THINKING BUSINESS
a blog by Chris Barrow

Does increasing prices reduce or increase business?

By the way, before I start, if you read yesterday’s post about my run in with the phone company – it transpires that the bill had been paid and their administration screwed up. Phone now back on thanks to Bonnie and some calls to O2 – who asked her for her post code first! Back to business – I’m going to feature some good questions from clients and my answers as part of what this blog is about.

“Hi Chris I’m interested to know your view on the effect of increasing prices. This will clearly reduce the number of patients seen and have beneficial effects on time pressures and margins (although it is suprising how little this cuts costs). Does it, however, increase turnover and, from the principals point of view, the number of dental surgery hours in the practice, or is there an inverse relationship between price and number of people prepared to pay it? As we know it can be done on the 2.5 minute check up. It appears to me that increase in price does not bring increase in turnover. What factors would you suggest we need to address to break this relationship. What was the outcome of the £3500 implant debate? Sue and I need to address the same topic, although I think we may be too cheap at present. Mind you will increase in price reduce volume? Please help Regards Mark”

Great question that I can best answer by relating a few conversations that I heard just yesterday. First, over dinner last night with a group of 10 dentists – from quite literally all over the United Kingdom – inner city, rural and remote – North and South. There was some humour and incredulity as they all expressed the view that:

“We keep increasing our prices and the demand seems to get higher, not lower. What’s going on?”

My answer to this has been consistent over the years. There are fewer dentists and more people struggling to find one – so the supply/demand curve is (currently) in favour of the dentist. British people have become sophisticated and globalised consumers, so the “don’t make a fuss” syndrome of the 60’s, 70’s and 80’s has been replaced by the “I demand great service for my money” attitude. Dentistry as a fashion accessory has “happened” in Britain in the last 5 years. More aged groups are looking at that accessory – the baby-boomers, young single women and teenagers (ortho) being three enormous markets. Having experienced the “2.5 minute check-up” and all that accompanies that business model in terms of awful customer service delivered by disinterested staff, the public are returning to the private sector.

Then let’s remind ourselves of the research by the Pankey Institute, who suggest a “corridor of profitability” between 24 and 27 hours per week of clinical dentistry. More than that and you are sheep-dipping. So that’s why, as prices go up, activity decreases (number of patients seen), demand increases, gross revenues and profit increase BUT. Here’s the “BUT”. A conversation with another client yesterday: “Chris We have increased the prices on most of our work by about 70% this year, most of which is a catch-up on previous years, but we have noticed an increase in the number of patients leaving the practice – and when asked, they are telling us our prices are too high. We are very worried.” So – is the theory blasted? Further discussion with the second client reveals: A focus on the aggressive sale of high-profit cosmetic dentistry to as many patients as possible. Having completed a sales training course, the young team of principal and associates are “gung-ho” about sales. I suspect the patients are feeling attacked and pushed. A lack of choice – everyone is being advised to take the “gold” option (the most expensive) – but the “silver” and “bronze” options are not even being offered. It’s gold or nothing. I suspect that patients can sense that lack of choice. The Patient Journey systems in the practice may not be robust – sales skills are high but the team effort to make every patient feel like royalty may be slipping. The patients feel that the practice is about making money – not about them.

So the lesson we learn here is that you can keep increasing your prices provided: You handle the communication well – soft sell. You give lots of choice and make the patient feel involved in the purchasing process. You make sure everybody in the building offers world-class customer service.

And then – when you sense the patients saying “no” or drifting away (which you must monitor constantly) it’s time to peg the prices back a little. On the subject of the £3,500 implant – the price is remaining the same – so how does that client positively differentiate from the practice down the road who will place an implant for £1500? The answer is “customer service”, not clinical skill or dental doo-dads in the surgery. Ensuring that the patient experiences excellence is what it’s about.

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