For this series on pricing strategies, we have analyzed the historical perspective on the development of retail prices, finding your own “magic formula”, and looked at the individual considerations that should be a part of that formula (e.g., warranty, invoice cost, accessories, cost-of-living adjustments). For the past few posts we have been discussing the ethical use of manufacturer loyalty programs to the benefit of our patients and our own practice. In this post, we’ll discuss the ethical use of those programs to offset costs and therefore indirectly benefit the patient.
Business Development Funds and Offsetting Back-office Costs
In the previous post I established that a Business Development Fund (BDF) should be taken into consideration when developing your retail prices. It is essentially “the rest of your discount,” so it is hard to ignore, and making it an element of your price formula helps to create an even playing field if you are a multi-line office.
How you use the BDF after it has accumulated, however, can be called into question. It should be used strictly for business purposes (as is normally required by the manufacturer—receipts, etc.), and not for personal gain. A typical case of the former relates to offsetting on-going business expenses, particularly if doing so ultimately benefits the patient. One example would be acquiring new equipment for verifying benefit of fitting for the patient—a new real-ear or visible speech mapping system. Maybe it is replacing equipment that is just getting too old, like your ancient Madsen impedance bridge, which has a pump that just isn’t maintaining a good seal.
A great example is if your office needs a new $30,000 ABR system so that you can serve as a site for a newborn infant screening program. Your choice may be to pony up the money yourself and try to figure out a way to pay for it, or use your BDF. Using the former example, if your office does 500 hearing aids a year, this might mean raising your retail price by $60 per aid in order to offset the cost of the new equipment. This would raise an interesting ethical issue since you would be using funds from your hearing aid patients to offset the cost of equipment that will likely never benefit them! If, however, you have the $30,000 in your BDF, you can acquire the equipment without having to raise your retail prices. Since using the BDF helps keep your retail from going up, there is an indirect benefit to your patient. So, not using a BDF can be detrimental to your patient if it is not available to offset your operating costs.
Highly questionable uses of a BDF would be to pay for a trip to Jamaica or to help offset the cost of adding a swimming pool to your home. These are hard to justify. Similarly, programs from manufacturers that require you to purchase a certain number of their products to go on a trip or to get electronics like televisions or tablet PCs that will probably end up being used for personal rather than professional purposes are also questionable, particularly if you have to buy products that you wouldn’t normally order.
What if you use the BDF for products that you are normally ordering? Let’s say Manufacturer X will give you a free 42-inch flat screen TV if you simply order 12 of the Widget 2000 behind-the-ear hearing aids in the next month. You look at your records and see that you are already normally ordering 20 of these each month. Therefore, this “incentive” will probably make no difference in your order patterns. The bottom line, however, is what is best for the patient. Fitting them with a product that they will not be happy with will haunt you down the road as they return for more and more adjustments, eating at your bottom line. Eventually, you’ll find yourself thinking that that 42-inch TV was not as much as an incentive as you thought it was.
These loyalty programs do serve the patient as well. In a recent post by Gael Hannan, editor of The Better Hearing Consumer, she stated “There’s never been a better time to have hearing loss.” She focused on how technology has never been better, but there are even more reasons in the back office why this is true. I take Gael’s theme and spin it another way: the manufacturers are becoming so competitive for our business that, if manipulated correctly, can provide better results for the patient at a lower price. [please note that this by no means serves as an endorsement by Gael regarding my viewpoints on this topic]
So, if properly implemented, loyalty programs can be the best choice for our patients, and we should embrace them in order to provide our clientele with the best solution at the lowest price.