Bringing clients back-examining your prices (Proceedings)

"All of a sudden, the price just skyrocketed. You could go when it was 60 bucks, now I can't get out for less than $150"; so said a pet owner interviewed for the recently released Bayer Veterinary Care Usage Study. Sound familiar? Are your clients complaining more about price than ever before? We all know the recession has impacted spending at veterinary practices but is it more than that?

Let's go back a few years and look at the change in veterinary fees. From 2004 to 2006, 76% of the fees included in the AAHA Veterinary Fee Reference increased above the rate of inflation. Sixty-seven % of anesthesia fees increased about 18-31%; 72% of treatment procedure fees increased 13-29% and 60% of surgery fees increased, some by a whopping 61%. No wonder pet owners have noticed! The rate of increase hasn't been as dramatic as this since then but fees are still going up. Veterinary care has also gotten more expensive for some pet owners because of the availability of more sophisticated medical options and the extended life span of pets which results in more routine care spending as well as an increased likelihood of the pet developing a serious and/or chronic disease.

What we don't know about the pet owner quoted above is whether or not she got a greater bundle of services and more value for $150 than she got for $60. She apparently doesn't know either; all she perceives is that going to the vet costs a whole lot more than it used to and she's not convinced its worth it.

The impact of "shock" is just one of the findings from the recently released Bayer Veterinary Care Usage Study, a research initiative conducted by Bayer Animal Health, the National Commission on Veterinary Economic issues (NCVEI), and Brakke Consulting. Concerned that the number of dog and cat visits to veterinary clinics was decreasing at the same time the pet population was increasing, the study's authors set out to measure what exactly pet owners thought about the need for veterinary services and whether pets were getting adequate care.

The study identified six key reasons that visits have been declining; in addition to this sticker shock issues, other reasons included the U.S. recession, the fragmentation of veterinary services, the Internet, a lack of understanding about the need for care, and feline resistance.

Pet owners had more to say about price in the Bayer study. 53% of the survey respondents completely agreed or somewhat agreed with the statement "The costs of a routine visit to the veterinarian are usually much higher than I expected." Only 44% of pet owners disagreed (either completely or somewhat) with the statement "I am always on the lookout for a less expensive option for veterinary services or products." And only 45% disagreed with the statement "I would try another clinic if they had a coupon or special." Many pet owners also indicated they didn't find value for the price paid when they visited a veterinary practice.

The recession has forced all businesses to re-evaluate how they operate. Not only have they had to deal with the immediate impact, they are looking forward to what will likely be a changed post-recession environment. It is unlikely consumers will return to their free-spending ways. Some simply won't be able to and others are reducing spending out of choice. It is clear that the large fee increases seen in the past are unsustainable as a future business strategy for most practices.

Is the cost of care keeping clients away from your practice? The first piece of information you need to know is your practice's operating profitability; this is the most comprehensive indicator of financial success in any small business. Unfortunately for veterinary practices, this is a difficult number to get because it doesn't show up on any report a practice regularly receives, even when those reports are properly prepared. You will need help in calculating your true profitability—talk to a veterinary financial expert or use the NCVEI/VetPartners Profitability Estimator available at www.ncvei.org.

If you have a highly profitable practice with reasonable growth in revenue driven by real growth in the numbers of clients seen and the services they buy, then the fees you charge are probably just fine for your market niche. But if your practice isn't as profitable as it could be, you aren't attracting new clients, and your visit and transaction numbers are declining then pricing may be an issue.

If your practice isn't seeing the growth you'd like, don't run out and reduce all your fees tomorrow. A client's dissatisfaction with the price charged for a service may be about the price but it may also be because they didn't understand the value of the service. In order for clients to accept the practice's pet care recommendations, they must first understand them and value them more than the other things they might choose to spend money on. A client's perception that fees are too high may also be about their inability to pay for the service.

Communication of value takes many forms. It's not enough for the doctor to just silently examine the pet; the results of this exam must be clearly articulated to the client along with the doctor's recommendations, the treatment options, and the prognosis. Many clients do not understand the need for a physical exam and are barely aware it is being done. 43% of pet owners in the Bayer Veterinary Care Usage Study did not complete agree with the statement "My veterinarian communicates with me using language I understand." And 46% of pet owners did not complete agree with the statement "My veterinarian clearly explains when I should bring my pet in for various procedures or tests." Veterinarians and their staff are asking pet owners to spend a lot of money on something that is complicated and difficult to understand and almost 50% of pet owners don't understand what we say to them!

Clients judge value through other ways as well. An article in the Harvard Business Review ("Clueing in Customers, Feb, 2003, Berry & Bendapudi) studied the communication of value at the Mayo Clinic, probably the best-known brand in human medicine. The Mayo Clinic happens to do this extremely well while spending little money on traditional forms of advertising. Everyone at the Mayo clinic from the janitor to world-renowned doctors know that visiting a hospital is scary and confusing and that everything they do, no matter how small, makes a difference in the client experience. Patients at the Mayo Clinic noted time and again how care was organized around their needs rather than the doctors' schedules or the hospital's internal processes. The facility is attractive, comfortable and soothing and employees are hired for their desire to put the patient first. The authors noted, "When a company's offerings are hard to judge, customers look for subtle indicators of quality." Translated, this means that clients can't judge the quality of the medicine but will look at the aspects of your practice they CAN understand to make a judgment about the medicine. The things they can understand are generally about the service experience and about communication.

While communication of value is critical, so is the dollar amount charged for a service and the practice's pricing strategy. Discounts, permanent fee reductions and other pricing approaches have generally been considered a "bad" thing in veterinary medicine. However, used judiciously, they can be helpful in allowing clients to provide better care for their pets and in increasing practice revenue. When discounts or a moderation of fee increases are talked about, its not uncommon for veterinarians to say "My pediatrician doesn't do that; why should I?" Unfortunately, human medicine isn't the same as veterinary medicine and it's a different world out there for both of our professions. Human doctors are dealing with some of the same issues; a health care center in the Dallas area recently advertised a sale on colonoscopies—50% off with a free exam from a gastroenterologist thrown in!

What are some possible pricing alternatives? Pet owners in the Bayer study responded very positively to the concept of a payment plan where they would be billed in equal monthly installments for a year's regular veterinary services; this plan would cover all of the pet's routine health care for a full year, qualify them for certain discounts or free visits and eliminate large invoices at the time of visits for routine care. (The plan would not cover diagnostics or treatment for unexpected illness or injury.) What appears to be attractive about this kind of a plan is the predictability of the payments and the fact that pet owners know in advance what kind of care they need to provide annually. These kinds of plans have been used successfully in Banfield practices for years; some non-Banfield practices have also implemented them with very positive results. The discounts incorporated into the plans are more than made up for by the profit generated from increased usage of services. Of course, the practice must market the program; if the discount is just given to current clients who were going to buy the service anyways, it won't be effective. It needs to bring in new clients.

Targeted discounts can also be an effective strategy; this is something many practices already do in conjunction with National Pet Dental Health month in February. Let's say you want to increase the number of cat visits to your practice. The practice could run a trial program in which a certain discount is offered to cat owners who haven't visited the practice in over eighteen months; it could be a % off total services or a particular service offered free or at a reduced rate. The ideal time to offer discounts is when the practice is slow otherwise; for example, the offer is only valid Tuesday and Thursday afternoons. Other examples of targeted incentives could be a discount on a service the practice wants to promote, perhaps in-house blood work or tonometry or the offer of a flea medications at a reduced price if the client pays for an exam.

The power in programs like these discussed here is that they offer clients an incentive to visit the practice. The reduced price alone, however, won't necessarily keep pet owners visiting regularly; the clients have to have a good experience and find value in the care they get once they get to your practice. In addition to marketing the program effectively, the use of the discount must be tracked over time to see if it actually increases revenue, visits and the amount of care provided to patients.

The last thing to remember is that even clients who are fully committed to providing quality care are looking for payment alternatives. Pet owners may be ok with the absolute price your practice charges as well as with the value they get but if they have $200 in their checking account and a maxed out credit card, the care recommendations may not be accepted. Research shows that financing alternatives make a difference; a study conducted by Veterinary Pet Insurance, showed that the company's clients with pet health insurance on average had 41% higher stop-treatment levels, scheduled 40% more veterinary visits, and spent twice as much on veterinary care over the life of their pet compared to similar pet owners without pet insurance. A cardholder survey by CareCredit revealed that 71% of cardholders said that having this financing option affected their decision as to the level of treatment they can provide their pet.

In order to effectively recommend payment options such as pet insurance, third party payment plans or internal financing options, veterinarians and their staff must first of all understand the programs themselves. Recommendations to clients are most helpful when they include not only a general recommendation for a kind of product but also a recommendation for a specific brand along with the reasons why the practice thinks this product or this company is the best one. This is no different from medical products; clients don't just want to know just that their pets should be on heartworm preventative; they want to know which brand your practice recommends and why.

Not every pricing strategy discussed here is going to be right for every practice. If your practice is experiencing real growth in visits and transactions and has a healthy profit margin, you may not need to change your approach to pricing. But if your practice isn't growing and isn't profitable, its time to focus on changes to these pricing related issues—the absolute dollar charged, communication of value, and the availability of financing alternatives.