March 2006

PCP Price Communication

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PCP Price Background

Background:

Cost of hair has increased by approximately 16% in the past 24 months.

• Higher factory costs

• Significantly higher long-hair and larger system surcharges

Cost of running a Hair Club has increased by more then 4-7%.

Hair Club continues to develop industry leading hair systems and products.

• We have the best centers, services and customer programs

• We employee the most talented staff in the industry

Considerations:

Annual prices increases in the face or rising prices are very common;

• Inflation average 2% - 3% per annum

• Demand for long hair has created additional cost pressures

A $5 price increaseper program is necessary.

Effective June 1st

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When? Center staff (Manager, NB1 Consultant, NB2 Consultant, Administrative Assistants and

Stylists) begin informing clients on Wednesday March 1st.

• Fill out new EFT and contract effective June 1, 2006

Price change effective June 1st.

How will our clients be informed? We will be providing our members with a standard letter (attached)

We will speak to every client about the change

We will have consistent communication by all staff members

PCP Price Timing

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PCP Price Client Letter

Letter to our Clients- Hand delivered by Membership Advisor

March 1, 2006

To our valued Preferred Client Program members:

Due to significant cost increases over the past two years for hair and matrix materials, shipping and transport, and other operating expenses, Hair Club will

raise its monthly preferred client program fees by $5.00, across the board, effective June 1, 2006.

Please note this price increase, on average, falls far short of the Consumer Price Index increase over the past two years, and Hair Club has taken on a significant

amount of the cost increases without passing them down to our clients. We thank you for your understanding and assure you we will continue to work to reduce our

costs to keep prices low. Should you have any questions or concerns, please contact your Membership Advisor or Center Manager.

Sincerely,

Fraser Clarke President & CEO

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How to Communicate to our Clients

Step 1- We must develop a unique strategy for every client:

• Stress Benefits of Hair Club

− 30 years of providing proven and industry leading solutions

− Best hair quality

− Best service

− Always improving products & services

• Focus on specific client needs

Step 2- We will continue to invest in the future to ensure our clients look and feel their best.

Step 3: Work as a team: Manager, Consultants, Stylists, Admins TIP

Most people work in a business and understand basic business principles.

(When costs go up, revenues received must be increased.)

Each team member must conveythe same message to ensure our

credibility is not questioned.

PCP Price Client Communication

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You will hear a variety of comments and objections which will fall into 3 basic categories:

1. The Unhappy with Service Client

2. The Client who Cannot afford

3. The Complainer

Plan with your center team for each type of client• Be proactive and strategize about which category the client will likely fall into

before they arrive

PCP Price Comments

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Concern:

1. “Don’t we pay enough? I can barely afford the program I am on.”

2. “My hair quality is decreasing.”

3. “We just had a price increase two years ago. You are constantly taking things away, when are you going to give? You are always promising better customer service and better hair quality, and I don’t see it.”

Response:

1. “Look at the price of gas, real estate, cars, or electricity. Everything has gone up with inflation.”

2. “We strive to be consistent with service and your look. Let’s take another look at your hair order. Perhaps it is the density or type of technology….”

3. “We wish we did not need to do this. In fact, we tried to not pass this on to our members, and hence some of the changes you have seen in the past….. Our costs, though, have increased substantially. I can assure you that we will strive to exceed your expectations through increased solutions, better technology, better products….”

PCP Price Client Communication

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Concern

4. “What is the program below? I would like to downgrade…”

5. “I refuse to pay more. Who do I need to talk to at corporate?”

6. “I signed a contract for this price.”

7. I have been a member since you opened. ”

Response

4. “Bob, I do not think the next program will meet your needs because of services/hair. Let’s do this…the increase does not happen until June. I will make sure you see that you are utilizing your benefits.”

5. “I understand your frustration, but in order to continue to provide you industry leading products and services we must cover a portion of our rising costs…. (Involve Manager)

6. “I understand, Bob. That is why the company is giving you the 3 months notice. I know Hair Club does not like increasing prices; however we must cover a portion of our cost increases.”

7. “As you know---being a client for over 20 years---we have had very few price increases, yet have consistently improved our hair and service. I just want to personally thank you for being a tenured member.”

PCP Price Responses

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QUESTIONS:

1. What happens for a Gradual?

2. What happens to new NB1 conversions? Can we just start charging the new fee?

3. What happens to clients who have P.I.F. for the year?

• Scenario 1: Anyone who pre-paid prior to Mar.1, 2006, stays the same.

• Scenario 2: Anyone who pre-paid after Mar. 1, 2006

4. Can we give our clients a guarantee that there will not be another price increase?

5. Will the data entry procedure change?

6. What happens to client renewals?

7. What do I need to get signed?

ANSWERS:

1. When client is up to renew/join a program, new fee is charged.

2. Yes- You can start charging the new fee immediately.

3. PIF:• Scenario 1: Notify of price increase. Price increase

effective on renewal date.

• Scenario 2: Notify client of price increase and calculate the surcharge for all month being prepaid after June 1, 2006.

4. No, Hair Club will do all it can to mitigate future price increase, however, it does not have full control over its cost of providing hair and services.

5. No

6. Contract to be at old price until May 31, 2006. New price takes effect on June 1, 2006. New agreement completed with new price.

7. A new EFT including the surcharge must be signed effective June 1, 2006.

PCP Price FAQ

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Thursday, February 23rd: National Conference Call

Information arrives via e-mail to centers.

Friday, February 24th: Manager holds Center Staff meeting:

• 1 hour prior to center opening

• Manager should serve breakfast

• Staff roll plays scenarios (pgs. 7-9)

• Manager & Consultants answer any questions

• Manager initiates letter campaign to clients starting March 1st

• Begin informing clients:

− Letter should be hand delivered to every client

− Consultants and Managers involved in informing clients.

− Daily Morning Meetings with Staff to discuss potential issues and regroup team.

− Manager conveys feedback to RDO or Franchise Regional.

PCP Price Roll-Out

APPENDIX

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Current PCP contract provides that we have the right to increase monthly program fees only after providing clients with 90 days notice.

• This process is lengthy, burdensome and does not reflect our desired approach to make small incremental changes if required, rather than waiting several years and imposing a large increase (e.g. 2004 $20 increase).

To have more flexibility with any required future price increases (e.g. to off-set for inflation, supply pressures etc.), PCP contract will be amended in June to provide that we can implement a yearly price increase, up to a maximum of 2.25%, without any notice period to the client.

This type of “inflationary” adjustment provision is not uncommon in long-term service contracts and is a concept that is readily understood by consumers. The key is that it is limited both in occurrence (once per year) and magnitude (up to 2.25%).

The language for the contract is as follows:

• I further understand and agree that the Company has the right, once per year, to increase my monthly program fee by up to 2.25% without further notice to me. The Company shall not be permitted to increase my monthly program fee greater than 2.25% per year unless they provide no less than 6 months notice.

PCP Price PCP Contract Changes

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PCP Contract- Renewals/Upgrades (March 1- May 31)

• Explain new pricing to client

• Use new price agreement

• Amend agreement:

− Current monthly fee paid until May 31, 2006

− New monthly fee starts June 1, 2006

PCP Contract- NB1 Conversions:

• Client will sign up on new price agreements.

• New monthly fee applies.

PCP Price PCP Contract How To

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Sample EFT

PCP Price PCP Contract How To

AUTHORIZATION AGREEMENT FOR DIRECT WITHDRAWAL OF FUNDS

I hereby authorize HAIR CLUB for Men and Women, “HAIR CLUB” to charge my bank

account, either by pre-authorized electronic fund transfer or other conventional means, for the purpose of paying a monthly membership fee. I agree that the authorization will

remain in effect until I provide written notification to HAIR CLUB of my intent to discontinue participation in the plan. In order to insure that my account is properly debited, I have attached a voided check from the checking account from which my

membership fees are to be deducted. In the event of the insufficient funds, I authorize HAIR CLUB to charge my account and NSF and electronic fund transmission charges. In the event of a decline in my bank account or credit card account, I understand that I

will be held accountable for any and all fees incurred by HAIR CLUB.

Center Name:__Houston____________________ Client Number:_1____________

Name of Bank: (for checking only)________________________________ Bank Address: (for checking only)________________________________

Checking Acct. Number:________________ABA#___________________

Credit Card #:____1111111111111111______Expires:_1__/07___CVV2:____123___

Amount of Current Monthly Charge:_______$319/month- March 1 – May 31, 2006_ Amount of Monthly Charge- June 1, 2006:___$324/month______________________ Reflects additional $5/month fee Date Charges Commence:________________March 1, 2006____________

Name of Client:_______Betty Davis_______________________________

Signature of Client:________________________ Date:_______________

Attach voided check or imprinted credit card voucher here.

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In order to facilitate the PCP price increase on June 1, 2005, all centers will participate in a clean-up process during May 2005

This process will include:

• Canceling clients who are inactive or have invalid memberships

• Updating client EFT profiles for clients with invalid fees, expired credit card information, etc.

• Automatically updating all client EFT fees by the $5 increase

PCP Price Helios Clean-up

If you have additional questions, please contact your Regional Director, Senior Sales Consultant, Steve Cook or Steve Miller