community where it is?

Everything is hyper-local in the value-brand salon space. Your store has a relationship with the community. People talk about that relationship and whether it’s a good location or a bad location. It’s not necessarily about the stylist all the time at that level or the employees that are there, but is it a good location to go to or a bad location to go to? It’s hard to overcome that bad relationship at the hyper-local level. You have got to do different things to overcome that.

In my space, I have done some smaller and some larger acquisitions. I tried to turn around stores. I had been successful and unsuccessful in some of those locations around turning around that hyper-localized relationship with the local community. I do use different mediums around that with direct mail, shared mail, online advertising, and things like that.

Which channel or channels have you found to be most effective for driving net new customers and separately for driving repeat customers?

If a new strip center gets built and I build a store in that strip center in the community, I’m going to start with a significant spend around direct mail. When I say direct mail, what that means to me is a specialized printed address going to a household that’s got a higher-valued coupon on a thicker medium-printed postcard-size piece that’s going to go to that home. It’s going to have anywhere from 1 to 4 offerings printed on that with a model print that’s going to have a pretty face. That’s going to have 4 coupons and 3 that are time-bound.

What I have found successful for me is 3 of them being a haircut coupon and 1 of them being a high-valued service that we offer in that salon that I’m trying to use. I’m already spending the money to get the coupons out there, so I’m putting that high-value one, which I know I’m not going to get a ton of redemption on. Those are customers that if I win them into the store, they are going to keep coming back on a regular basis to our store. For us, it’s primarily women’s hair color.

One of the differentiators that we have in our business versus our competition is we do color services for women. A lot of women don’t look at our brand from a color perspective if they are not already existing customers. If we can get them to come in and try us, they will have a great experience. They will continue to come back to our brand because they get great service at a value price and it’s the same color or better than what they are getting at their high-priced salon they are at. If I can buy that by spending the money already and getting customers to come in and get a haircut, then it’s a good spend. I wouldn’t spend that money to do that on its own.

That’s getting new customers in. That’s a new store that’s opening. Over time, what we will do is we will have a huge discount. We will time-bound those coupons where the first coupon that has a huge discount has got a two-week window on it. We got that, “Come get that coupon right away.” We time-bound another one 30 days after that, and we time-bound another one 30 days after that. That’s about a 90-day window, think of it that way, that those coupons are bound around. That’s a huge discount.

Somewhere after that 90-day window, depending on how successful that first run is, we will do a couple of things. What I do is I drop that first one with an analytic drop as well. I get an individualized barcode on each of those coupons, and then I will run analytics against it with my marketer and I will find out what’s the demographic in this community that’s coming to my salon.

I will decide based on what I see from the demographics that are coming in, whether or not that next drop that I do, I want to do another huge discount where I want to go up in price a little bit and not do as large of a discount. Do I want to do any suppression? The people that used the coupon the first time, do I want to suppress them in the next drop or do I want to keep them as part of that drop? That’s not the same in every store. It depends on what kind of redemption we get, what the demographics look like, and things like that. A lot of the world doesn’t like to talk about demographics. Sometimes, it’s a little bit taboo. In the marketing space, it matters.

A lot of people don’t like to talk about demographics. Sometimes, it’s a little bit taboo. In the marketing space, it matters.

By looking at the demographics in the community that we are in, I already know it predominantly because I already did that analysis work whenever we build the store. Whom am I getting to come into the store? I take a look at that, and then I figure out whether I want to do suppression or I want to do another big massive drop. I make that decision. That’s another direct mail drop. That’s another 90 days. That gets me somewhere in the 6 to 9-month range, depending on if I had a break between the 1st drop and the 2nd drop.

It’s taxing on employees to do those types of drops because I will bombard them with that. I do a large drop, so it’s taxing on the employee. I prefer, in that case, to give them a little bit of a breather in there. I then ramp them back up, hype them back up, and cheer them on. They make a ton of money doing it as well, but it’s very taxing. We will do another big direct mail drop and decide again around the suppression. We do that, and then after that, we start to transition.

Typically, we transition back into shared mailing. We get into a cycle, and then we get into a rhythm. We start to hit that rhythm cycle then around, “Do we do shared mail every quarter? Do we do it only at peak times for the value-branded salon business? Do we do shared mail on a regular rhythm, and then do direct mail around peak times? Do I have enough staff in a store to be able to do a continual bombardment and drive customers in?”

Sometimes, staffing can be a little bit of a challenge in a store. If we are staffed only to be able to handle the regular volume coming into a store, I have to go hire staff to bring them on to be able to handle a drop like that. Before doing 1,100 haircuts or 2,000 haircuts a month in a store, I can drive that to 3,000 for marketing, but the staff can’t handle it. I have got to go hire staff to be able to handle that.

That’s so interesting. Direct mail does work?

It does. People think direct mail is dead and stuff like that, but it’s not the case. Even in this space, direct mail does work well. There are a few businesses that it works well in. It works well in the haircut space, which we are in. The salon works well and the pizza space as well. If you look in your mail and you are still getting a ton of coupons around pizza, why? It’s because it works.

It must work for credit cards too. I have an offer for a new credit card every single day.

It makes so much money. They hit everything. It’s the hit-all button. It’s like the pharmaceutical space. They take everything that they are allowed to do, and do it. It’s the same thing in the financial space.

We are over on time. You are extremely busy. This has been interesting. You are the first person that’s come on the show that represents the owner of local stores. You are a true economic buyer. It’s thinking about it from your lens versus the lens of other people that have come on the show, which are often the champions using the MEDDIC framework.

At the end of the day, you want to drive sales and bring people. It’s interesting to hear your perspective on it. It’s even more enlightening to hear what’s been effective. I’m going to leave you a question/idea. Every single time I go to the dentist, the last thing that happens after I get my cleaning is I book my next cleaning. Why doesn’t that happen? Maybe it does in your salons. Why isn’t that part of the process to book your next appointment four weeks from now?

It’s for us.

That’s great. You are doing it. I need to start going to Supercuts. It’s this low-hanging fruit. If that’s the case though, then why even need to coupon for returning customers? Is there a big drop-off after they book that appointment?

Yeah. Some people won’t book an appointment. You only get a certain percentage of people that will book an appointment. For a lot of people in the value-branded space, the mentality is, “I need a haircut. I have time right now, so I’m going to go get one right now.” There is a lot of that focus around the right now mentality. You find that people that are booking appointments are the ones that are more focused on their appearance. It’s more toward the higher net worth. This is where the demographics come into play.

It’s higher net worth people that are focused on their appearance. They have a specific haircut that they want. They have a specific stylist that they want to see, and/or they have a specific style that they are trying to color match too as a woman or a guy if you get your hair colored. You realize when you get your hair colored that you have got to come back, touch up your roots, and redo it every four weeks. You are booking that out every four weeks. It could be that you leave and you are calling in two weeks when you know what your schedule is going to be two weeks out. It’s one of those situations.

 

That makes sense. It wasn’t such an interesting concept, but I love that you are already doing it. Thank you so much for coming to the show.

It’s my pleasure.

We will talk to you very soon. Thank you.

Thanks. Take care.

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Thank you for tuning in to this episode of the show. As a recap, we discussed the formula for success in the franchise space, how corporate marketing objectives differ from local marketing objectives, and how Fred continues to grow his very successful business. Thank you for tuning in. I will see you next time, everyone. Play on.

 

Important Link

• Fred Punke

 

About Fred Punke

As the Managing Partner in Capital Group Holdings, Fred leads the deal making efforts for their investments in the Midwestern United States, with a focus on Equity and Cash Flow returns. Their investment strategies include long-term steady growth, business turn around and new ventures.

As part of their investment strategy, they leverage technology, excellent leadership and top-notch management skills to improve employee retention, customer acquisition and maximize revenue potential and EBITDA.

Capital Group Holdings has a great team of leaders and are always looking to continue their growth and add exciting opportunities to their portfolio.