The price trap
National Report — Consumers still reeling from the economic fallout of the past few years continue to tighten their belts and rein in spending. With clients stepping back, veterinary practices have been forced to adjust to the new economic realities, as they must fight harder to compete for a shrinking amount of disposable consumer income. With more practices lowering prices and adding services to both retain and attract clients, competition has grown more fierce.
"Markets that have been hit harder by the economy (high unemployment, tanking real-estate prices) are perhaps seeing these trends a bit more, but the consumer spending problem is so widespread that we're finding the trends are not limited to certain areas of the country," explains Tom McFerson, partner with Gatto McFerson Certified Public Accountants in Santa Monica, Calif., who wrote about these shifting economic dynamics in a recent AAHA Economic Bulletin.
Enticing with priceWith fewer clients taking their pets for routine visits, McFerson says some practices are lowering exam fees to try to get them back in the door or to lure customers from the competition—putting loyalty to the test as more consumers shop for the best price. Whereas exam fees might have varied by $30 or more, the spread has closed to as little as a $5 swing among neighboring practices.
"Exam fees traditionally have been a barometer used to judge a practice—a higher exam fee usually meant higher price but it also implied better medicine and customer service. Lower prices usually meant lower prices, pretty good medicine and decent customer service," McFerson wrote in the AAHA Economic Bulletin. "That's no longer the case."
Dropping exam fee prices, however, is not without risk. "A 'Lexus' practice doesn't want to be perceived as converting to a 'Hyundai' practice overnight," he says. "Practice owners are selling it as assisting their clients and pets during these tough times. The only real way to prove that is to continue to give clients the same excellent customer service to which they've been accustomed."
Practices that entice clients with lower exam fees and then encourage spending on ancillary services are following what McFerson calls the "Las Vegas Model."
"I constantly get e-mails from these opulent resorts offering absurdly low hotel room rates. They don't make money on the rooms ... but they also don't care because getting people into the hotels feeds their other revenue sources," he explains. "The exam fee is the equivalent to the hotel rate. It gets the client in the door and then the practice owner can make money with all the other services the pets are going to need."
And like in Vegas, where the buffets and drinks are plentiful and free, McFerson is seeing practices use coupons and discounts—previously used to attract first-time clients or to reward referral business—to those coming for multiple visits. The goal is two-fold: generate additional revenue and give the owner the chance to foster that relationship to possibly build more referrals.
In many markets, the pricing/discounts selling tools are essential to recoup lost revenues since customers may continue to rely on their long-time veterinarian for serious pet health issues but are more likely to shop around for the cheapest price for vaccines, products and even "routine" procedures such as a spay or neuter.
Gerald M. Snyder, VMD, of Veterinary Productivity Inc., consults with more than 2,000 veterinarians and says he hasn't seen the price-cutting trend. "These have never been cost-effective (methods) and only attract transient bargain hunters. That would be suicidal in our low-profit-margin business," he explains.
He cautions practices who are using, or considering implementing, these measures to look at the long-term impact of the decision.
"Keep good records on actual clients gained and how long they stay to appreciate the foolishness of these ideas," Snyder says. "Practice owners should instead be focusing on training and fine-tuning their staff to be more efficient, allowing fewer staff to handle more clients."