January 01, 2021

To make effective pricing decisions, the process you use is critical. Utpal Dholakia, PhD, chair of marketing at Rice University in Houston, urges using a consistent process to make pricing decisions for your practice.

In his talk “Why Understanding Customer Value Is Important for Pricing Strategically” during the annual AVMA Economic Summit, held virtually Oct. 26-28, 2020, Dr. Dholakia said previous research he conducted for the Veterinary Hospital Managers Association showed that many practice managers do one or more of the following:

• Don’t pay sufficient attention to pricing issues.
• Tend to use standard, one-size-fits-all pricing strategies.
• Give deeper discounts than their clients need or ask for.
• Quote prices without a clear purpose or objective.
• Prefer simple methods such as cost-plus pricing or pricing just below a competitor.
• Ignore customer value, resulting in ineffective pricing decisions for their practice.

Dr. Dholakia explained the twofold importance of pricing decisions. First, prices drive the veterinary practice’s revenues and profits, making it sustainable over the longer term, which eventually contributes to the well-being of staff members, clients, and pets.

Second, prices convey information about the quality of services and products. They help build a strong brand and create differentiation in clients’ minds.

“Every pricing strategy must include a careful consideration of customer value,” he said, but he emphasized that this often is the most neglected part of pricing decisions.

Customer value establishes the ceiling on prices and provides the greatest opportunity for matching prices to customer perceptions and knowledge. However, customer value is more than just customers’ willingness to pay, although that is part of it, Dr. Dholakia said.

“Customer value is often an unstable quantity that can be influenced by the manager,” he said, whether through marketing, communication, or managing customer experiences.

So, it follows that understanding how and why customer value changes and the triggers for those changes are important considerations in pricing decisions. It’s just as important to understand how to influence perceptions of customer value to price effectively.

Dr. Dholakia gave the example of how to make $55 for a physical examination of a first-time patient an attractive price for the client.

“Just providing a price is not enough,” he said. Context is needed for the customer to interpret the price.

A staff member could say: “The wellness examination involves a comprehensive physical examination. We examine 16 different aspects of pet behavior including diet, exercise, thirst, and breathing. An expert veterinary doctor will conduct it. We’ll provide recommendations across 10 different areas for optimal treatments to maintain good long-term health.”

In addition, the client could be told that physical examinations of this quality cost $50-$100. Or that for today only, the cost is $55 instead of $79.

He cited Hans Rosling’s book “Factfulness: Ten Reasons We’re Wrong About the World—and Why Things Are Better Than You Think”: “The most important thing you can do to avoid misjudging something’s importance is to avoid lonely numbers. Never, ever leave a number all by itself. Never believe that one number on its own can be meaningful. If you are offered one number, always ask for at least one more. Something to compare it with.”