Real Life Story :

The Peril of Discounting Wellness Plans

WA Veterinarian Magazine

by Darren Osborne, MA

Nov/Dec 2014

Most “experts” have never been in favor of discounting veterinary services. Generally speaking, when you discount your services by 10%, you have to see 50% more clients to break even. Even in the highly value driven economic climate of today, it is impossible to attract 50% more clients with a 10% discount; discounts don’t work.

The same “experts” have a different opinion when it comes to wellness plans. Many recommend discounting wellness plans with a strategy that sounds a lot like a parent’s lesson on safe choices. The parent’s lesson goes something like: “Don’t do it. But, if you do – take precautions.” With wellness plans, the message is “You don’t need to discount veterinary services, but if you do discount your wellness plans, offer additional services or products instead of the cash discount.”

Admittedly, discounting the wellness plan makes it easier to sell wellness plans because the veterinarian and staff can say something like, “you need all this stuff anyway, and if you take the wellness plan, it will cost you less.” This offer gives veterinarians more confidence to sell wellness plans. With more confidence, they do a better job of presenting the wellness plan and they sell more plans. Selling more plans is better for both the client and the practice but the underlying issue is, after accounting for the discount, are you better off? How many more plans do you need to sell to break even?

One veterinarian, who was seeing huge success with discounted wellness plans in her hospital sat down and did the math and realized that she could not afford to offer discounts. Even though she was selling a lot of wellness plans, she was worse off after the discounts. Her analysis showed she would have been better off not offering the wellness plans at all.

When she developed her wellness plans she listened to the expert’s recommendations regarding discounting and offered free product instead of a cash discount. She gave clients free flea/heartworm meds with every wellness plan. She rationalized that the free product in the hand of the client was worth more than a discount of the same amount because the benefit from the product will be remembered every time the client uses it verses a discount that could be forgotten as soon as the invoice is folded. Another benefit of offering free flea/heartworm product was that her cost of the product was less than the retail price so the client’s perception (at value price) was significantly higher than her cost. She essentially paid half of the total value to the client. She compared her cost of the product against a 10% discount in price and decided that it was cheaper to offer the product.

In the first year of introducing wellness plans with free flea/heartworm product, she sold plans to more than 20% of her clients.

At the end of a very successful first year she analysed her revenue and expenses from wellness plans. To her surprise she realized that her offer of free product was costing her more than she thought. Because she was operating on a smaller margin with the giveaway, she calculated that she would have to see a 24% increase in wellness revenue to offset the discount of free flea heartworm. She looked at the clients who purchased wellness plans in the first year and realized that most of them were her “A” clients and were already getting all the services and products offered in the wellness plan. Now they were getting it with a steep discount in the way of free product. Revenue from clients with wellness plans was up, but not up 24%.

In hindsight, it could have been worse. While determining whether or not to discontinue free flea/heartworm product, the veterinarian calculated the impact from a 10% discount on wellness programs. The numbers were even worse. It turned out that she would have to sell 32% in revenue to make up for the shortfall. She realized she was better off to have a lower number of wellness plans at full price than to offer discounts and try to gain enough volume to offset the losses.

When wellness plans came up for renewal she started charging full price for the wellness plans that included full price for flea/heartworm medication. Most clients did not notice the change in price and the ones that did asked why the price had gone up. “I simply can’t afford to give the product away,” was her answer. She went though the benefits of the wellness plan with these clients and realized that clients were purchasing her wellness plan because they valued the services in the plan.

Three months later, not only were renewals on track, but the number of wellness plans was up over the first year. The discount was not as big a draw as she thought – many clients said that the offer to break up the cost of the plan into monthly payments was what helped them make up their mind. Easing the burden of the payments was enough of a motivator.

— Darren Osborne is a veterinary economist at the Ontario Veterinary Medical Association. He can be reached at [email protected]

Because she was operating on a smaller margin with the giveaway, she calculated that she would have to see a 24% increase in wellness revenue to offset the discount.