True Market Pricing
“Pay and profit tell you that you are supplying a need and filling other people’s wants. They are not the motivation for your work, they are the validation of your work.”
‐ Daniel Lapin, “Thou Shall Prosper”
Experience
Gasoline the MOST transparent
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Price is on the street
Eventually there is price stability (unless some new guy comes in with a stupid pricing scheme)
Learn to differentiate yourself on value not price
Dad’s motto
• “You don’t make any more money on a line.” U.T. Brown
Membership Model vs. Direct Pay, Third-Party-Free
Membership Model
Direct Pay – Third Party Free
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Smaller patient population
(around 500)
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Larger patient population (1,000 – 2,000)
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Still may bill insurance
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Typically higher priced
No insurance billing, no insurance billing overhead
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Typically Lower priced
Which is better?
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Depends on your goals
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Competition?
Depends on your location
Complete an analysis to understand which will work better
Wealthy area?
Medicaid and Medicare population?
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WHAT IS PRICING?
A company must set its price in relation to the value delivered and perceived by the customer.
Insurance Pricing Model
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Price brings in the revenues
• Price is the ONLY element in the marketing mix that brings in the revenues. All the rest are costs
• Price communicates the value positioning of the product.
• Price = Cost + Profit
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Patient Decision Making Process
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Need recognition ‐ marketing, advertising, peer pressure
2. Information search 3. Deliberation – price sensitivity develops here
4. Purchase
5. Post‐purchase – buyer’s remorse, good bad feedback, loyalty
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6 Steps in Setting the Price
1. Selecting the pricing objective
2. Determining Demand
3. Estimating Costs
4. Analyzing Competitors
5. Selecting a Pricing Model
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You must first decide your position in your market
1. THE PRICING OBJECTIVE
1. The pricing objective
The objective could be:
– Survival
– Maximize current profit
– Maximize market share
– Maximize market skimming
– Product ‐ quality leadership
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quality
Example - Price Quality Matrix
Super value
High value
Premium
Good value
Medium value
Overcharging
Economy
False economy
Rip off
Price
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2. DETERMINING DEMAND
2. Determining Demand – price sensitivity
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2. Determining Demand – Price Elasticity
Elasticity is the magnitude Demand and price are inversely related i.e. - Higher the price, lower
the demand
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Demand is likely to be less elastic when
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• There are few or no substitutes
• Buyers readily do not notice the higher price
• Buyers are slow to change their buying habits
• Buyers think that the higher prices are justified
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Estimating both Fixed and Variable Costs
3. ESTIMATING COSTS
3. Estimating costs
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• Fixed costs
• Variable costs
• Overhead Costs
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4. ANALYZE COMPETITORS
4. Analyze Competitors Costs/Prices/Offers
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4. Analyze Competitors Costs/Prices/Offers
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5. SELECTING A PRICING MODEL
5. Pricing Methods
Cost Oriented Pricing
Market Oriented Pricing
• Full Cost
• Direct Cost
• Target Return
• New Product (skimming, Penetration)
• Pricing Existing Product (Build Objective, Hold Objective, Harvest, Repositioning)
Competitor Oriented Pricing
Value to the Customer
• Going Rate
• Competitive Bidding
• Buy Response Method
• Trade‐off Analysis
• Experimentation
• EVC
5. Pricing Methods
Promotional Pricing
Differentiated Pricing
• Loss‐Leader
• Special Event
• Cash Rebates
• Low interest Payments/longer terms
• Adjust basic price to accommodate differences in customers, products, locations, etc.
• Price Discrimination
• Customer‐segment pricing
Other
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Product‐form pricing
Image Pricing
Time Pricing
Location Pricing
It is used to lessen the impact of the actual pricing in the consumers mind. It is used as a surrogate to indicate the product quality or esteem
PSYCHOLOGICAL PRICING
Decoy Pricing
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Remove Dollar Sign
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Magic of 9
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Size Matters
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Anchoring
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Bucketing
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Delete the Free Plan
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PRICE CHANGES
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Initiating Price cuts
• Excess capacity
• Competition
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• Aggressive pricing
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Initiating price increases
• When demand exceeds supply
• When costs go up
• Govt. policies
• Reduce/remove discounts and rebates
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Indirect price increases
• Shrinking pack size for same price
• Substituting less expensive raw materials
• Reducing product features
• Removing product services
• Using less expensive packaging material
• Reducing the no. of packs and sizes offered
• Creating new economy brands
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Reaction to price changes
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• Customer reaction
• Competitor reaction
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Responding to competitor price changes
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Maintain price
Maintain price and add value
Reduce price
Increase price and quality
Launch a low price fighter
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7 Biggest Mistakes in Setting Prices
1. Not adjusting your overhead ‐ Gross Profits = Total Sales – Total Cost of Goods Sold
2. Going in too low and undercutting all the time.
3. Undervalue your services
4. Using the same margin for all products
5. Not understanding the difference between margin and markup
6. Pricing based on what competition is charging – Price for Value.
7. Discounting instead of adding value
8. Not raising prices at least annually to keep up with inflation
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WHY DIRECT PAY PRICES ARE SO LOW
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Additional Reasons
• Prior Authorizations Prior authorizations are a major, and growing, source of physicians paperwork burden.
• Lower profitability ‐ Affordable Care Act, 49% of physicians reported seeing profits at their practice dip, according to the Practice Profitability Index.
• Operational Capacity ‐ 81% physicians said they were overextended or at full capacity, according to The Physicians Foundation survey.
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Disintermediation
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“The elimination of intermediaries in the supply chain, also referred to as “cutting out the middlemen.”
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Pricing Paradox
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Pricing Paradox
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• Leads to discounting
• Caused by Fear and Risk
– Set prices too high and push
patients away
– Set prices too low, cut profits
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Pricing Paradox – Solution, Information
“The more you know, the less risk you perceive.” This image cannot currently be display ed.
Malcom Gladwell
Pricing is all about getting as much information you can about your market, your patients, and your internal numbers that drive profit.
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OREGON COAST PHYSICIANS EXAMPLE
Oregon Coast Dermatology Assumptions
• Direct Pay – 3rd party free
• Market
– High Medicare
– Not Wealthy
– Two Dermatologists
• Demand
– High Deductible
– Uninsured Inelastic
– Medicare, Cadillac Insurance –
semi‐elastic
• Pricing Objective:
– Maximize Market Share
– High Value, Low Price
– Product – quality leadership
• Pricing Model
– Transparent
– Cost Oriented – Penetration Pricing
– Value to Customer – Affordability Pricing
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1. Identify Clinic Hours per year
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2. Calculate Your Staff Overhead
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3. Calculate Your Operating Expenses
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4. MODEL PRODUCTIVE HOURS
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4. View Bottom Line Impact
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4. View Bottom Line Impact
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Compare with your market
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• Time‐based
• Hourly fee broken into:
– Multi‐levels
– Based on 5 minute increments •
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Usually in line with co‐pays
Changed patient mix
Open Schedule Day
$5 Day
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Transparence in Pricing
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Web site
Lobby
Brochures
Social Sites
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Value Added
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Walk‐in Day
Monthly $5 day
Direct Relationship
TVs in Exam room
Free Wi‐Fi
Free Coffee/Cookies
Warm blankets
MD Biopsy Calls
NC Wound Checks
CPT approx.
Facilities
Payment Forms
Confidentiality
No prior auth
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Thank You!
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Jack Brown
620 Commercial Ave.
Coos Bay, OR 97420
(541) 217‐8224
jbrown@oregonderm.com
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