The focus of a recent lecture given by Michael Dicks, PHD, the AVMA’s Director of Veterinary Economics, at the VHMA Annual Conference focused on the need for veterinarians to embrace a Blue Ocean Strategy, a concept he took from a book by the same name. Here is a brief explanation of what is meant by a Blue Ocean Strategy:
…companies can succeed by creating “blue oceans” of uncontested market space, as opposed to “red oceans” where competitors fight for dominance, the analogy being that an ocean full of vicious competition turns red with blood.
They assert that these strategic moves create a leap in value for the company, its buyers, and its employees while unlocking new demand and making the competition irrelevant. 1
Dr. Dicks asserts that veterinary practices need to adopt a Blue Ocean Strategy by creating and capturing new demand and breaking the cost-value trade off by changing the practice business model to one of differentiation and low cost. He points to AVMA and U.S. Census Bureau data which shows that in the current landscape only 20% of veterinary practices are large and corporately owned, but that this 20% actually controls more than 50% of the market share. Privately owned practices, with an average of 2.38 FTE veterinarians, must act and think differently if they want to retain and regain more of the pet owning population.
In particular, Dr. Dicks highlighted the addition of monthly billed wellness plans as a Blue Ocean Strategy for practices, and he shared additional compelling data from the AVMA and U.S. Census Bureau to prove his point:
- Veterinary practices continue to raise fees far above the rate of inflation – a completely unsustainable model
- While the U.S. economy has shown moderate growth for 97 months, the veterinary profession’s KPIs have been trending downwards
- And while the pet population and human/animal bond has and continues to increase, the number of practice visits/invoices has continued to decrease
Another interesting statistic he presented was the lifetime value of a 12 year old dog, which according to AAHA is approximately $17,700 (100% compliance on AAHA SOCs). That is a lot of money. And yet the average practice captures just $3,600 of this revenue. That presents a 5x opportunity for most practices just with their current client base! And if the average practice captures just 1/5 of the lifetime value of a pet, where is the rest of that care being performed now? Most of it just isn’t being done, and what is being done is often spread out over multiple practices, as pet owners search for the ultimate experience at a lower cost.
Why Wellness Plans as a Blue Ocean Strategy?
According to Dr. Dicks, monthly billed wellness plans are an essential part of a Blue Ocean Strategy for the following reasons:
- The health and wellbeing of animals must be a core practice value. Offering wellness plans exemplifies a practice’s commitments to providing optimal care for all pets at an affordable price.
- High quality care must be affordable so that pet owners are in a position to purchase more services and provide optimal care. Wellness plans do just that.
- Face time with pet owners must increase in order to educate them on important topics such as prevention, behavior and diet. As more pets move to the bed, rather than sleeping outside, on the floor or in a dog bed, their ‘parents’ seek information on these topics, and they will find it elsewhere if their veterinarian does not provide it. Wellness plans work like a membership program and provide a forum for increased pet owner education.
Overall, his argument is incredibly persuasive; practices that continue to employ a Red Ocean Strategy, which equates to annual price increases above inflation among other traditional competitive strategies, will not survive unless they change course. Even more importantly, he makes clear that this cannot be an either/or situation – either high quality care or low prices. Instead, practices must find a way to break the value-cost trade off. Wellness plans do just that.
1 W. Chan Kim and Renee Mauborgne, Blue Ocean Strategy. Harvard Business Review, 2005