pricing strategy vpma 2013
TRANSCRIPT
+
What is a pricing strategy and why is it important?
+Pricing Strategy
The means by how a business calculates how much it will
charge for its products and services.
At a basic level it will determine how much money you receive
in exchange for your products and services
You must charge enough to cover your costs earn some
profit.
Acceptable, Sustainable, Profitable,
Income
Clin
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Clien
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High Fee Generation
Client Numbers
Quality Client
Generation
Veterinary Business x 3R
eta
il
MARKETING SALES
+Which Business?
1. Clinical Services
Consultations, diagnostics, medicine &
surgery
Offering Prof. Services in exchange for
money
Time based = Rate per hour
Value Based = Perceived value
Transaction volume
Transaction FeeTURNOVER
Expensive
Technology & skills
Medicine & surgery.
Intangible
Small ‘Clinical’ patient base
Individual case load
Vet driven
Resource expensive
The ‘Clinical’ Business
•REACTIVE
•Patient Dependent
•Vet focused
•Sensitive to Client Numbers
TIME & VALUE based pricing
& positive variance
Quality, Value & Convenience
+
Pricing Behaviour
1. PROFESSIONAL TIME – rate per hour base rate needs to cover professional costs, wages and equipment + PROFIT ~ practice
2. VALUE BASED – if you can add perceived value to your service you can increase your rate - positive variance
The ‘Clinical’ Business
+Which Business?
2. Preventative Health CareVaccines, worms, fleas, neuters, dietsProducts AND Services to maintain the
health of a petCompetitiveFrequentRepeatableDiscounts, bundles, ‘deals’
Transaction volume
Transaction Fee
Commodity items
Discountable
Repeatable
Tangible
Large ‘Healthy’ client base
Nurse/Reception driven
Resource inexpensive
Predictable process
The ‘Preventative’ Business
TURNOVER
•PRO-ACTIVE
•Practice Dependent
•Client focused
•Sensitive to Price changes
COMPETITIVE pricing and
= negative variance
Fast, good & cheap
+
The Buying behaviour
Discretionary - I don’t ‘need’ it (from you)!
It has to be Convenient!
Price driven - It is a Commodity Item
They want the best price/best value,
bargain, discount, free!
‘Preventative’ Work
+Which Business?
3. Retail Drugs, Diets, OTC
“Cost plus” strategy x 3
1. Percentage Mark-up to the cost of products
eg. 50% -100% mark up across all drugs.
2. Fixed Mark-up – Dispensing / Injection fee
3. “Premium pricing” - mark ups applied to list prices
not true costs.
+Profit
Example 1
MARK-UP Sale Price Cost AddTotal Cost
AddReal mark
up
Net Net £8.50
List 18% £10.03 1.53 £1.53 18%
Mark-up 50% £15.05 5.02 £6.55 77%
Disp £5.00 £20.05 5.00 £11.55 136%
+Profit
Example 2
MARK-UP Sale Price Cost AddTotal Cost
AddReal mark
up
Net Net £8.50
List 18% £10.03 1.53 £1.53 18%
Mark-up 83% £18.35 8.32 £9.85 116%
Disp £6.00 £24.35 6.00 £15.85 187%
+Profit
Example 3
75%+ of practices' profits generated by drug sales as opposed to professional fees
MARK-UP Sale Price Cost AddTotal Cost
AddReal mark
up
Net Net £2.00
List 18% £2.36 0.36 £0.36 18%
Mark-up 83% £4.32 1.96 £2.32 116%
Disp £6.00 £10.32 6.00 £8.32 416%
Business Costs
Vet, Nurse & Reception Wages
Buildings, Admin, Cars, Marketing,
CPD etc
MARKUP
Cost Price per product
Number of Products soldx
INCOME
Consumable Costs
Retail, Drugs, Food, Consumables,
oxygen, cremation, laboratory
Cost PRICE per product
Number of Products boughtx
Consumable IncomeProfessional Fee
Income
COSTS
No. of Vet hours
Rate per hourx
+
FEES DRUGS
% Split 65.0% 35.0%
Income 2,395,626 1,289,952
Consumables 749,759
Fixed Costs 2,651,175
Profit -255,549 540,194
Profit % -89.8% 189.8%
Priofitability -11% 42%
Practice Profit
+Practice Profit
FEES DRUGS
% Split 65.0% 35.0%
Income 602,219 324,272
Consumables 243,429
Fixed Costs 704,661
Profit -102,442 80,842
Profit % 474.3% -374.3%
Profitability -17% 25%
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What would happen to your practice revenue if you ‘lost’ drug rand preventative revenue?
Extra Fee Generation
25%
Dru
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Other Practices
Marsh Report
Price Enquiry
Internet & Retail
Falling Numbers
Pre
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tati
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Pro
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cts
25%Clin
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Main Fee Generation
REACTIVE
Client Generation
~20%
+Clients…
…are less sensitive to a Price Strategy when…
they have difficulty in comparing to
alternative sources
the cost of switching to an alternative
product / source is outweighs any cost benefit
the expense does not account for a large
percentage of their available income
+What’s Changed?
1. The Internet
2. Drug price inflation
3. Economic crisis
+The Internet & On-line Pharmacy
Market penetration in order to to gain
market share
‘Loss-leader’ pricing in order to stimulate
other profitable sales.
‘Deep pockets’ to see off smaller
competitors
+Clients (again)
1. Compare pricing against their current
source (as we all do)
2. Challenge practices to match, or reduce
prices to online level.
3. Switch to sourcing products (without
challenge)
Therefore Pricing Strategies don’t work as
well…
+Practice Result
1. Loss of revenue / profit
2. Loss of client goodwill
Remember, that: Even if clients choose not to purchase from online
pharmacy, for there are still barriers to doing so, they are and will be used to influence pricing in practice.
We cannot control what the online pharmacies do.
+Inflation & Economics
Drug price inflation (5.1%)
+ General economic situation
means that
Vet expense is an increasing percentage of clients income.
therefore
Pet owners will search online for better deals…
+The Answer?
Go On-line?
Online pharmacies are businesses set up to retail Low cost, high volume, deep pockets, thin
margins
Veterinary practices are not. High cost, low volume, small pockets, thin
margins!
+New Pricing Strategies
No Pricing fits all e.g. “cost-plus”
1. Competition / Market Oriented Pricing
2. Dynamic Pricing
3. Bundle Pricing
These models focus on external factors –
competition
clients
rather than an internally focussed “cost plus” process.
+Market Oriented Pricing
Proactive pricing in line with online pharmacy on key ranges (not price matching).
Variable mark ups
Need to understand true net net costs, not just list prices, and competitor pricing.
Re-evaluate profit expectations on high profile and long term med products
Net/Net Price List
+Dynamic Pricing
Flexible pricing – eg. differentiation in
pricing for same product between short
and long term medication.
piriton tabs 4mg* 57,097 27.01% 27.0%atarax tabs 25mg* 14,805 7.00% 34.0%noroclav tabs 250mg* 14,652 6.93% 40.9%prednicare tabs 5mg* 9,384 4.44% 45.4%periactin tabs 4mg* 7,432 3.52% 48.9%noroclav tabs 50mg* 6,722 3.18% 52.1%rapinovet inj 6,383 3.02% 55.1%rilexine 600 tablets* 6,053 2.86% 58.0%tavegil tabs 1mg* 5,567 2.63% 60.6%duphalyte inj 1ml 4,850 2.29% 62.9%previcox tabs 50mg* 4,420 2.09% 65.0%fortekor tabs 2.5mg* 4,038 1.91% 66.9%epiphen tabs 60mg* 3,215 1.52% 68.4%epiphen tabs 30mg* 3,110 1.47% 69.9%lactulose per ml* 3,087 1.46% 71.3%carprofen tablets 50mg* 2,719 1.29% 72.6%felimazole tablets 5mg* 2,597 1.23% 73.9%ranitidine 150mg tablets* 2,418 1.14% 75.0%prednoleucotropin tabs* 2,077 0.98% 76.0%soloxine tab 0.5mg* 1,950 0.92% 76.9%florinef tablets 0.1mg* 1,943 0.92% 77.8%genitrix kbr tabs 650mg ds* 1,840 0.87% 78.7%metronidaz tabs 200mg* 1,760 0.83% 79.5%cimetidine tab 200mg* 1,680 0.79% 80.3%
The Top 20%piriton tabs 4mg* 57,097 27.01% 27.0%atarax tabs 25mg* 14,805 7.00% 34.0%noroclav tabs 250mg* 14,652 6.93% 40.9%prednicare tabs 5mg* 9,384 4.44% 45.4%periactin tabs 4mg* 7,432 3.52% 48.9%noroclav tabs 50mg* 6,722 3.18% 52.1%rapinovet inj 6,383 3.02% 55.1%rilexine 600 tablets* 6,053 2.86% 58.0%tavegil tabs 1mg* 5,567 2.63% 60.6%duphalyte inj 1ml 4,850 2.29% 62.9%previcox tabs 50mg* 4,420 2.09% 65.0%fortekor tabs 2.5mg* 4,038 1.91% 66.9%epiphen tabs 60mg* 3,215 1.52% 68.4%epiphen tabs 30mg* 3,110 1.47% 69.9%lactulose per ml* 3,087 1.46% 71.3%carprofen tablets 50mg* 2,719 1.29% 72.6%felimazole tablets 5mg* 2,597 1.23% 73.9%ranitidine 150mg tablets* 2,418 1.14% 75.0%prednoleucotropin tabs* 2,077 0.98% 76.0%soloxine tab 0.5mg* 1,950 0.92% 76.9%florinef tablets 0.1mg* 1,943 0.92% 77.8%genitrix kbr tabs 650mg ds* 1,840 0.87% 78.7%metronidaz tabs 200mg* 1,760 0.83% 79.5%cimetidine tab 200mg* 1,680 0.79% 80.3%
18 chronic6 acute
80% of drug usage is represented by 24 products of which 18 are ‘Chronic’ / repeatbale medication and only 6 are ‘acute’ / in-practice medication
Product NameTotal
Total % of Total Cum Pareto 1 week 2 week Month
Antepsin Suspension 250ml 17706 7.7% 17706 7.7% 341 681 1476
Prednisolone Tabs 5mg 15479 6.7% 33185 14.4% 298 595 1290
Felimazole Tabs 5mg 15210 6.6% 48395 21.0% 293 585 1268
ZANTAC SYRUP 150MG/10ML 11273 4.9% 59668 25.9% 217 434 939
Noroclav 250mg Tablets 11226 4.9% 70894 30.7% 216 432 936
Lactulose Sol 10025 4.3% 80919 35.1% 193 386 835
EPIPHEN TABS 60MG (PHENOBARB) 9460 4.1% 90379 39.2% 182 364 788
Noroclav 50mg Tablets 8044 3.5% 98423 42.7% 155 309 670
Viacutin Plus Caps 300x500mg 7860 3.4% 106283 46.1% 151 302 655
EPIPHEN TABS 30MG (PHENOBARB) 6084 2.6% 112367 48.7% 117 234 507
Piriton Tabs 4mg 5136 2.2% 117503 50.9% 99 198 428
Rilexine Tabs 300mg 5136 2.2% 122639 53.2% 99 198 428
SOLOXINE TABS 0.8MG 4714 2.0% 127353 55.2% 91 181 393
Rilexine 600mg 4708 2.0% 132061 57.2% 91 181 392
Fortekor Tabs 2.5mg 4082 1.8% 136143 59.0% 79 157 340
VETMEDIN TABS 5MG 3770 1.6% 139913 60.6% 73 145 314
Florinef 0.1mg Tabs 3248 1.4% 143161 62.1% 62 125 271
Frusemide Tabs 20mg 3030 1.3% 146191 63.4% 58 117 253
Antepsin Susp 2966 1.3% 149157 64.6% 57 114 247
* Propofol Vials (novartis)-destock 2803 1.2% 151960 65.9% 54 108 234
Incurin Tabs 2648 1.1% 154608 67.0% 51 102 221
Chlorhexidine 2567 1.1% 157174 68.1% 49 99 214
Codeine Linctus 3mg/ml 2490 1.1% 159664 69.2% 48 96 208
Neo Mercazole Tabs 5mg 2396 1.0% 162060 70.2% 46 92 200
LANOXIN PG TABS 0.0625MG 2366 1.0% 164426 71.3% 46 91 197
Rilexine Tabs 600mg 2330 1.0% 166756 72.3% 45 90 194
Vetmedin Caps 1.25mg 1952 0.8% 168708 73.1% 38 75 163
TAGAMET TABS 200MG 1820 0.8% 170528 73.9% 35 70 152
Viacutan Caps 500mg 300 1720 0.7% 172248 74.7% 33 66 143
FRUSEMIDE TABS 40mg 1566 0.7% 173814 75.3% 30 60 131
SOLOXINE TABS 0.5MG 1540 0.7% 175354 76.0% 30 59 128
FORTEKOR TABS 5MG 1454 0.6% 176808 76.6% 28 56 121
Rimadyl Palatable 50mg 1425 0.6% 178233 77.3% 27 55 119
Rimadyl Palatable 50mg tablets 1424 0.6% 179657 77.9% 27 55 119
Felimazole Tabs 2.5mg 1374 0.6% 181031 78.5% 26 53 115
Noroclav Tabs 50mg Blister Pk 1332 0.6% 182363 79.0% 26 51 111
Milbemax Dog large 1317 0.6% 183680 79.6% 25 51 110
Vasotop Tabs 1.25mg 1284 0.6% 184964 80.2% 25 49 107
5 Acute = 16%
25 Chronic = 83%
Drugs (by usage – NOT Category)
1. Acute short-term & service driven – high mark-up
2. Chronic long-term product driven – low mark-up + service
+Mark ups – by Category:
30% - OTC, chews, muzzles, leads etc
40% - Lifestyle & Rx diets & dental
50% - chronic medication and GSLs
66% - Flea and Wormer treatments
150% - routine clinical drugs
200% acute / emergency / special clinical drugs
+
Pricing Behaviour
1. Commodity priced, competitive – to be
attractive
2. Has to be convenient and easy to buy
3. Has to be a good price - ‘a bargain!’
‘Preventative’ Work
+Bundle Pricing
Bundles/ Packages of products together at a reduced prices.AnaestheticsDentalSurgical
Client Membership Plan which allows practices to offer discounted prices to clients in return for commitment.
Pote
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This model is open to all levels of competition inside and outside the veterinary market
Extra Fee Generation
40%Dru
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Reven
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Other Practices
Marsh Report
Price Enquiry
Retail
Falling Numbers
Pre
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tati
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Pro
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cts
25%
Clin
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lien
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Main Fee Generation
Reactive Client
Generation
~20%
Pote
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By separating PHC as an Client Generation stream practices can stabilise their Clinical Business
(Step Philosophy)
Pre
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tati
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Proactive Client
Generation
50 - 90% ??
Clin
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Fee Generation
100%
Other Practices
Marsh Report
Price EnquiryRetail
Pote
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+The Opportunities
Vaccination
Internal parasites - worming
External parasites - flea control
Health Exams
Nutritional Advice
Insurance Services
Neutering / breeding control
Behavioural training
Pet ID / Passports / Microchips
Dental care
Skin and coat care (ears & anal glands)
+Health Care Reality!
% of Clients Dogs Cats
Vaccination 54% 46%
Worming Treatments 37% 39%
Flea Treatments 25% 38%
Health exams 7% 4%
Lifestyle Diets 5% 8%
Prescription Diets 8% 9%
Dental Care 6% 6%
Insurance 19% 10%
Microchips 25% 17%
+The Future
Costs
Reduced pricing
profitability of certain ranges will decline.
Benefits
client goodwill retained
retaining a still valuable revenue stream
maintaining client footfall outside scheduled consults
In addition, this does not affect all categories so margin reduction will not apply to all products.
+Remember
The online threat will not go away
If we ignore it then we will lose drug revenue, footfall and goodwill.
It is better from a client relationship point of view that we take a proactive approach
We may sacrifice some drug revenue %,
We retain footfall and goodwill
We can concentrate on what we are good at
We should ensure that we maximise revenues from the service we provide as a vet.
+
+
Alan Robinson B.V.Sc. MRCVS DMSVet Dynamics LLPNexus Business Centre6 Darby CloseSwindonSN2 2PN
Tel: 01793 435333
Email: [email protected]
Web: www.vetdynamics.co.uk
Contact me: http://my.vcita.com/vetdynamics