How you price your products and services is a vital part of your practice success and can clearly determine how profitable you are. While there are several pricing strategies available to implement, it is vital that you use them with care, keeping in mind your brand reputation and long term business objectives.
There are some things that you must get right in your practice. The people are one, but that’s almost a lifetime subject on its own. The second is your product, which can apply to many different aspects of the practice. And then there’s price.
The sale sign is the most commonly used pricing message for good reason – putting the word sale next to an item can lift sales by up to 50%
Pricing is a complicated area of practice management and is closely tied to psychology, marketing, competition and economics. To keep things simple, this article will focus on the marketing side of things, but bear in mind, all sorts of considerations will influence your pricing decisions.
THE PRICE/VALUE PROPOSITION
Research shows most purchasers have no idea of the price things should be. Only half can recall the exact price of the item they have purchased very soon after they purchased it, regardless of time spent buying the products. Patients buying frames, lenses and other products will usually rely on you, the optometrist, to advise them on the value of something. In subtle and sometimes not-so subtle ways, you will send signals to patients to tell them whether a price is high or low.
Marketing theory tells us that the labelled price of a product carries two clear messages:
- It tells the patient how much of their money they are going to have to forego to obtain the frame, lens or service.
- It conveys a sense of the quality and value of the product or service. This is especially so when the patient does not have a good knowledge of the product – it will motivate them to better understand what they’re being offered.
Companies like Specsavers and Luxottica have a competitive advantage in production and supply chain management, which means a focus on pricing is to their advantage.
However, without this price advantage, you need your patients to appreciate the quality of your offerings and services – if indeed you have a quality differential.
How you communicate this to your patients is worthy of considerable thought. You can develop trust and convince your patient to buy, or do the wrong thing and throw their trust out the window, along with future visits.
There are some basic pricing messages commonly used that need some explanation.
Ending Prices With .99
This is such a common tactic that you would think patients would ignore it, but credible research shows this is not so, and sales can be dramatically improved by careful use of 9s on the end of prices.
Researchers believe that buyers are sometimes more sensitive to price endings than the actual prices and that the 9 acts as an indicator of value, like a ‘sale’ sign. However, combining numbers ending in 9 with sale signs has no effect.
- Use prices such as $349.00 instead of $350.00 or $399 instead of $410.
- Do not combine prices ending in 9 with sale signs.
- Only use this for products you wish to sell more of, such as a range of sunglasses, or a generic frame range. Known brand frames do not usually need this pricing cue.
- Change your pricing around to shift the emphasis and move different products.
As you would expect, if everything has a 9 on it, the effect will be reduced. Some retailers use rounded pricing on normal priced products and 9 or 99 on sale priced items. If you have a frame that works out to be $305.00 on your normal pricing method, it might be worth a go at $299. If you sell an extra frame you have made the money back and quite a bit more.
Price Indicator Items
While most people do not have a good idea of what frames and lenses should cost, a pricing reference in your practice will help them form an idea of whether you are expensive or not.
If you have too many sales, patients will adjust their buying to take advantage or become conditioned to cheap prices
Supermarkets frequently use this strategy to give the impression of overall value by reducing price on a few well known items. Soft drinks such as Coca Cola or commodity products like toilet paper and laundry detergent are commonly used for this purpose and may even be sold at a loss. The overall purpose is to leave the impression that if the laundry detergent is cheap, everything else is probably good value as well.
In your practice, a big stack of discounted contact lens solutions or a known frame brand at a carefully calculated price point might give them a clue about what prices to expect across your range. Discounted solutions may lead to higher contact lens sales, and reduce the likelihood of internet purchases.
Bear three words in mind if you want to try this strategy: accurate, popular and complementary. If you are going to convey the impression of value, your patients need to have an accurate idea of what a frame is worth normally, so use effective signage to tell them. Choose a popular product, consider making a relative volume purchase so margins can be maintained, and add on a complementary high quality lens so the overall dollars are maintained or increased. You may also want to try a very low price on solutions in return for a volume purchase of disposable contact lenses. Avoid phrases such as ‘special purchase’ which indicate special circumstances and may dilute the patient’s perception of the value you are offering.
- Pick one or two products to carry your pricing message and give your patients a point of reference.
- Use clear signage and obvious positioning.
The sale sign is the most commonly used pricing message for good reason – putting the word sale next to an item can lift sales by up to 50%. Great care needs to be taken to ensure this sign is not over used. There can only be so many special events that justify a sale before patients become suspicious.
Total sales are highest when some, but not all frames in a range or category, have sale signs. A sale sign on more than 30% of frames in a category will reduce the sign’s effectiveness considerably. And, while placing sale signs on multiple items can increase demand for those items, this may reduce overall demand.
- Only have a couple of sales each year.
- Do not have all your frames on sale, instead pick selected products in a range or ranges.
- Keep the sale restricted to less than 30% of any range.
- Make the sale signs clear and obvious.
Many providers or retailers, such as Dan Murphy’s liquor outlets and Bunnings Hardware, offer price guarantees and there is evidence that customers find them reassuring in some retail areas.
The advantage is customers, at least in theory, don’t have to compare prices – it has been done and the product has been priced accordingly. However, experts in the field suggest pricing guarantees tend to create a common price point for products and services across stores that can lead to higher prices overall. There is also a point of view suggesting these policies are aimed more at warning off competitors than benefiting customers.
Do pricing guarantees work in optometry? For most practices there will be some value in pricing guarantees if you can get the message out – this strategy needs to be advertised widely.
This seems counter-intuitive but in a mature market, where prices have already entered a damaging downward spiral, wilful overpricing can help reverse the trend.
Some experimentation with pricing tactics and approaches may be needed to establish what best suits your situation
In one experiment conducted at the London Business School, graduate students were asked to examine two differentiated supermarket products: organic lettuce and free-trade coffee. In prior testing, students indicated they would be willing to pay a premium of 20% at most for these products. When researchers priced the items at an 80% premium, the students recalled nearly twice as much product information, which enabled them to cite more arguments in favour of buying the products. The overpricing also evoked a more passionate response to the products (measured by asking participants how relevant organic foods and free-trade harvesting were to their lives), which led to a willingness to pay much more than originally intended. By contrast, people who were exposed to a premium close to their price expectations (10%) or one that was outlandishly high (190%) simply acted according to their pretested inclination, without giving much thought to their choice.
Obviously, products need to have a clear difference that offers value to the patient or customer, and it’s imperative that these values are communicated – otherwise you are just ‘expensive’.
Price partitioning is a tactic to break a price into its component charges. This tactic highlights dimensions of differentiation that might otherwise go unnoticed and has been widely used in optometry in recent times by Specsavers, Big W Optical and Optical Superstore. The tactic supposes patients are unlikely to assign a benefit to their choice of specific product features unless an explicit charge is made for it. Though easily applied, customers can be annoyed by price partitioning, especially when they sense sellers aren’t being straightforward about the total cost.
Never-the-less, it’s a tactic that can work in optometry over and above other industries because of a lack of patient knowledge – partitioning, or picking out specific features, can prime patients to see a real benefit they would otherwise have overlooked.
Provided we are absolutely plain about the price structure upfront, this strategy can work very well. Great care should be taken to ensure the patient does not feel like they have been deceived if they end up with a substantially different result to the initial offer or promise.
If you are aiming for a quality image, take great care with these pricing tactics because they can raise concerns. In a boutique, a sale sign might scream ‘seconds stock’ to the discerning buyer who holds the view that ‘quality never goes on sale’.
Within the eye care context, overt emphasis on the price may also impact the value perception of the frame, lens, eye health component of your service and as an extension of all this, your brand. Focus instead on the important features and benefits the patient will own after purchase.
Quality makes its own statement and true quality products, particularly in health care, are rarely on sale. Your patients may develop the impression that demand may be weak and therefore the quality may not be good, or that your practice is in financial trouble. If you must have a sale, limit its scope and have a clearly communicated reason.
TRACKING THE EFFECT
None of the ideas outlined above are designed to invoke a discount approach. Nor do they involve jacking up prices to very high levels to gain a point of difference. Practices need to manage price in a thoughtful and deliberate way. Some experimentation with pricing tactics and approaches may be needed to establish what best suits your situation. The good news is, pricing is immediate and correctable, and changes cost little. A 10% price increase can be applied tomorrow morning and changed the day after if you get a bad response.
However, if you are going to use these devices and tactics you must use them systematically and measure their effect. Ideally, measure sales before and after changes so you can accurately quantify the benefit.
Remember you are looking for long-term sales and patient loyalty. If you have too many sales, patients will adjust their buying to take advantage or become conditioned to cheap prices.
Finally, it’s important to remember that sales and pricing changes cannot replace good sales technique and hard work. They are short-term tactics for a short-term benefit. Do not neglect your patient’s perception of quality. It is important to constantly reinforce the quality message and educate patients about superior features and benefits of the eyewear you are offering.
Mark Overton is a Director and Principal Consultant at Ideology. With science and business qualifications and an extensive 35 years’ experience working in public and private business, he advises optometry practices on business planning, marketing, benchmarking, people and performance management, and the acquisition and sale of practices.
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