Market Watch: A new model: Look for opportunity

Previously, I have raised the specter of alternative providers of veterinary services and products. The Veterinary Care Usage Study released in early 2011 pointed out that "fragmentation of the industry" is one of the significant factors contributing to declining pet visits to veterinarians. We used to talk about the fact that there were too many veterinary facilities—too many X-ray machines, too many surgical suites, too many clinics that were not being used to their potential. Certainly that must be considered. But, increasingly, the fragmentation has been in service and provider options.

Emergency care

Veterinary care used to be a one-stop market. How things have changed. Forty years ago, emergency facilities were established largely with the intent of allowing veterinarians to eliminate after-hours calls. Emergency facilities probably lengthened the career, if not the life, of this veterinarian. Emergency care was provided, and the patient and client were referred back for follow-up care, including ongoing nursing and surgery.

Bait the hook: Pet owners now have many options for filling their pets' prescriptions. Examine your pricing to make sure your clients don't get lured away.

Today, many emergency clinics provide sophisticated care far beyond triage and "a kiss and a promise" treatment. These facilities are staffed by veterinarians skilled in emergency care and frequently have incorporated specialists in critical care, internal medicine and surgery in the same facility. The primary care veterinarian may have little role in the emergency care and follow-up of a patient until the crisis is resolved. What has happened to your major surgery load in recent years? How many complicated medical cases do you hospitalize and manage in your clinic?

Vaccinations

Preventive care such as vaccination was once available only at a veterinary practice. Mobile vaccination clinics are nothing new to much of the country, but they are increasing in number, visibility and, yes, convenience through a growing presence in strip malls and at chain stores looking to provide another reason for people to visit them. Many pet owners associate vaccination as the primary reason they visit a veterinarian. Once that need is met, they don't see a lot of reason to go to the veterinarian. We already know that office visits are declining in number. What is happening to your vaccine numbers?

Spaying and neutering

Animal shelters provide early spay and neuter services and, in fact, insist that adopted pets be sterilized before adoption. What has happened to the number of spay and neuter procedures performed in your facility in the last five years?

Flea and tick control

Flea and tick control product sales have declined significantly in most veterinary hospitals. Online pharmacies have impacted veterinary drug sales in hospitals. In addition, today, over-the-counter flea and tick products are available at a number of local sources from pet stores to supermarkets and hardware and home improvement stores. Supermarket pharmacies and chain pharmacies are filling veterinary prescriptions at minimal fees as a convenience to their shoppers. Some major chains are experimenting successfully with inventorying full veterinary product lines and encouraging their customers to fill their pet prescriptions there while they shop. How are we ever going to compete against these market giants?

Reconsider your pharmaceutical pricing

Well, the news may not be all bad. But we will have to make some changes. Flea and tick control product sales have been hard hit, but the worst may be over. In a recent survey of more than 2,000 dog and cat owners, only 32 percent of respondents said they would likely purchase from a source other than veterinarians. About the same number will definitely continue to purchase from veterinarians, and roughly a third will likely purchase from their veterinarians. Of course that is "all things as they are."

A change in how we price and pre-sent these products could well swing the numbers back our way. Continuing to market and price product as we have in recent years, however, will drive more people to consider the commodity price rather than the value of these products. I do not think our pharmacies will disappear—at least not in the immediate future—but I do think we need to revisit the intent and structure of our dispensing approach. Markups such as "2.2 times cost plus a packaging fee" will no longer float in a time when some pharmacies are charging a flat $5 or even $10 fee for prescriptions, and, in fact, some supermarket pharmacies will fill prescriptions for common drugs for no charge at all.

The same truth likely holds true in the rest of our pharmacy. We simply cannot continue to mark up drugs at 2.5 to 3 times our cost. Heartworm and flea and tick super product prices are no longer in a black box. Pet owners have access to information and prices as close as their smart phone. So do you. Don't price match when challenged. Set your price in the range of what discounters charge.

Your payoff

A recent survey of pet owners reports that veterinarians who made available lower-cost products or source options demonstrated a concern for their patients and clients and consequently were held in higher esteem for the commitment. Further, less costly products may free up money earmarked "for the dog" for services and healthcare—$50 less spent on products may well translate into $50 more spent on healthcare other than products.

Pet care expenses are generally discretionary spending, and often pet owners have a budgeted amount when they go to the veterinarian. Reducing the cost of certain products that have become commodities will free money for other indicated services. So we have to learn a new way of thinking about pharmacies, and we have to stop relying on dispensed products to buoy our financial flow.

Dr. Paul is a veterinary consultant and a founding member and former executive director/CEO of the Companion Animal Parasite Council. He has served as president of the American Animal Hospital Association. He lives in Anguilla in the British West Indies.