December 15, 2020
Rethinking pricing strategies
Successful business owners maximize profits by setting prices their customers are willing to pay them rather than their competitors.
It’s an area where most veterinarians and practice managers still have a lot to learn, says Dr. Karen Felsted, president of PantheraT Veterinary Management Consulting.
“I think we would all agree that we’re not overly sophisticated in our pricing methodologies and that we have a lot to learn about what pet owners want, what they want to spend, and what we can reasonably charge,” Dr. Felsted said during her presentation at the annual AVMA Economic Summit, held virtually Oct. 26-28.
To aid veterinary practice owners in this important area, Dr. Felsted highlighted portions of new research on the pricing sensitivities of pet owners and the kinds of veterinary services they value.
Economist Utpal Dholakia, PhD, is the primary author of the paper “The Veterinary Hospital Managers Association Pet Owners Economic Value Study,” which surveyed approximately 3,500 cat and dog owners across a diversity of ages, household incomes, and geographic locations.
The study, Dr. Felsted explained, employs a common price sensitivity method to evaluate customer willingness to pay for products and services and discover the economic value consumers place on these products and services.
Pet owners were asked how much they would pay under three conditions: preferred price, or the ideal cost a pet owner would like to pay; reference price, or the cost pet owners believe is a reasonable amount to pay; and acceptable price range, or the range of prices within which owners will consider purchasing specific services.
Ultimately, the study shows that the cost of veterinary services is still an issue for many pet owners. “It’s a rare practice that doesn’t say they get a fair amount of pushback on the prices that they charge,” Dr. Felsted said.
She presented the findings for three service areas commonly provided by companion animal general practices, although eight areas are addressed in the study, which is available on the VHMA website.
We like the idea of practices all offering a gold standard of care and all pets getting that, but realistically there are many pet owners out there who can’t afford a standard of care. It’s not a choice here. It’s that they genuinely can’t afford it.
Dr. Karen Felsted, president of PantheraT Veterinary Management Consulting
Owner expectations and veterinary fees most closely correlate in the physical examination area. For example, the preferred price for a canine physical examination was $51 and $49 for a feline physical examination. The reference price ranged from $57-$59. The acceptable price range was $50-$76 for dogs and $41-$66 for cats.
The preferred price ranges, Dr. Felsted noted, track closely with the actual price ranges in the 2018 edition of the American Animal Hospital Association’s Veterinary Fee Reference.
Owner expectations and veterinary fees become more disparate in the X-ray area. Dog owners said their preferred price was $66 and put the reference price around $80. The preferred price for cat owners was $51, and their reference price was $75. Depending on the type of package, the AAHA fee reference lists the price range for X-rays between $148-$175.
“So there’s a pretty big difference here between what pet owners say they want to pay and what we’re actually charging,” Dr. Felsted said.
Although comparisons between the VHMA study and the AAHA fee reference were difficult to make, Dr. Felsted said the dental care service area is where the biggest disconnect between pet owners and veterinary practices exists. In the VHMA study, the preferred and reference prices for dogs were $75 and $90, respectively. For cats, the preferred price was $65, and the reference price was $77. According to the AAHA reference, the average cost of dental service is over $500.
“Anybody that’s worked in veterinary medicine with any idea of what dentals cost knows these (owner) prices are ludicrous, right? You can barely open their (the pet’s) mouth for $75,” she said. “But we clearly have a large disconnect here.”
The demographic breakdown of the VHMA study showed dog owners were generally willing to pay more for veterinary services than cat owners. Urban and suburban pet owners were willing to pay more than rural pet owners. Also, pet owners ages 19-29 were willing to pay more than other generations. All of these data points track with previous research, Dr. Felsted noted.
The VHMA study also looked at the services dog and cat owners are willing to pay more for. The study ranked 16 services typically considered to add value to the client’s experience. The top three services were overnight boarding, which was No. 1 for dog owners and No. 2 for cat owners; house calls, which was No. 2 for dog owners and No. 1 for cat owners; and extended hours during evenings and weekends.
“We talk a lot in veterinary medicine about adding value to the client experience and providing the things that pet owners want,” Dr. Felsted said, “but is that something owners want to spend money for, or is that a value feature that owners think already should be included in the fees I’m charging?
“At a minimum, it means we’ve got to understand what it is that the pet owners of that particular practice find value in and are willing to pay more for.”
Dr. Felsted believes the profession should recognize that companion animal practitioners must offer a spectrum of veterinary services with corresponding pricing instead of a single standard of care.
“We like the idea of practices all offering a gold standard of care and all pets getting that, but realistically there are many pet owners out there who can’t afford a standard of care,” she said. “It’s not a choice here. It’s that they genuinely can’t afford it.”
That does not mean veterinarians should lower their fees. “I don’t ever think that that’s a particularly good response to clients not wanting to pay more,” Dr. Felsted explained. “I do think it means that we have to look at our pricing strategies and recognize that, in some communities, there are some openings there for some more affordable care practices.”