Skip Navigation LinksHome > January 2011 - Volume 64 - Issue 1 > The pricing conundrum
Hearing Journal:
doi: 10.1097/01.HJ.0000393214.93440.89
Gyl's Guide to Managing for Success

The pricing conundrum

Kasewurm, Gyl A.

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Gyl A. Kasewurm, AuD, is Founder, President, and Owner of Professional Hearing Services in St. Joseph, MI, which receives more than 16,000 patient visits a year. Readers may contact Dr. Kasewurm at gyl@prohear.net.

Figure. Gyl A. Kasew...
Figure. Gyl A. Kasew...
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Pricing is a subject that I have avoided in my columns. It's a controversial topic and yet it's a critical one because establishing an appropriate pricing structure can literally make or break a business. The conundrum is how to price products and services so they are not too expensive and not too cheap.

While there are many ways to set prices, the one that's most appropriate for you is the one that will make money for your practice. You need to be able to make a case for your pricing strategy, so when a patient looks you in the eye and asks you why you and your organization are worth their money, your answer is convincing.

Every business wrestles with the question of how to set prices because there is no magic formula to determine the right price. Before setting prices, you must first understand the market for your product or service, the channels of distribution, and your competition. You must be keenly aware of all costs and carefully analyze what is involved in those costs. The goal should be to find the price at which profit is maximized without reducing demand. Many practice owners make the mistake of setting prices based on what the competition charges. But every business is different, so pricing should be established based on what it costs to run your business.

The biggest mistake that I have seen people make is charging too little, and sometimes I find myself making that error. It's easy to get intimidated by price ads run by competitors and then to react with your own price reductions. What we charge isn't about price unless we make it about price. The prices we charge are about value–the value of hearing better and the benefits of working with a professional who has the education, expertise, and the persistence to make certain a successful outcome is achieved.

Sergei Kochkin's MarkeTrak studies indicate that patients care about cost and want lower prices. But, the fact is, “cheaper” prices have never translated into more hearing aids being sold. Just consider the connotation of the word “cheap.” Is that how you want patients to perceive your practice?

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BEST PRACTICES BEAT LOWER PRICES

Regardless of your pricing structure, a patient can always find someplace with cheaper hearing aids–the Internet, late night TV, EBay, and Costco, to name a few. But benefits always outweigh price in this industry, so instead of lowering prices, adhere to a best practices protocol consisting of a comprehensive test battery including measures of loudness discomfort and speech-in-noise testing and complete real-ear measurements to ensure that patients are deriving optimal benefit from their hearing aids. If patients understand the value of what we do, are satisfied with the benefit, and feel they are treated fairly and courteously, they won't mind what we charge.

In a successful business, prices are set to cover total costs plus some margin of profit. There are two main costs in a hearing care practice: the cost of goods sold, i.e., hearing aids, and the costs of operating the business, called operating expenses, such as employee salaries, marketing, rent, utilities, etc.

Unfortunately, some hearing professionals are uncomfortable with the prices they charge. If patients sense that insecurity, they will also be uncomfortable with the charges. It's essential that you be able to justify your charges in your own mind before presenting them to patients.

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POSSIBLE STRATEGIES

Here are a few common pricing strategies:

* Multiplier of COGS: Some practitioners establish their cost of goods sold (COGS) for a particular time period and use some multiplier such as two or three times the COGS to set their prices. Practitioners may also look at the annual survey in this magazine to discover the average price that a patient in the U.S. pays for a hearing aid.

* Manufacturer's suggested retail price (MSRP): Another traditional way to look at prices is to take the manufacturer's retail price schedule and work down. “50% off MSRP” might sound appealing to a patient, but there may be little evidence to determine if the price is reasonable or if it allows for adequate profit.

* Competitive pricing: Most practitioners know where the top and bottom ends of pricing are in their market and believe that it will be detrimental to “price themselves out of the market.” Setting prices slightly higher or lower than the competition creates a price structure that has no real figures to back it up. While it is a simple strategy, it doesn't establish a consistent pricing policy or assure you of covering your costs and generating the profit you want.

Any of these strategies may work for some businesses. But the best way to implement your chosen strategy is to contact a CPA, give them a spreadsheet of your income and expenses, and let them use their expertise to help you set your prices.

Then, of course, there is the argument over whether to bundle or unbundle your prices. But that, my friends, is fodder for another column. Keep reading!

© 2011 Lippincott Williams & Wilkins, Inc.

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