Article Date: 10/1/2004

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The Truth About Incentives

Do your incentives entice patients, or do patients just like your practice?
You may not realize it, but you could be mismanaging your staff. Find out.
By Gary Gerber, O.D.

When I was an undergraduate student at Indiana University in Bloomington, pizza delivery to my dorm room was so common that the person taking my order recognized my voice, knew how I liked my pizza and had memorized my address.

Attached to every pizza box was a small white card, about the size of a business card. When you collected 10 of these cards, your next pizza was free. But cards or no cards, I was a devout Swing Inn Pizza customer and I was going to order my next sausage-and-pepperoni pizza from them -- no one else.

Building patient loyalty

Many of our clients have experimented with various types of patient loyalty programs. The intent is to induce current patients to refer friends and family. In exchange for these referrals, they give the original patient an incentive such as a discount on future eyewear purchases, an account with "frequent referrer points," Dr. Jones "Bucks" for use as cash in the practice and other interesting and creative enticements. They also give the new patient a discount.

So do these programs work? Do they actually generate new referrals and profits that the practice wouldn't have gotten if it weren't for the program? Our consulting company's research says no -- and here are the two main reasons:

#1: THE POWER OF THE DISCOUNT

I'm talking about the power to trash your bottom line -- not the power to gain new patients. Realize that anything you give away (gift certificates, baseball tickets, etc.) or discount comes directly off your bottom line. Consider:

 

Average sale = $250

Cost of goods sold (COGS) = 30% = $75

Office overhead = 30% = $75

Average practice net = $100

Here's the same breakdown with a discount program that gives current and new patients 20% off their next purchase:

 

Average sale = $250 - 20% = $200

COGS = 30% = $75

Office overhead = 30% = $75

Average net on this discounted sale = $50

This seemingly innocent 20% discount costs the practice 50% on its bottom line -- two times! The actual hit on the bottom line is even more severe after you factor in the cost of starting, tracking and maintaining the program. To make up the loss ($100) from this one referral, the practice needs another new full fee-paying patient! And if the practice maintains this program for that new patient, it's once again cutting its profits in half.

#2: WHAT'S THE REAL INCENTIVE?

We interviewed one client's patient on the phone and after asking the usual, "How was your experience in the office?" we followed up with, "How likely are you to refer another patient because of the practice's incentive program?"

"Funny you should ask me that," she answered. "I've been coming to Dr. Joe for four years and I've probably sent 10 people to his office. I sent them because I thought it was a great office, not because I was being paid to do so. I was a little put off by being offered something for my referrals and would be uncomfortable taking something." This response was representative of many others.

"Negative advertising" happens when you decrease business because of advertising -- or in this case, because of a particular promotion. The moral of the story from this patient and other like her was quite clear -- some patients might actually be offended by an incentive and actually decrease their established referral pattern!

Confession of a pizzaholic

Swing Inn Pizza, if you're still out there, it's been about 30 years and I have a confession: I was going to call and order the pizza from you anyway. You didn't have to give me a free pizza to do it!

Dr. Gerber is the president of the Power Practice, a company specializing in making optometrists more profitable.  Learn more at www.powerpractice.com or call Dr. Gerber at (800) 867-9303.

 


Optometric Management, Issue: October 2004