+

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%

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Other Practices

Marsh Report

Price Enquiry

Internet & Retail

Falling Numbers

Pre

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Pro

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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.

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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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Pro

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25%

Clin

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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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Proactive Client

Generation

50 - 90% ??

Clin

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Fee Generation

100%

Other Practices

Marsh Report

Price EnquiryRetail

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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: info@vetdynamics.co.uk

Web: www.vetdynamics.co.uk

Contact me: http://my.vcita.com/vetdynamics