I would venture to guess that every practice owner struggles with developing an effective pricing strategy. After reviewing the stats for my business for Quarter 1 in 2019, I noted that our ASP was down $200 a unit which caused a HUGE reduction in profit in a business of my size.
I watch my numbers carefully so what could have caused the change? Some colleagues make the mistake of setting prices based on what the competition is charging. It’s easy to get intimidated by price ads run by
competitors and then to react with your own price reductions. Patients certainly are concerned about the cost of hearing aids but cheaper prices have never translated into more sales. Many of you may have heard me talk about Predictably Irrational Pricing, a strategy that is based on Dan Ariely’s book, Predictably Irrational.
When you have two options, people are forced to make a decision between the two. They can choose the option for less money, or the other option for more money. It’s a tough decision. Consumers want better products, but don’t want to spend more money. So what do the majority of people do? They generally spend less money.
Predictably Irrational Pricing involves adding a third option that is priced close to the more expensive option, suggesting that the more expensive option is actually better. It’s kind of like a middle option, but it’s so skewed that it makes it seem ridiculous not to choose for the higher-priced option.
According to Ariely, this predicable effect is a result of “cognitive biases.” A cognitive bias is the tendency of the human mind to make inaccurate judgments, or believe distortions or other fallacies. Cognitive biases have their impacts in every arena of life, but they do so without most people being aware of them. Patient’s reactions to pricing of hearing aids is one such issue.
In the case of the Q1 ASP in my practice, the uncertainty caused by the addition of so many TPAs in my community caused me to change my pricing structure. The success of Predictably Irrational Pricing is based upon only having THREE levels of pricing – no More and No Less. I added two more pricing levels which caused more patients to choose cheaper options. Not good for business and not good for patients!
So what’s the moral of this story? One small change can mean A LOT to your bottom line and you have to keep an eye on your numbers. When you see a change in your ASP, act Fast and determine what made the change and then Fix It!
Want to know more about specifics of a Pricing Strategy that Works? Join DrGyl’s Sapphire Society. For only $99 a Year, you will receive monthly resources to grow your practice. Where else can you get business consulting services for only $99 a year?