Refractive surgery is relatively inelastic
For some products, a price change will cause slight or no changes in demand. Refractive surgery is an example of this type of product. For instance, when surgeons needed to increase prices to offset additional costs incurred by custom ablation or femtosecond lasers and increased prices, demand did not fall.
We could argue, based on our experience, that increases in refractive surgery prices correlate with increases in demand. Why might this be so?
Price communicates quality
An old adage you’re likely familiar with is “you’ll get what you pay for”. When it comes to a bottle of wine, the adage is true:
“According to researchers at the Stanford Graduate School of Business and the California Institute of Technology, if a person is told he or she is tasting two different wines—and that one costs $5 and the other $45 when they are, in fact, the same wine—the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is enjoying the more expensive vintage.”
In short, we believe more expensive things are more valuable, and we also experience them as more valuable.
How to increase your prices without worrying about losing customers
Nick Kolenda, an expert in marketing psychology, suggests you adjust prices based on the just noticeable difference (i.e. the difference that is just noticeable).
For example, if your LASIK price is 2000 an eye, an increase to 2400 will be more noticeable than an increase to 2100.
I know, that’s obvious.
However, many refractive surgeons fail here. They are scared to raise their price, so they wait until it’s absolutely necessary. By that point, however, they need to raise their price by a wide margin.
So, what’s Nick’s advice?
Use frequent (yet smaller) prices changes. Avoid waiting until the moment of desperation.
Plus, if your price stays the same for years, then customers become accustomed to this price. Any change will be highly noticeable.
We’ve implemented Nick’s advice with our customers by raising their prices every quarter to reach an overall annual price increase. What this looks like is this:
- On January 1 the price is 2000
- On March 1, we raise it to 2100
- On June 1, we raise it to 2200
- On September 1, we raise it to 2300
- On January 1 (the next year), we raise it to 2400.
What we’re doing is incrementally raising the price by 100/eye every quarter, or 400/eye over a year. The advantage of this approach is two-fold:
- We assume that prospects in the market notice an increase of 100/eye less than they would an increase of 400/eye. This is especially the case when we present prices as monthly amounts on web pages and in sales conversations (i.e. 83.33 to 87.50/eye/month doesn’t feel significant). Since starting the pricing campaign, surgical volumes show an increase in demand and we’ve encountered near ZERO price resistance, so this assumption has a base in fact.
- Our customer has been charging more per eye (on average) over the year, which has made them more profitable faster than if they had waited to raise their price on a yearly basis by the same incremental amount.
When it comes to pricing strategy, this is the tip of the iceberg
If you like what you’ve read here, then you’ll love the other 49 pricing ideas we share with our customers when advising them on pricing strategy. If you’re interested in discussing this and other strategies to grow your revenue and profits, let us know and we’d be happy to talk.