+ 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 se...
Veterinary Business x 3Client Numbers Income ...
+ Which Business? 1. Clinical Services  Consultations, diagnostics, medicine & surgery  Offe...
The „Clinical‟ Business TIME & VALUE based pricing & positive varian...
+ The „Clinical‟ Business Pricing Behaviour 1. PROFESSIONAL TIME – rate per hour base rate needs to cov...
+ Which Business? 2. Preventative Health Care  Vaccines, worms, fleas, neuters, diets  Products...
The „Preventative‟ Business COMPETITIVE pricing and ...
+ „Preventative‟ Work The Buying behaviour  Discretionary - I don’t ‘need‟ it (from you)!  It has to be Convenient! ...
+ Which Business? 3. Retail  Drugs, Diets, OTC  “Cost plus” strategy x 3 1. Percentage Mar...
+ Profit  Example 1 Total Cost Real mark ...
+ Profit  Example 2 Total Cost Real mark ...
+ Profit  Example 3  75%+ of practices profits generated by drug sales as opposed to professional fe...
COSTS Business Costs Consumable Costs Vet, Nurse & ...
+ Practice Profit FEES DRUGS % Split 65.0% 35.0% Income ...
+ Practice Profit FEES DRUGS % Split 65.0% 35.0% Income 6...
FallingNumbers Other Main Fee Marsh Report Extra Fee Practices Generation ...
+ Clients… …are less sensitive to a Price Strategy when…  they have difficulty in comparing to alternative ...
+ 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’ pri...
+ Clients (again) 1. Compare pricing against their current source (as we all do) 2. Challenge practic...
+ Practice Result 1. Loss of revenue / profit 2. Loss of client goodwill Remember, that: ...
+ Inflation & Economics  Drug price inflation (5.1%) +  General economic situation ...
+ The Answer? Go On-line?  Onlinepharmacies are businesses set up to retail  Low cost, high volume, deep...
+ New Pricing Strategies No Pricing fits all e.g. “cost-plus”1. Competition / Market Oriented Pricing2. Dy...
+ Market Oriented Pricing  Proactive pricing in line with online pharmacy on key ranges (not price...
+ Dynamic Pricing  Flexible pricing – eg. differentiation in pricing for same product between short and l...
The Top 20%piriton tabs 4mg* 4mg* piriton tabs 57,097 57,097 ...
TProduct Name ot Total % of Total Cum Pareto 1 week 2 week Mon...
+ Mark ups – by Category:  30% - OTC, chews, muzzles, leads etc  40% - Lifestyle & Rx diets & dental  5...
+ „Preventative‟ WorkPricing Behaviour1. Commodity priced, competitive – to be attractive2. Has to be convenient a...
+ Bundle Pricing  Bundles/ Packages of products together at a reduced prices.  Anaesthetics  Dental ...
FallingNumbers Other Marsh Report Extra Fee Main Fee Practi...
Other Marsh Report Re...
+ The Opportunities  Vaccination  Internal parasites - worming  External parasites - flea control ...
+ Health Care Reality! % of Clients Dogs Cats Vaccination ...
+ The Future Costs  Reduced pricing  profitability of certain ranges will decline. Benefits  cl...
+ Remember  The online threat will not go away  Ifwe ignore it then we will lose drug revenue, footfall ...
+
+ Alan Robinson B.V.Sc. MRCVS DMS Vet Dynamics LLP Nexus Business Centre 6 Darby Close Swindon SN2 2PN ...
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Pricing Strategy VPMA 2013

This presentation looks at how veterinary practices can move away from traditional "cost-plus" pricing to more competitive models including Market -led, dynamic mark-ups and Bundles to maintain income and client goodwill.
Published on: Mar 4, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - Pricing Strategy VPMA 2013

  • 1. + What is a pricing strategy and why is it important?
  • 2. + 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,
  • 3. Veterinary Business x 3Client Numbers Income RetailCare, Marketing, WebBranding, PHC, Client Clinical High Fee Quality Client Generation Generation MARKETING SALES
  • 4. + 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
  • 5. The „Clinical‟ Business TIME & VALUE based pricing & positive variance Quality, Value & ConvenienceSmall „Clinical‟ patient baseIndividual case loadVet drivenResource expensive Expensive Technology & skills Medicine & surgery. •REACTIVE Intangible •Patient Dependent •Vet focused •Sensitive to Client Numbers
  • 6. + The „Clinical‟ Business 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
  • 7. + Which Business? 2. Preventative Health Care  Vaccines, worms, fleas, neuters, diets  Products AND Services to maintain the health of a pet  Competitive  Frequent  Repeatable  Discounts, bundles, „deals‟
  • 8. The „Preventative‟ Business COMPETITIVE pricing and = negative variance Commodity items Discountable Fast, good & cheap Repeatable TangibleLarge „Healthy‟ client baseNurse/Reception driven •PRO-ACTIVEResource inexpensive •Practice DependentPredictable process •Client focused •Sensitive to Price changes
  • 9. + „Preventative‟ Work 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!
  • 10. + 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.
  • 11. + Profit  Example 1 Total Cost Real mark MARK-UP Sale Price Cost Add Add 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%
  • 12. + Profit  Example 2 Total Cost Real mark MARK-UP Sale Price Cost Add Add 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%
  • 13. + Profit  Example 3  75%+ of practices profits generated by drug sales as opposed to professional fees Total Cost Real mark MARK-UP Sale Price Cost Add Add 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%
  • 14. COSTS Business Costs Consumable Costs Vet, Nurse & Retail, Drugs, Food, Reception Wages Consumables, Buildings, Admin, oxygen, cremation, Cars, Marketing, CPD laboratory etc Cost PRICE per Number of Products product x bought INCOME Professional Fee Consumable Income Income Cost Price per Number of ProductsNo. of Vet hours x Rate per hour product x sold MARKUP
  • 15. + Practice Profit 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%
  • 16. + 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%
  • 17. FallingNumbers Other Main Fee Marsh Report Extra Fee Practices Generation Generation Price Enquiry Drug Revenue REACTIVE 25% Client Internet Generation & Retail Preventative Products ~20% 25% What would happen to your practice revenue if you ‘lost’ drug rand preventative revenue?
  • 18. + 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
  • 19. + What‟s Changed? 1. The Internet 2. Drug price inflation 3. Economic crisis
  • 20. + 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
  • 21. + 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…
  • 22. + 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.
  • 23. + 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…
  • 24. + The Answer? Go On-line?  Onlinepharmacies are businesses set up to retail  Low cost, high volume, deep pockets, thin margins  Veterinarypractices are not.  High cost, low volume, small pockets, thin margins!
  • 25. + New Pricing Strategies No Pricing fits all e.g. “cost-plus”1. Competition / Market Oriented Pricing2. Dynamic Pricing3. Bundle PricingThese models focus on external factors – competition clientsrather than an internally focussed “cost plus” process.
  • 26. + 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
  • 27. + Dynamic Pricing  Flexible pricing – eg. differentiation in pricing for same product between short and long term medication.
  • 28. The Top 20%piriton tabs 4mg* 4mg* piriton tabs 57,097 57,097 27.01% 27.01% 27.0% 27.0%atarax tabs 25mg*25mg* atarax tabs 14,805 14,805 7.00% 7.00% 34.0% 34.0% noroclav tabs 250mg* 14,652 6.93% 40.9% 18 chronicnoroclav tabs 250mg* 14,652 6.93% 40.9% 6 acute prednicare tabs 5mg* 9,384 4.44% 45.4%prednicare tabs tabs 4mg* periactin 5mg* 9,384 7,432 4.44% 3.52% 45.4% 48.9%periactinnoroclav tabs 50mg* tabs 4mg* 7,432 6,722 3.52% 3.18% 48.9% 52.1%noroclavrapinovet inj tabs 50mg* 6,722 6,383 3.18% 3.02% 52.1% 55.1% 80% of drugrapinovet inj 600 tablets* rilexine 6,053 6,383 2.86% 3.02% 58.0% 55.1% tavegil tabs 1mg* 5,567 2.63% 60.6% usage isrilexine 600 tablets* 6,053 2.86% 58.0% 62.9% represented bytavegil tabs 1mg*inj 1ml duphalyte 4,850 5,567 2.29% 2.63% 60.6% previcox tabs 50mg*duphalyte inj 1ml 2.5mg* 4,420 4,850 2.09% 2.29% 65.0% 62.9% 24 products of fortekor tabs 4,038 1.91% 66.9%previcox epiphen tabs 60mg* tabs 50mg* 4,420 3,215 2.09% 1.52% 65.0% 68.4% which 18 arefortekor tabs 2.5mg* epiphen tabs 30mg* 4,038 3,110 1.91% 1.47% 66.9% 69.9% „Chronic‟ /epiphen lactulose per ml* tabs 60mg* 3,087 3,215 1.46% 1.52% 71.3% 68.4% repeatbaleepiphen carprofen tablets 50mg* 3,110 tabs 30mg* 2,719 1.29% 1.47% 72.6% 69.9% medication 73.9%lactulose per ml* tablets 5mg* 3,087 felimazole 2,597 1.23% 1.46% 71.3% and only 6 are ranitidine 150mg tablets* 2,418 1.14% 75.0%carprofen tablets 50mg*tabs* 2,719 prednoleucotropin 2,077 1.29% 0.98% 72.6% 76.0% „acute‟ / in-felimazole tablets 5mg* 2,597 1.23% 73.9% soloxine tab 0.5mg* 1,950 0.92% 76.9% practiceranitidine 150mg tablets* florinef tablets 0.1mg* 2,418 1,943 1.14% 0.92% 75.0% 77.8% 76.0% 78.7% medicationprednoleucotropintabs 650mg ds* 2,077 genitrix kbr tabs* 1,840 0.98% 0.87%soloxine metronidaz tabs 200mg* 1,950 tab 0.5mg* 1,760 0.83% 0.92% 79.5% 76.9% cimetidine tab 200mg* 1,680 0.79% 80.3% 77.8%florinef tablets 0.1mg* 1,943 0.92%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%
  • 29. TProduct Name ot Total % of Total Cum Pareto 1 week 2 week Month alAntepsin Suspension 250ml 17706 7.7% 17706 7.7% 341 681 1476Prednisolone Tabs 5mg 15479 6.7% 33185 14.4% 298 595 1290Felimazole Tabs 5mg 15210 6.6% 48395 21.0% 293 585 1268ZANTAC SYRUP 150MG/10ML 11273 4.9% 59668 25.9% 217 434 939Noroclav 250mg Tablets 11226 4.9% 70894 30.7% 216 432 936Lactulose Sol 10025 4.3% 80919 35.1% 193 386 835EPIPHEN TABS 60MG (PHENOBARB) 9460 4.1% 90379 39.2% 182 364 788Noroclav 50mg Tablets 8044 3.5% 98423 42.7% 155 309 670Viacutin Plus Caps 300x500mg 7860 3.4% 106283 46.1% 151 302 655EPIPHEN TABS 30MG (PHENOBARB) 6084 2.6% 112367 48.7% 117 234 507Piriton Tabs 4mg 5136 2.2% 117503 50.9% 99 198 428Rilexine Tabs 300mg 5136 2.2% 122639 53.2% 99 198 428SOLOXINE TABS 0.8MG 4714 2.0% 127353 55.2% 91 181 393Rilexine 600mg 5 Acute = 16% 4708 2.0% 132061 57.2% 91 181 392Fortekor Tabs 2.5mg 25 4082 Chronic1.8% 83% 136143 = 59.0% 79 157 340VETMEDIN TABS 5MG 3770 1.6% 139913 60.6% 73 145 314Florinef 0.1mg Tabs 3248 1.4% 143161 62.1% 62 125 271Frusemide Tabs 20mg 3030 1.3% 146191 63.4% 58 117 253Antepsin Susp 2966 1.3% 149157 64.6% 57 114 247* Propofol Vials (novartis)-destock 2803 1.2% 151960 65.9% 54 108 234Incurin Tabs 2648 1.1% 154608 67.0% 51 102 221 Drugs (by usage – NOT Category)ChlorhexidineCodeine Linctus 3mg/ml 2567 2490 1.1% 1.1% 157174 159664 68.1% 69.2% 49 48 99 96 214 208Neo Mercazole Tabs 5mg 2396 1.0% 162060 70.2% 46 92 200 1. Acute short-term & service driven – high mark-upLANOXIN PG TABS 0.0625MG 2366 1.0% 164426 71.3% 46 91 197Rilexine Tabs 600mg 2330 1.0% 166756 72.3% 45 90 194 2. Chronic long-term product driven – low 168708Vetmedin Caps 1.25mg 1952 0.8% mark-up + service 73.1% 38 75 163TAGAMET TABS 200MG 1820 0.8% 170528 73.9% 35 70 152Viacutan Caps 500mg 300 1720 0.7% 172248 74.7% 33 66 143FRUSEMIDE TABS 40mg 1566 0.7% 173814 75.3% 30 60 131
  • 30. + 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
  • 31. + „Preventative‟ WorkPricing Behaviour1. Commodity priced, competitive – to be attractive2. Has to be convenient and easy to buy3. Has to be a good price - „a bargain!‟
  • 32. + Bundle Pricing  Bundles/ Packages of products together at a reduced prices.  Anaesthetics  Dental  Surgical  Client Membership Plan which allows practices to offer discounted prices to clients in return for commitment.
  • 33. FallingNumbers Other Marsh Report Extra Fee Main Fee Practices Generation Generation Price Enquiry Revenue Drug Reactive 40% Client Generation Retail Preventative Products ~20% 25% This model is open to all levels of competition inside and outside the veterinary market
  • 34. Other Marsh Report Retail Practices Price Enquiry Preventative Client Base Proactive Client Fee Generation Generation50 - 90% ?? 100% By separating PHC as an Client Generation stream practices can stabilise their Clinical Business (Step Philosophy)
  • 35. + 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)
  • 36. + 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%
  • 37. + 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.
  • 38. + Remember  The online threat will not go away  Ifwe 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.
  • 39. +
  • 40. + Alan Robinson B.V.Sc. MRCVS DMS Vet Dynamics LLP Nexus Business Centre 6 Darby Close Swindon SN2 2PN Tel: 01793 435333 Email: info@vetdynamics.co.uk Web: www.vetdynamics.co.uk Contact me: http://my.vcita.com/vetdynamics

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