Selective Pricing for Higher Practice Profitability

Posted October 29th, 2007

Who says you need the same mark up percentage on everything your practice sells?

By Chuck McKay

Dr. Anderson has an opthalmology practice in a small Midwest town. He makes a comfortable living prescribing eyeglasses and performing medical and surgical eye treatments, including laser surgery. Like many of his contemporaries he sells eyeglasses in a small boutique housed in a large room near the front of his office, which has turned into a highly-profitable addition to his business.

People all over his small town were talking about the new Wal-Mart Supercenter about to open for business. Some were excited about paying less. Some were predicting doom for local small businesses. All were curious about what the Supercenter would carry in inventory.

Dr. Anderson was more concerned about the Wal-Mart Eye Center that was going to be at the front of the new store. “What am I going to do?” he asked himself. “They’re a big company. I can’t buy frames in their quantities. I can’t produce lenses as efficiently as they will. How in the world am I going to compete?”

The doctor consulted with a professional marketer who outlined a comparison shopping strategy. Dr. Anderson’s homework was to drive to every other Wal-Mart Superstore in a hundred mile radius, and price shop the Eye Centers.

He found their stores carried two of the lines which he also stocked. Of those, about two dozen of the same models were in their inventory as were displayed in his store.

Dr. Anderson immediately dropped the price on the frames that he and the Wal-Mart Eye Centers had in common. To beat Wal-Mart’s price, three of them were now marked below his own cost. With newfound confidence, he raised the prices on the remainder of his frames by seven percent.

When the new competitor opened for business, the comparison shopping he’d expected took place, but not with the result he’d once feared. Now, shoppers who’d been to both stores said “Wow. Dr. Anderson’s prices are even lower than Wal-Mart,” which provided great word-of-mouth.

Here’s a step-by-step guide to optimum pricing:

1.Shop your competitors regularly – a minimum of twice a year.

2.Aggressively price those products and services you have in common with your competitors.

3.Consistently raise all non-comparable prices in small percentages, but do it often. Twice a year is a good place to start.

4.Experience has shown that if you don’t get a little bit of push back from your patients, you’re not raising prices enough. (If you lose two or three patients through this process, you’ll more than make it up on the increased prices to the remainder of your patients).

5.The most profitable practices have three major quality levels. The bottom level of fees for products or services is very competitive. The middle level is solidly profitable. The premium level has exceptional margins. Be sure to present all three prices and explain the quality differences they represent. Most patients will choose the middle price.

These days Dr. Anderson mystery shops not only the Wal-Mart Eye Center, but all of the other competitors across his trading area. He’s aware of how his prices compare, and interestingly, now that he’s pricing for competition, is now enjoying a higher overall profit margin.
__________

Search this site for other articles on: marketing tactics, marketing strategy, eyecare, cash flow, public relations, word-of-mouth.

Technorati Tags: marketing strategy, marketing tactics, cash flow, eyecare, public relations, word-of-mouth, selective pricing, comparison shopping.

__________

Selective Pricing for Higher Practice Profitability copyright © 2007 Chuck McKay and AdvanceMyPractice.com. All rights reserved.

Chuck McKay is a marketing consultant who works primarily with professional practices and owner operated businesses. Questions about competitive selective pricing in your health care practice may be directed to ChuckMcKay@ChuckMcKayOnLine.com.