In my own time as a practice owner and more recently as a coach to independent practice owners, the pricing of goods and services is often based on either a standard mark-up, matching the pricing of similar businesses, or taking a guess at what is viable.
It is now a year since inflation hit 9%, and estimates suggest that the figure will likely remain between 5% and 10% for some time. This poses a challenge for optical practices, who have seen their products, energy, consumables and staff costs rise. Against the backdrop of the cost of living crisis, practice owners are deterred from increasing prices, fearing they will drive their patients to find cheaper options to correct their vision.
The net result of this is downward pressure on practice margins and, hence, lower profits, which in turn reduces the amount that can be reinvested in new equipment, staff development and other activities that will grow the business. In fact, it is important to remember that inflation is a natural part of the economic cycle and, hence, if you do not adjust your prices to keep up, you are reducing your prices in real terms.
So, the challenge is how to increase prices to keep up with inflation, while at the same time ensuring the patients and customers happily return. One way of doing this is to widen the pricing strategies from those mentioned above, in order to raise prices with as little effect on volume as possible.
Here are some of the most common pricing strategies to think about:
Cost-plus pricing
This strategy involves setting a price based on the cost of producing a product or service, and then adding a markup to ensure a profit. This is a common strategy for opticians and businesses that have fixed costs that must be covered.
Value-based pricing
Value-based pricing involves setting a price based on the perceived value of the product or service to the customer. The focus here is to base the price on what customers are willing to pay for the benefits that the product or service provides, rather than working from the cost.
Skimming pricing
This strategy involves being early to market with a product or service, such that there is limited availability, allowing you to charge a premium for a product or service. Typically, the price will lower as the product or service becomes more available and competition increases.
Penetration pricing
This strategy involves setting a low price initially for a new product or service, with the goal of attracting a large customer base and gaining market share. This approach is often used by businesses entering a new market or trying to increase their market share.
Dynamic pricing
Perhaps one that’s more difficult to use in optical practice, dynamic pricing is based on real-time demand. Airlines are famous for using this pricing strategy for selling seats on airplanes.
Psychological pricing
Many purchasing decisions, particularly of luxury products, are based on emotion and perception, and then justified with logic. Psychological pricing means setting prices that appeal to those perceptions, rather than logic. This approach may include changing the way pricing is displayed or bundling products and services to create a perception of higher value.
Each pricing strategy has its own advantages and disadvantages, and businesses must choose the strategy that best aligns with their goals and customers they serve.
Where to start with pricing
If you wish to adopt a new pricing strategy, my advice would be to first do some homework on the different strategies available. The first step is to make sure you understand the costs of your products and the mix of products and services you sell. On spectacles, for example, this may include the cost of the frames, the lenses, additional features and delivery charges. You will also need to understand your overhead costs, such as rent, utilities, and staff salaries.
Once you have determined your costs, you need to decide on the overall profit margin you require in order provide your services at the profit you want. Then, you can break this down into the profit you need to make on different products in the mix to deliver this profit.
To be competitive, research your local competition and understand whether you are going to be selling similar products and, if so, whether you will be lower priced, about the same, or higher. This will help you set a competitive price point based on the service you are offering, while making the desired profit.
Pricing elements to consider
Consider offering different price points to cater for different types of patients you serve. This may be budget-friendly options with standard lenses, mid-range options with more features, and high-end options with designer frames and premium lenses.
Make sure your pricing is transparent and easy to understand, both for your patients and your team. Communicating prices clearly and simply will show that you are confident about your pricing, which in turn breeds confidence in your patients. Where appropriate, display your prices clearly on products both in the practice and on your website, explaining the features and benefits that drive up the perceived value.
- For further help with getting the pricing right in your practice, please get in touch via email at Mentoris58@gmail.com.
