$$ Putting a price on your eye health $$

Retinal scans (aka cool photos of the back of your eye). To pay or not to pay is the question?

retinal photo

There has been a marked shift over the past 10 years in retail optometry practice. Independent store managers now not only have to be on top of their pricing strategy with spectacle frames, lenses and contact lenses to remain competitive with the large corporate and online entities, but also need to consider how they are going to price supplementary tests, such as retinal scans.

Currently, there are two price points available to customers for retinal scans in the shoptometry (corporate optometry) world. The low price point offered by one large group, is as low as it goes – free.  This company offers free digital retinal photography with every standard eye test.  At the other end of the scale, another corporate group lets the customer ‘choose’ their eye health package, and select which additional scans/technology they would like to pay for on top of their standard eye test.  Comparing apples with apples, the price of a digital retinal scan from this group is $50.  Although, there are eye health packages of up to $150 on top of the standard eye exam that the customer can select.  Which price is right?  Right for the customer, and right for the practice?

According to Iacobucci (2014), price sensitivity is greater when customers don’t care much about the purchase, don’t have strong preferences/brand loyalty, item is not a necessity, it is easy to compare prices and there are many substitutes.  A retinal scan for most consumers (who don’t have any problems with their eyes) would tick the majority of the above boxes.  Given this high price sensitivity, independent (not corporate) practices face an uphill battle of charging for retinal scans – to firstly cover the costs of the expensive equipment, let alone improve their profit margins.

Breaking even.

A digital retinal scanner will set you back around $15 000. Splitting the difference of the two current price points for retinal photos (free and $50), if the independent practice was to charge $25/scan – it would take 600 scans to cover the costs of the purchase (this is not including any overheads/labour costs associated with its use).  An average independent practice would see approximately 10 patients/day, so assuming half the customers purchased this scan, it would still take 6 months to break-even.  This is a big investment, and a long time for a return on investment, for an independent practice, trying to compete with the large corporates.  Increasing the scan price, will potentially compromise the number of customers prepared to purchase the scan, i.e. the demand will decrease.  This is the law of demand.

Loss leaders.

Providing free retinal scans is a ‘loss leader’ pricing strategy.  The company is not generating any specific income related to the retinal scans, so would not be covering their costs of the purchase of the equipment.  However, the low price point attracts customers, which brings them into the store to then purchase other products, namely glasses.

choosing-glasses-optical-shop-660x440

Higher price points.

The $50 retinal scan offered by the other corporate group, has a large advertising spend behind it to support this price point. This corporate group has a higher number of ‘brand loyal’ customers, given its time in the industry, compared to the newer players.  Brand loyal customers are inelastic, less price sensitive; and will purchase the brand no matter what the price.  As well, by having a range of ‘eye health packages’ to choose from, with the $50 retinal scan being the lowest price point, the customer feels they have control of how much they are spending.  This pricing strategy is also taking advantage of the ‘compromise effect’ (Kivetz et al, 2004), as the $50 is now an intermediate point between free retinal scans, and the top-end of the ‘eye health packages’.

Optometrist’s tip

Retinal scans are capturing what the optometrist is already seeing and documenting as part of their standard eye examination. In some instances, it is useful to document changes to your retina with photography.  It may also be useful to get a baseline retinal photograph, so that any future changes can be noted.  However, should you feel the need to pay for a retinal scan every time you get a new script for glasses?  Not really…

 

References:

Iacobucci, D. (2014) Marketing Management (MM), 4th Edition, South-Western, Cengage Learning, Mason, Chapter 3, Segmentation, Chapter 4, Targeting, and Chapter 5, Positioning.

Working, E.J., 1927. What do statistical ‘demand curves’ show?. The Quarterly Journal of Economics, 41, 212-235.

DeGraba, P, 2006. The loss leader is a turkey: targeted discounts from multi-product competitors. International Journal of Industrial Organization24, 613-628.

Erdem, T., Swait, J., Louviere, J., 2002. The impact of brand credibility on consumer price sensitivity. International Journal of Research in Marketing, 19, 1-19.

Kivetz, R., Netzer, O., Srinivasan, V., 2004. Alternative models for capturing the compromise effect. Journal of Marketing Research, 41, 237-257.

Author: Shelley Hopkins, shelleyhopkinsqut, 216008321

 

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