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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.
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
#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