eyecare by the numbers

Price vs. Cost

by Al Cleinman and Judith Lee

Like many other small business owners, ECPs are known to focus on discount percentages that appear to improve the bottom line. You often “shop” vendors and negotiate for the largest percentage discount and join buying groups to access discounts you perceive to be otherwise unavailable.

At a glance, fighting for every dime in pricing concessions makes good business sense. But are you looking in the right places? Is there more to price than price? Is there a difference between price and cost?

In the world of product pricing and negotiations:

• More may be less.
• Less is sometimes more.
• “What else?” may be the most important question to ask.

MISGUIDED FOCUS ON DISCOUNT

Our experience shows that a focus on discounts is often misguided and short-sighted. Your best vendors are likely those that offer you a fair and clearly communicated price, and also provide you with resources beyond discounts to help you drive revenue.

These resources must be properly understood in the overall value quotient; otherwise you're likely selling yourself short. A vendor that provides you with training resources, marketing support, and other value-added services can help you far more than one that simply offers something cheaper. And, one with whom you have a long-standing, mutually profitable relationship will be more likely to help you in creative ways than one that only has the lowest price.

Some buyers who think they're ready for “Let's Make a Deal” may not be getting the best deal at all. Anyone who is a frequent flyer understands that pricing methods can be complex and creative, with the “actual” price sometimes hidden.

Here are a few things to watch out for.

The buyer may think he's getting 30 percent off list, but the vendor may have raised the price before offering the discount. Also, without full disclosure, the discount could be applied to one product but not to all, or the prices weren't actually lowered below the floor price (the price beneath which the supplier won't go).

Why would a smart business person fall for this? Focusing on percentage discount can keep you in your comfort zone, sometimes called the “Linus Blanket” syndrome:

• The supplier sells the products you've always sold.
• The rep is a familiar face.
• The deal sounds really good.

Product mix and purchasing habits play huge roles in a business' ultimate pricing. Understanding what you buy and how you buy it are critical components of the cost structure.

The more you know about what you sell, the better equipped you are.

How does someone recognize the actual best deal? To ensure it is achieving the right pricing for its mix, a business could take a month's worth of actual orders and have several wholesale sources, for example, price them. Then compare “apples to apples.”

LOOK BEYOND PRICING

That being said, however, just as you desire your patients to understand the total value of your services, in any assessment of services or products, it's critical to look beyond the cost side. Having demonstrable product differentiation delivered by knowledgeable and skilled staff is crucial to developing patient loyalty.

If you're selling yesterday's products just to obtain good pricing, you're likely reducing your capacity to compete. As a result, you're not building your individual brand—which is the ultimate insulation from competition.

Especially in the wholesale arena, make sure that the lab you're working with is supporting you on both the revenue generation side as well as with cost and service. More than with any other vendor type, a close win-win relationship with your lab is critical to your overall success.

Your suppliers should be as committed as you are to helping you improve the quality of the patient experience. That takes a relationship beyond price. Concentrating your purchases to select suppliers helps establish a relationship that warrants the vendor's investment in your business. If you spread your business too thin, you won't achieve either your pricing or service goals.

That's why it's so critical to have trusted relationships in which both you and your vendor work together to help drive improved margins. When you achieve that kind of trust, everyone wins. And that's so much bigger than a discount. EB

Alan Cleinman is the founder and CEO of Cleinman Performance Partners (www.cleinman.com), a business consultancy specializing in the development of high performance optometry practices. Judith Lee is a healthcare journalist with extensive experience in eyecare.