Game On: New Fee Structure

Many practitioners prefer to primarily focus on selling spectacles where the monetary value of each purchase is higher and therefore yields a higher immediate profit to the practice. Studies have however consistently shown that contact lens wearers generate more revenue per year than spectacle only wearers.¹ That's because contact lens wearers often buy both spectacles and their regular supply of contact lenses.

Statistics in Australia and New Zealand show that the drop out in the contact lens category is estimated to be around 30 per cent. Additionally, research shows that almost 20 per cent of contact lens sales that do occur are transacted online.²

"Our research showed that the percentage of contact lens purchases online varies by brand and modality - between a low of 11 per cent to a high of 18 per cent," said Luke Cahill, Professional Affairs Director Australia and New Zealand for Johnson & Johnson Vision Care. "Interestingly, the rates were higher across all brands in reusable lenses (17 -26 per cent) vs. daily lenses (6-9 per cent)," he added.

This adds up to many lost opportunities for optometrists, according to Shelly Bansal who owns an independent practice under the banner 'First Contact Opticians' in the United Kingdom. He says a solid business can be built around eye care and contact lens dispensing.

"The average customer desperately wants contact lenses - they want to be free from spectacles," he said. "So the first thing you need to do is to embrace the concept of contact lenses as being a form of vision correction that you want to offer to all your patients... if you give up on dispensing contact lenses and focus on spectacle sales... it is quite short sighted because those patients will go elsewhere to an optometrist who will successfully fit them with contact lenses. Then they will go away and rave about that practitioner - and all you've achieved is to give away an opportunity to your competition.

"The range is now limitless. Deep down inside, we know that contact lenses are a suitable form of vision correction for all of our patients. Lenses today are healthier and give better vision than ever before - patients really love them..."

Optometrists Must Deliver Value

"The message we need to convey to our customers is that these contact lenses, coupled with the care - we as optometrists provide - are what they purchase from us - not just the tiny pieces of plastic," said Mr. Bansal.

If this isn't understood by optometrists he says more and more sales will be lost to online merchants. "Why come to an optometrist to buy contact lenses rather than buy them online? If I just wanted to buy contact lenses, I'd buy them online myself. The mistake we make is we don't justify our cost. We just hand over the boxes. Then people suddenly start to realise they can buy them cheaper elsewhere."

He says to avoid this, optometrists must focus on recouping the costs of business by charging a fair price for eye care consultancy rather than expecting a high price for product.

New Pricing Model

Having talked to patients, a few years ago, Mr. Bansal did exactly that - he changed the way his independent practice charge its customers.

His new fee based model was determined by considering how much it would cost to run his practice without having to sell any products at all. Then he divided this cost by the number of hours available to provide eye care services - which became the hourly rate he needed to charge each customer.

Under the new model customers pay an annual fee, spread over each month of the year and based on the amount of time that they spend each year receiving professional care. The fee (approximately AUD$15 per month or AUD$180 per year for the average patient) covers an annual eye health examination and a contact
lens examination every six months and entitles the customer to pay cost price plus 10 per cent plus tax for contact lenses and spectacles.

"We've changed the balance - so instead of having labour charged at a nominal fee and charging a high cost for products, we've turned it around - it's completely transparent."

Online Sales No Competition

Importantly, because the cost of providing eye care services is now covered by fees, Mr. Bansal is able to sell contact lenses, spectacles and accessories at cost plus tax. This means that First Contact Opticians can compete head-to-head with online and discount merchants, which were threatening his business success.

"You don't have to be a registered optical dispenser to practice (in the UK) - so anyone can open an optical boutique and sell glasses. And, because they don't have the overhead of refraction, they are undercutting. We have warehouses that are selling glasses. Internet sales are growing for spectacles as well as contact lenses in the UK."

Even so, they can't compete with Mr. Bansal's cost plus tax pricing model, particularly when it is coupled with eye care services. "Because I'm working at cost price... there might be a few products where the online companies get massive discounts, but it will still only make one or two dollars worth of difference
(to the customer)."

He said that with regular, manageable supplies of contact lenses at discounted prices, complemented by six monthly eye health check ups, there is little incentive for customers to bulk buy online. Additionally, he said, "patients buying contact lenses all the time love it because their costs are evened out."

Opportunity to Deliver More

Like Australia, the UK's National Health Service (NHS) covers the cost of regular eye examinations. However, what many people don't realise is that the NHS and Medicare only pay for core competencies. As a result, the public has come to expect to receive all the eye care they need for free.

Mr. Bansal says that to overcome this, optometrists should explain to customers that thorough eye care to protect the eyes over the long term, will cost more
than that offered through the public health system.

"We say to our patients that their monthly fees will cover examinations using all the latest equipment and techniques... We tell them that you must have an OCT done every year because you're going to live until you're 90 years old... and the only way we can (protect their vision) is by starting the OCT at the age of 45 to 50... so as soon as we see things starting to change, we're going to put you onto lifestyle changes, vitamins supplements ...and we're going to be proactive - the keyword is proactive."

"We also explain to customers that under the new model they only pay for the care they receive. If they need more care, they pay for more. If they need less, they pay less. We've made a divide between clinical care and the eyewear."

Customer Acceptance

Despite the radical change to pricing structures, 95 per cent of Mr. Bansal's customers have remained with First Contact Opticians. Other practices in the UK are following Mr. Bansal's model. "It's now beginning to gain momentum - we have 5 per cent of practices (in the UK running on a fee based practice) and the big news is that those 5 per cent of practices, even in the recession - have shown growth when everyone
else has declined.

"We grew 10 per cent last year and the UK is going through the worst time ever. I know of a practitioner in an area in the UK with the highest rate of unemployment and he's booked out three weeks in advance - solidly - and he runs a fee based practice - in an area where everyone is on Medicare."

He urges Australian optometrists to follow suit but suggests that first, they talk to their customers. "If I was to offer advice to any one thinking of doing this, I'd say go and talk to your patients - we always talk to our patients about everything we do, its great to get their opinion. How would it affect you - is it something you'd be comfortable with - what would be your resistance. And the consensus from our patients is that it made sense. It was worth doing. I sought their permission and I knew I had their consent."

Reference:
1. London Business School 2002, Opinion Market Research and Consulting 2006
2. Johnson & Johnson Vision Care quantitative research September 2010