Article Date: 10/1/2001

Cover Story
How Wall Street Sees You
What you can learn from these experts to improve your contact lens practice.

Wall Street analysts who evaluate contact lens manufacturers and optical retailers have many insights that you can apply to your practice. Not only that, but you can use the same processes they use to analyze contact lens-related, large-scale businesses to evaluate your practice.

Analysis of analysts

Before we hear their wisdom, note that analysts are known to fully immerse themselves in the markets and the companies they cover. Good analysts don't just pore over company reports and market data to understand how a company is doing and will likely do in the future. They spend countless hours talking with business executives, their competitors and consumers.

"In the contact lens field, we put ourselves in the shoes of the three Os to assess what we'd need as practitioners, where the key problem areas are and how well a company understands the dynamics of the market," said veteran contact lens company analyst Chris Cooley, who's senior research analyst at Midwest Research in Nashville.

So how would your practice fare at the hands of Wall Street analysts? Would they find your practice profitably focused, on the front end of emerging market trends, growing and with a growth plan?

Analyst Suey Wong, of Baird & Company in Milwaukee, stated that, "Many O.D.s are great clinicians, but they don't necessarily think in terms of building the business aspect of their practices."

Retaining prescriptions

At the grass-roots level of analyzing a contact lens practice, Mr. Cooley explained that a key point is learning whether a practitioner knows how to retain not only the patient, but also the contact lens prescription. A quality exam will help retain patients, but you need to know what contact lens products help you keep the prescription. "Therefore," he said, "you also need to understand who and what products are competing with your contact lens prescriptions."

Matching your patients' needs

While it's important to understand what your patients want, it's equally vital to evaluate macro market trends. Said Mr. Cooley, "It's one thing to be competitive in today's market, but if you're not cognizant of how the market evolves, you'll end up behind."

He suggests that practitioners look carefully at the demographics of their patient bases and what they're likely to look like in a few years. How will presbyopes fit in? What are the lifestyle issues that can help you determine your product offerings to stay ahead of the market?

If your patient base is likely to mainly consist of young people, then consider colored lenses and daily disposables as your growth sector. But if the community is aging, then begin creating your reputation as a multifocal specialist. Or, if your community is drawing young working professionals, then go with lenses that cater to this group -- daily disposables or extended wear for convenience, toric lenses for sharp vision, multifocals for working presbyopes and sports lenses for weekend athletes.

What's your product mix?

When analyzing contact lens companies, Mr. Cooley said he assigns a greater value to specialty lenses such as premium spheres, torics, multifocals and colored lenses "because they're differentiated products that the practitioner can provide. They're the sizzle that gives the consumer a reason to come to the practice.

"Today's optical consumer is probably far better versed in the benefits of ocular health and products that are available. Because of this heightened level of awareness, the consumer is more cognizant of value-added features," said Mr. Cooley. He added that, "this is favorable for both manufacturers and practitioners because specialty lenses typically carry a premium price.

Analyst Wong agreed. "Today's successful lens companies are marketing higher-margin specialty products. Appreciate these industry developments for what they are -- opportunities for growth. The market is expanding quite a bit," he said, noting that national consumer advertising campaigns are planned for some new entrants into the colored lens, extended wear and other specialty lens markets.

What's your strategy?

Offering high-end services that carry a premium price and increase patient loyalty isn't the only strategy for success in the contact lens arena. Manufacturers and practitioners have two other strategies from which to select. One is volume in a commodity segment, such as clear disposables. The other is to offer a broad selection of products.

To determine which works best for you, look at your patient demographics and your staff.

According to Andrew Jay, director of medical technology practice at First Union Securities in Boston, "The commodity strategy requires high volume because profit margins are low. This strategy also works best in cities where you see many patients and typically not as much loyalty. The high-end strategy also works in urban areas where a significant number of patients have special needs."

As more contact lens makers vie for the specialty lens market, more doctors will try to capitalize on that as well. But it may not suit everyone. For example, a practitioner who has high staff turnover should probably steer away from that segment until the practice is stabilized.

What happens if the market is flooded with doctors seeking to serve the specialty lens market? Mr. Jay addressed this question.

"It's true, for example, that more doctors are fitting toric lenses and improving their fitting skills, but in every class you have A students, B students and C students. You'll always have a need for the A-student practitioner who can differentiate himself."

Are your patients loyal?

Brand loyalty and patient loyalty are other considerations in Mr. Cooley's analysis. He explains that how loyal practitioners -- and ultimately patients -- are to a maker's brands tells us a lot about how lenses really perform. But he cautions that brand loyalty is different from creating just enough wearer satisfaction that patients are content.

Mr. Cooley also looks at companies' methods of creating brand loyalty -- through channel exclusivity, helping practitioners with marketing allowances or tailoring the business, or direct-to-consumer advertising. Practitioners can employ some of these strategies as well.

Channel exclusivity, or private labels, are helpful if they increase the patient's perception of value -- and as long as pricing, margin and comfort are comparable.

Perhaps surprisingly, none of the analysts mentioned price of contact lenses as a factor of paramount importance. As Mr. Wong said, "People think of contact lenses as a functional necessity." Even upgraded products, such as colored contact lenses, aren't an impediment to most people. "They're still an inexpensive way to pamper yourself," he said. Price does play a part, analysts say, but it's just one factor. (See "Distribution: The Rest of the Formula".)

Determining value

Valuation is the final factor in Mr. Cooley's analysis of contact lens companies, some elements of which are also applicable to optometric practices. Mr. Cooley said that he compares a company he's analyzing to similar indices. For example, he looks at a contact lens company's performance compared to an index of healthcare companies -- not a broad index such as the Dow Jones Industrial Average.

Even if an O.D. isn't trying to compare his practice's financial performance to others in the same field or similar fields, Mr. Wong suggested that he compare his own results and practice growth from year to year.

"Practitioners can look at sales growth, earnings growth and profitability. They can do much to help you improve your bottom line."

Encourage word-of-mouth referrals, and think in terms of how to make another sale. If a patient wears clear lenses, suggest upgrading to colored lenses. Display in-office table tents and point-of-purchase materials.

Also, tap into the expertise of vendors' sales reps. "Don't view the sales rep as an annoyance, but as someone who can build the practice. This is truly a team effort where both parties' interests do well," said Mr. Wong.

Make the most of it

Mr. Wong said that most practitioners should see growth year to year, just as contact lens companies should. "The demographics are favorable. Generations X and Y are coming into prime contact lens-wearing years. With new multifocals, there's an opportunity to keep Baby Boomers in the market. It's a great time to be in the contact lens business." These are words for contact lens manufacturers and practitioners to grow by.

So make the most of these increasing opportunities to retain your contact lens wearers and their prescriptions. Give them what they want and you'll ultimately get what you want -- a loyal, growing patient base.


Distribution: The Rest of the Formula

Convenience, not price, stands out to analysts who evaluate the business of contact lens distributors. Andrew Jay, director of medical technology practice at First Union Securities in Boston, said, "1-800 Contacts' pricing is competitive, but what they're really selling is convenience." He says that practitioners can easily replicate the convenience angle.

You can't completely overlook price, though, said Jeffrey S. Stein, managing director with McDonald Investments in Cleveland. "Initially, it's price, but ultimately it's convenience. Customers often select the most expensive shipping option. It's more critical for them to have it in 48 hours and that the place they're buying from has it in stock," he remarked.

Convenience clearly sells. 1-800 Contacts has a 75% repeat rate. "That tells you something. They have it in stock, they provide good service and reliable delivery," commented Mr. Stein. And the price is competitive because of the lower overhead. "An optometrist may have payroll and rent percentages embedded in his cost structure."

Practitioners can learn a lot from the success of contact lens distributors. Mr. Stein also stated that, "Practitioners can capitalize on this trend in spades" by allowing their patients to reorder lenses via their Web site or use direct-to-patient shipment options from vendors. "There's no reason for an individual to go to a distributor if the doctor can offer similar convenience and similar pricing."

What's more, "not everyone feels comfortable buying through the mail," Mr. Stein said, noting that only practitioners can offer patients the full range of options.

So much for theory, though. According to a July e-mail survey of 410 practitioners conducted by CIBA Vision, 55% of practitioners say their practices have a Web site, but only 16% are selling lenses online. In other ways, practitioners are trying to make re-ordering contact lenses convenient. In another recent CIBA Vision survey of 388 practitioners, 71% of respondents said they use some manufacturers' direct-to-patient shipment programs and 90% offer direct delivery of contact lenses to patients via mail or courier.

However, most say that patients are re-ordering their contact lenses in traditional manners, such as by telephone or in person. One-third of the practices offer a voice mail option for reordering lenses, while 26% offer an after-hours answering service, 24% encourage e-mail, 20% accept faxes and 11% take orders via the Web site. This survey, conducted in August, also showed that specialty lens wearers were less likely to shop alternate sources than 2-week disposable lens wearers.

-- M.B.


Optometric Management, Issue: October 2001