How to Simply Quantify the Financial Impact of a Price Change in a Vet Practice
The selling prices of products and especially services can be changed by the practitioner in order to better please the clients and stimulate the activity. But in a vet practice the leverage effect of a price change can have either disastrous or tremendous consequences on the vet income.
Materials and methods
In order to control the leverage effect of a price change we have developed a simple financial model of a vet practice with the following parameters: turnover, annual number of transactions, purchases and actual vet income.
The impact on the vet's income of the following situations were studied:
impact of a 10% price cut;
impact of a 10% price cut followed by a 5% transaction rise;
impact of a 10% price rise;
impact of a 10% price rise followed by a 5% transaction decrease;
impact of a 10% price rise followed by a 15% transaction decrease;
impact of a 5% price rise with a 5% transaction rise;
The external validity of the model was then been tested with different vets in different European countries such as UK, France, Italy, Holland, Poland, Belgium, Denmark, Sweden and Norway.
The findings were very consistent and only influenced by the importance of over-the-counter products in the turnover.
One of the key results of the model in most of the countries is that a 10% price cut in the practice means a 35% cut in the vet's income. The leverage effect appears to be huge in a vet practice.
To compensate a 10% price cut the vet must increase his workload (the number of transactions) by more that 17%. Otherwise he would be in a situation where he works more and earns less!
The demand in vet services appears to be inelastic, that is to say that clients react slightly to a price change. As a result of that, the consequence of a price change differs from what we intuitively feel. For instance a vet can easily put himself in a situation where he works more and earns less.
The model is a simple but powerful decision help tool for veterinarians to better predict the consequences of any price changes.
1. Kotler P, Dubois B (2002), Marketing Management, Publi-Union Editions, Paris.
2. Desmet P, Zollinger M (1997), Le prix, Economica, Paris.