Will incentives help the bottom line?

Article Outline

• Affecting the bottom line
• Does incentive marketing really help?

Consumers love incentives and often will make buying decisions based on their receipt of discounts, gift certificates, and product giveaways. People like getting something for nothing, and unless the roast beef or pastrami is stale, the car exits looking as dirty as when it entered, or the room had bed bugs, many are willing to go miles out of their way to use those retailers who give away a free hero, car wash, or hotel room after punching their ticket for the eighth or tenth time.

This can be a good way to draw traffic to a business or introduce consumers to a new product or service. Yet, it raises the following key questions: How long can that business continue to give away its product or service for free and still be profitable? Will these incentives continue to attract these same consumers once the promotion eventually ends? And, most importantly, does it really instill customer loyalty? Unless the product or service is viewed as superior, the reality is that many consumers are simply there to take advantage of the bargain. Once it ends, they are very likely to jump to a competitor because they no longer perceive the product or service as offering greater value or convenience.

In the hope of attracting new patients to the practice, many eye care professionals tinker with implementing patient loyalty incentive programs that focus around patient referrals. For bringing in a friend or family member, the practice typically will give both existing and new patient a discount on their next pair of glasses or lenses or gift certificates they can use for future products or services.

It all sounds like a very nice way to thank patients for bringing others into the practice. Yet, when it comes down to it, how effective are these programs in bringing in both new referrals and increasing profits? History tells us that it usually is not very successful for 2 reasons: the impact it has on the bottom line and the question of whether a professional service—unlike a pizza delivery or rug cleaning business—actually benefits from such incentives in the first place.

Back to Article Outline

Affecting the bottom line 

Before considering any discounts, an eye care professional needs to take a hard look at how an incentive campaign will impact on profitability. Take the following scenario as an example:

Let's say the average pair of eyeglasses costs $300. The cost of goods sold (COGS) is equal to 30% of this, or $90. Office overhead costs are another 30% or $90. Subtracting these expenses from the purchase price leaves a net of $120 for that pair of eyeglasses.

Now take that same pair of eyeglasses when giving away a 20% discount. This drops the price to $240. Deducting the same fixed costs as above reduces the net to $60. As a result, the 20% discount costs the practice 50% twice (for the existing and new patient) before even bringing into the picture the additional costs of starting, tracking, marketing, and maintaining the program. To make up for the loss of this one referral necessitates adding another full fee-paying patient to the practice.

Back to Article Outline

Does incentive marketing really help? 

Even more importantly than the loss of profitability—some practices are willing to generate revenues and add patients even if profits are cut substantially—is the question of whether such incentives are really effective in the first place when it comes to convincing patients to refer their family members and friends to the practice.

Most people, in fact, do not go out on the street looking to refer others simply because they want to save $20 on their next purchase. They make the referral because they like the doctor and staff, believe in the quality of the service provided, and want to help out those they care about by directing them to a practice they trust.

In some cases, an incentive campaign may actually have a negative effect. Some may be turned off by the promotion, viewing it as an attempt to buy their affections and, as such, may actually be less likely to refer for this reason.