Your home health business is completely different from the one down the street, across town or in the neighboring county. You might operate your business as predominantly retail sales, or sell add-on cash and retail products with insurance sales. You might sell Medicare-covered items, take assignment and sell those same products to cash-paying customers. Your pricing strategy should align with your branding, market situation and target audiences’ price sensitivity and Medicare (if applicable), along with a keen consideration of your competitors.
Pricing Strategy
Close attention to your retail pricing strategy—with continuous assessment of opportunities to promote, increase prices, or discount—can add to your margin opportunity or expand your market position in a category or business segment. While most businesses follow their manufacturers on implementation of price changes annually, many businesses also recognize the incremental opportunity in making regular adjustments, either opportunistically, or at intervals, such as quarterly or twice a year, to impact margins. This regular review enables the retailer to not only assess weak performers, but make adjustments on stronger performers or add new high-margin products where pricing is inelastic.
For those home health care businesses that sell Medicare-covered items and take assignment, a federal statute prohibits charging Medicare in excess of the provider’s usual and customary charge. Industry legal expert Jeffrey Baird has stated that Part B HME providers may deduct 17 percent from the Medicare allowable price for cash sales.
Keep in mind that this is usual and customary. This does not obviate you from running a promotion or special event once or twice a year of 20 percent off or more on selected items. Why? The impact on your usual and customary charge will probably be negligible. Also, you may need to do this competitively. We know that once the customer is in the store, it is your sales job to show them all product options in your good, better, best selections, should they be interested.
Understand Your Brand in Pricing
It is crucial to your pricing strategy to understand your company’s brand and position in the market, in order to leverage your pricing. If you are known as a discounter, maintaining a “deal” mentality in the consumer’s mind of pricing and promotions is paramount. An incremental price increase can occur, and you can offer coupons or special sales to maintain your image. If you are a service-driven store, the extension of opportunities such as layaway plans, financing and loyalty programs with unique services will maintain your image, while conducting incremental, selective price increases.
Jeff Kelemen, owner of Everything Medical in Las Vegas, (everythingmedical. net) is predominantly retail with more than 25,000 items in store. He’s a retailer through and through. Store branding is based on extensive selection and immediacy of service. He promotes regularly through TV advertising and sales promotions to demonstrate his pricing offers. “We have a person dedicated to regular pricing review. We offer good, better, best product selections. We can offer aggressive pricing on higher ticket items because we know we will make up the margin on upgrades in fabrics, features, batteries, etc. We monitor our categories and item margins regularly to make incremental adjustments.”
Tammy Zelenko, CEO & president, Advacare Home Services, Pittsburgh, Pa., (advacare-home.com) has four locations. Three have retail showrooms. Their primary business is sleep and respiratory services with private insurances. Advacare provides products and services to Medicare patients, but did not receive Medicare competitive bidding contracts. “Our brand position in the market is critical to our pricing strategy. We are recognized for our unsurpassed personal service and compassionate care. We are not a discounter. We know that the customer comes in for a specific need. Our emphasis is also on add-on cash/retail sales with third party insurance sales. All CSR’s are trained in add-on selling.”
Know Your Market’s Price Sensitivity and How to Promote
Not every consumer wants the cheapest price for the cheapest item. To judge a book or customer by their cover, or by their billing history is a mistake. Remember that your customer will be spending their available discretionary funds somewhere! Never assume your customer does not want to know about options. How many times have your sales people explained a product with enhanced features and the customer has purchased it? Providing good, better, best product options, or even good and better product options, enable your salespeople to demonstrate additional features and options that add comfort and functionality to daily behavior, and profit to your bottom line.
John Mswegwa, president of Medical Supplies Express retail store in Southside Chicago, Ill., (medicalsuppliesexpress.com) is a newer retailer. His business is just three years old. It has not been easy getting established. People kept asking him why he was opening a store in this location. His business is primarily cash sales and public aid. “What I’ve found out is very few people are concerned about my retail prices. For those who ask about the price, they are usually window shoppers. For those who are serious, they don’t mind the prices. When people walk into the store, they want the product. They don’t want to place an order and wait for the product. I use a pricing strategy of an ongoing discount of 15 to 20 percent on all the products, and seniors love it. I regularly monitor item pricing to achieve a specific margin objective while still being able to compete with online stores. While I have incorporated additional special deals into my pricing strategy, that strategy has not necessarily attracted new customers. I am still new and coupons are not the best method to use for now.”
How to Raise Prices
Crucial to the ability to make smart price increases is the ability to examine your product data, by manufacturer, product category, SKU (stock keeping unit) margin and volume movement. This is a function of your POS (point of sale) software, sales reporting system or billing software (as some have a retail/cash sales POS module). Without current, accurate and timely information, you will miss an opportunity or be stuck with a slug. Many HME systems, however, still do not operate like other retail systems in pricing updates that convert easily to shelf labels/hang tags and inventory updates.
Mswegwa shares, “I raise prices on selected items and on specific, unique services. Our industry is behind in systems. How do you change prices on wound care products in a week’s time? In examining selective pricing, as a medical professional I provide an in-home compression fitting service, which offers a significant margin. When I take a call on compression stockings and have to do measurements at someone’s home—that price is marked up substantially.”He furthers shares, “Generally, I use a margin formula that enables me to potentially compete with most Internet pricing. I regularly monitor items, and on some items, I am able to significantly increase the price and margin, as I have learned the demand is inelastic. Not everyone in this community is on public aid.”
“We implement annual manufacturer price increases and take a team approach to pricing, basing changes on product categories and manufacturer updates. Our pricing strategy also includes layaway at Christmas and we do special promotions using coupons during the holidays, Mother’s and Father’s Day. We offer educational programs when doing store promotions such as traveling with oxygen and safety in the home. We understand that many of our consumers struggle with cash, and the promotions and other services assist the purchase,” said Zelenko.
Experts say that when you raise prices on highly visible items, be straight about it to the consumer. Don’t camouflage it. Give a reason. Customers want a fair value for a fair price. Additionally, don’t change your promotion strategy. There’s a temptation to cut coupons, discounting, advertising and promotion. Don’t. Once again, for price sensitive shoppers, offer products of varying price levels and offer discounts. If you have always offered discounts, stick with it.
Think about the products that should get the price increases. If you adjust prices once a year when manufacturers send out price increases, examine item-by-item if each increase should be made.
Internet Pricing and Retail Location Pricing
There is not one retailer in any retail industry that is untouched by Internet pricing comparisons, and probably Amazon pricing. You are not alone in facing this business dilemma. Consumers that have shopped online assume you can honor the online pricing they found. Let’s face it; consumers find it hard to recognize that retail location services such as immediacy, available product, personal review and service, samples, tryout, fitting and comparative product information, are worth paying slightly more.
Amazon and e-books slammed book retailers. Online book reviews, consumer commentary and deep discounting hammered many large and independent bookstores. However, make note of the increase in independent bookstores now in progress with the demise of big box retailers. Independents have added services that emphasize the return-to-community movement, and offer new creative, niche services including in-store speakers, children’s programs, seminars, conferences, book clubs, workshops and more.
“When a customer brings in Internet pricing, we research the product and price. We assess on a case-by-case basis. If this is a long-time customer, we assess the long-term value of that customer (reviewing recent purchases), and recommend a price. We do not want to fall into a “negotiating every sale” trap.
Generally, if the customer has traveled to the store, he will likely make the decision to purchase the item. If this is a prospective customer, perhaps a ‘door-kicker’, we once again research pricing and again, case by case, we will determine whether we will make an offer. We always state our brand position, our service, return policy and personal assistance, before making any price adjustment,” states Zelenko.
“Not too many people show me Internet pricing,” said Mswegwa. “Some people buy from me because they don’t want to pay using their credit cards online, and some people buy because they want the products right away. For the few customers who have brought in the Internet price to show me, I will try to match it.”
“Customers want the Internet price and our service,” said Kelemen. “They don’t get why a retail store isn’t selling the item at the same price, even though as an Internet purchaser, they will have to assemble the product themselves, call an 800-number for help, pay for shipping and handling, pay for return shipping on an exchange (if allowed), etc. We usually go through this entire explanation.
As background, we conduct a competitive analysis on key items so we are not caught off guard. We review pricing, category by category. On incontinence products, for instance, we have to compete with the mass merchandisers. On other lines, we can use the MSRP (manufacturer’s suggested retail price). We will discount other items to be closer to Internet pricing, if there is less service/time involved. My good, better, best strategy does help me compete with Internet pricing.”
Also be sure to consider timing in your price increases. If you are introducing a new product or line, this is always a better opportunity to increase prices.
Lessons from Big Mistakes
We may think that pricing mistakes made by retailers in other industries, big or little, do not hold lessons for us. Not true. The recent branding and pricing blunders made by JCPenney was a colossal gamble that failed. JCPenney hired a CEO from Apple and Target. He proceeded to change the logo and branding to JCP with a new slogan “Always low prices”. Then he dropped all promotions, couponing and sales events to shift the company to everyday low pricing. The new pricing strategy, “No more sales” shocked current customers. They didn’t completely trust “always low prices.” The first quarter revenues dropped 20 percent and store traffic dropped 10 percent, and it was downhill from there.
Lesson: Know your brand, know who your customers are, what customers you want and make branding and pricing changes incrementally.
Proctor and Gamble slashed the frequency of coupons and promotions in the 90’s. They won’t do that again. If you are doing couponing, what is the marketing tip on couponing? Seniors love coupons (as do all budget conscious consumers). The sales and actual redemption do not measure success. The contact with the customer, notification they can get a special deal and the retention of the customer with incremental sales are the outcome winners.
Don’t leave your pricing strategy to a once-a-year update. Understand your own brand, your customers, and stay on top of your competition. Know what is pricing inelastic in your product mix and what pricing isn’t to make judicious adjustments for margin maximization.
Resources:
- How Companies Can Get Smart about Raising Prices 7/21/13 http://online.wsj.com/article/SB10001424127887323734304578543202877975478.html
- http://www.csmonitor.com/USA/Society/2013/0317/The-novel-resurgence-of-independent-bookstores
- http://smallbusiness.chron.com/analysis-pharmacy-industry-68343.html
- http://www.ncpanet.org/index.php/independent-pharmacy-today
- http://www.bizjournals.com/sacramento/print-edition/2012/08/03/jcpenney-marketing-blunder-offers-lesson.html?page=all
Personal interviews:
- Tammy Zelenko, President & CEO, Advacare Home Services, Pittsburgh, PA
- Jeff Kelemen, Owner, Everything Medical, Las Vegas, NV
- John Mswegwa, Owner, Medical Supplies Express Retail store, Southside Chicago, Illinois
