How much are you worth?

CIBA Vision's recent roadshow offered practical advice on calculating, implementing and communicating professional fee-based pricing. Optician went along to one event to find out more

Since the new regulations on contact lens supply took effect last June, optical practices have faced growing competition from alternative supply routes and new entrants to the online market such as Tesco and Asda. Independents have been particularly hard hit, with the additional threat of price cutting by the multiple groups.

Following criticism of their pricing policies, contact lens manufacturers have been keen to show their support for the independent optical practice. None more so than CIBA Vision, the market leader in the daily disposable sector - the principal battleground in the current price war - with its Focus Dailies lens.

In the past month, the company has held a series of seminars around the country where a total of 530 delegates heard presentations on professional fee-based pricing and how to improve practice profitability.

Optical business consultant Martin Russ of TMR presented a detailed model of fee-based pricing and independent practitioners who had implemented the system were on hand to share their experiences. US practice management consultant Dr Gary Gerber was guest speaker at some of the seminars, including the event held near Gatwick on March 7.

CIBA's professional marketing manager Mark Draper set the scene with some market data on the new supply channels. VisionTrak figures for the period May-September 2005 showed that independent optical practices still had the largest market share with around 35 per cent of contact lens sales, with Specsavers close behind at about 30 per cent. Tesco and Asda had around 2 per cent of the contact lens market although these sales were through their optical outlets rather than online. Internet sales through all suppliers combined remained very small but had grown from 1.4 per cent to 3.3 per cent between May 2004 and September 2005.

Draper said that deregulation in the US had led to internet and mail-order suppliers taking 8-9 per cent of contact lens sales, with pharmacy supply at less than 1 per cent. Pharmacies and grocers were able to stock contact lenses but most chose not to, he said.

His conclusion was that although market shares were changing and the internet sector was growing, it was very unlikely to take over. Contact lenses had a strong role to play in any practice in terms of incremental sales and building loyalty. But he warned that the new entrants were not using a traditional optical business model; they were operating on very low profit margins and relying on high turnover, making it difficult for independent practices to compete.

DECLINING SERVICE
Opening his presentation, Russ reported the results of recent retail research showing that 80 per cent of UK consumers thought customer service had declined in the past five years despite their expectations being higher. Consumers preferred local expert knowledge and a majority chose suppliers on good customer service. Interestingly, only 28 per cent said they shopped on the basis of the lowest price.

The opportunity was there for practitioners to charge fairly for their professional time and provide competitively-priced products with the emphasis on care and service. The principle behind the fee-based pricing plan was to charge the true cost of chair time and only a modest mark up on products. The patient made regular monthly payments rather than paying a lump sum for lenses and solutions and could see what they were paying for, putting a proper value on professional time.

Eye care payment plans such as Practice Plan and Eyeplan were already available and many practices were already using them. CIBA Vision and TMR had now developed software for a professional fee template that practices could use to calculate the cost of clinic time and the cost of contact lens fitting and aftercare.

The practitioner entered information such as the turnover and gross profit of the practice, the number of hours per week and weeks per year worked, and the time taken per appointment. Appointment utilisation was also entered; a useful tip was to go back through the appointment book for two months and if no-shows amounted to more than 15 per cent, the practice should be phoning patients to confirm their appointments.

Once these figures were entered, the template automatically calculated the fee per eye examination and four options for monthly care and fitting fees, depending on what the practitioner wanted to include, along with monthly charges for the lenses and care products prescribed for each individual patient. Many practices were charging three monthly payments up front at the initial fitting so that within the first 3-4 weeks, four months' payments were received, said Russ.

The next step was to set up direct debit or standing order arrangements. The advantage of direct debits was that the practice was in control, could change the payment amounts and was notified automatically of any non-payment. Russ's advice was not to let the bank take control, to shop around for the best deal and negotiate; sometimes smaller banks were easier to deal with than the major banks, he said. Credit card mandates, costing around 2 per cent on each transaction, were a further option.

Patient terms and conditions should require patients cancelling within 12 months to repay any discount given. To aid cashflow, the practice should have two or three payment dates each month, such as the 5th, 15th and 25th, rather than all payments coming in on the same day.
With a fee-based pricing system, all till receipts had to show fees (VAT exempt) and products (VAT chargeable) itemised separately and practitioners needed to tell HM Revenue and Customs what they were charging for their professional time.

COMMUNICATING BENEFITS
Communicating the benefits of fee-based pricing was an important element in its success. In-practice LCD display screens, newsletters and brochures were among the methods of getting the message across, as well as discussion in the consulting room. CIBA had also produced a patient leaflet where the individual contact lens care and payment plan could be filled in and this could be customised to the practice.

It was essential that the practice team was on side. Staff should be fully trained to take a proactive approach to the pricing scheme and incentives offered to gain their support. Handling the enquiry, 'How much are contact lenses?' was key. Russ's example of an appropriate response was; 'For a regular monthly payment we will provide all regular contact lens check-ups and eye examinations. Contact lenses and solutions can be included too, at very competitive prices. You will also be entitled to a substantial discount off new spectacles as well. Would you like to book an appointment?'

In the consulting room, the aim was to use open questions to determine the wearer's objectives, offer a range of lens options, use two-tier pricing starting with the 'best' first, and explain the wearer benefits, such as comfort, wearing times, vision and convenience. Personalised benefits should be linked to product features, such as: 'You will be able to wear these lenses comfortably all day due to the moisture-retaining properties of the lens material.'

In summary, Russ said that a fee-based pricing plan for contact lenses was a practice builder that could lay the foundations for a complete eye care plan. It was fairer for patients and better for practices. Many practitioners had wanted to provide professional care rather than a product-based service for some time. Now was the time to go ahead, he said.

GETTING STARTED
Dispensing opticians Julie Newcombe and Janet Wilkinson had done just that. At their independent practice in Potters Bar, north London, around 20 per cent of the business is contact lenses. With four independents in the area and a large Tesco superstore, competition was already strong but the number of phone calls about prices they received in July 2005 prompted them to re-examine their contact lens charges and take immediate action.

Previously, the practice had bundled consultation fees together with products, so that professional time had appeared to the patient to be free. By August, they had a fee structure in place with the aim of charging for lenses exactly what the supermarkets charged. Initially, they adopted an annual fee of 99 but quickly realised this would not work; every year they would have to justify the fee to each contact lens patient.

Having investigated setting up direct debit payments and found this too costly an option, Newcombe and Wilkinson settled on an up-front initial payment of 49.50 followed by a monthly standing order of 8.25 to cover fees, with all products paid for separately. Lenses were then offered at exactly the prices charged by Tesco. Each Monday morning, the practice monitored Tesco's lens prices online and set its prices at the same level.

New patients had no problem with the system but even though the total cost to the patient was about 10 per cent lower than previous prices, some existing patients did not want to change. Occasional wearers were also resistant to the idea. Even so, more than 80 per cent of their contact lens patients had signed up and only one patient had said 'you're not worth it'.

Six months on, the main problems the practice faced were the staff's own prejudices against the new pricing system and getting them to buy in to the concept. Neither was it worth waiting to develop a system that would cover every eventuality; the important thing was to get started. 'We're delighted we've changed,' concluded Wilkinson. 'We have transparency within our fee structure. Our patients are supporting us. And that's very rewarding.'

The discussion that followed suggested that practitioners were receptive to the idea of charging proper professional fees. But one figure above all drove the message home. When Wilkinson reported that her contact lens business was 29 per cent ahead of last year's figures with the new system, an audible gasp went round the room.

CHANGING LIVES
US optometrist and business consultant Dr Gary Gerber faced even stiffer competition when he set up his New Jersey practice on the top floor of a three-storey office block, with as many as 19 optical superstores within a six-mile radius. Yet 22 years later, Gerber was able to retire early from his practice, by then among the top 1 per cent of independents in the US.

Whether you practised in the US or the UK, patients were the same, he said. Being fitted with contact lenses was a life-changing experience for the patient. 'For that reason alone, you should raise your contact lens professional fees.'

Gerber asked the audience to consider what would happen if they went back to their practices and did nothing about their fees - the answer was that nothing would change. If fees were raised it should be a significant increase. There would always be someone who would charge less and someone who would charge more. His own aim was to be the most expensive in town, which could in itself be a marketing benefit.

For Gerber, one of the advantages of being a small business was the ability to respond quickly to events and introduce change. He urged delegates to go back to their practices and implement at least one idea they had heard that evening. 'The worst thing that can happen is that you're wrong,' he said.