The price is right
The Pet Owners Economic Value Study reveals what pet owners are willing to pay for veterinary care. Clients ages 19 to 29 are an attractive customer segment.
No matter what we, the veterinary profession, want to charge for veterinary care or think we deserve to be paid, the ultimate decision is made by pet owners, who take into account the value they see in the services we provide. What pet owners are willing to pay can be influenced by education, a better product or service, or a great client experience, but they still determine what veterinary care is worth. We have to accept that fact or offer a product or service that they value more.
Until now, we have had little direct information about the specific dollar amounts that pet owners are willing to pay for particular services and what aspects of the veterinary visit would induce them to pay more. The August 2019 release of the Pet Owners Economic Value Study adds a new dimension to our knowledge of pricing in veterinary medicine.
The study was conceived by and spearheaded by the Veterinary Hospital Managers Association and co-sponsored by CareCredit, Nationwide and Merck Animal Health. The primary author was Utpal Dholakia, Ph.D., a marketing and pricing expert and the George R. Brown Professor of Marketing at Rice University’s Jesse H. Jones Graduate School of Business.
The study was conducted through a nationwide online survey of dog and cat owners and covered a diverse range of ages, household incomes and geographic locations. The study of 1,949 dog owners and 1,533 cat owners employed the price sensitivity meter (PSM) methodology of evaluating customer willingness to pay for veterinary services. This technique is widely used across different industries to discover the economic value that consumers place on products and services.
What Would You Pay?
The first section of the survey identified what pet owners were willing to pay for common services provided by companion animal general practices. Among them:
- An essential vaccination package that included a physical exam and all vaccines required to keep the pet safe from common diseases over the next year.
- Physical examination.
- Spay or neuter, including pre-anesthetic bloodwork, anesthesia, surgery, IV fluids, and appropriate pain medication during and after.
- A dental care package that included pre-anesthetic bloodwork, a full cleaning, any minor extractions, dental X-rays, pain medication and antibiotics, if necessary.
- Parasite testing, including fecal and heartworm tests.
- Basic laboratory tests, including CBC, blood chemistry and urinalysis.
- An X-ray package that included two views and in-house interpretation.
- A pay-by-the-month preventive care plan that included an annual exam, core vaccinations, parasite testing, and year-round parasite prevention using appropriate medications.
So, what did pet owners say they were willing to pay for these services? The first two tables (Figure 1) show:
- The preferred price, or what pet owners considered to be an attractive or desired price for the service. Think of it as a customer-friendly price that provides a good balance of costs and benefits and delivers good value.
- The reference price, or a common and reasonable price available in the marketplace, according to the customer.
- The acceptable price range. Prices outside the range were considered so low as to be suspicious or so high as to be unaffordable or unwarranted.
The pet owner responses showed:
- By and large, dog owners have a higher willingness to pay for veterinary care than cat owners.
- Female pet owners place a higher economic value on some veterinary services.
- Rural pet owners, both dog owners and cat owners,
- have a lower willingness to pay for veterinary services compared to urban and suburban pet owners.
- Pet owners in the New England states report greater willingness to pay for many services. The other four geographical groups had no systematic differences.
- Pet owners ages 19 to 29 have a higher willingness to pay for many services. Respondents in the 50 to 59 and 60 to 69 age groups have a lower-than-average willingness to pay for many of the services.
- For some services, the respondent’s willingness to pay generally increases with household income. For other services, no clear trends were found.
Not surprisingly, the preferred, or customer-friendly, price is less than the reference or perceived reasonable marketplace price.
Annual Spending on Pet Care
The study participants were asked about annual veterinary care spending. The first question was “What amount do you consider as reasonable to spend for your pet’s medical care each year, including preventive care services, when your pet is sick and emergency care?” (See Figure 2.)
By comparison, the average spent per dog by dog-owning households that visited a veterinarian in 2016 was $308, according to the American Veterinary Medical Association’s Pet Ownership and Demographics Sourcebook.
Again by comparison, the average spent per cat by cat-owning households that visited a veterinarian in 2016 was $177.
The second question was “What amount do you consider as reasonable to spend for your pet’s routine preventive care such as vaccinations, parasite testing, flea and tick preventives, heartworm preventives, and similar services each year?” (See Figure 3.)
Annual spending responses were again broken into various demographic segments and showed:
- Dog owners are willing to spend more annually on their pet’s total medical care (preventive care and sick pet care) than cat owners.
- Dog owners with the greatest willingness to spend on their pet’s care are male, those from urban areas, those living in the Southern states, those ages 19 to 29, and those earning over $85,000 annually.
- Cat owners most willing to spend on their pet’s care are male, those from suburban areas, those living in the
- Midwest, those ages 19 to 29, and those earning over $85,000 annually.
- Dog owners are willing to spend more annually on their pet’s preventive care than cat owners. The most-willing group of dog owners is the same as described above.
- Cat owners having the highest levels of willingness to spend on preventive care are female, those from urban areas, those living in the New England states, those ages 19 to 29, and those earning over $85,000 annually.
The report noted that pet owners ages 19 to 29 emerge as an attractive customer segment because of the high value they place on veterinary services and their willingness to spend the most annually on health care overall and preventive care specifically.
What Appeals to Pet Owners
In the last section of the Pet Owners Economic Value Study, respondents were given a list of these 16 services or service features and asked to indicate their propensity to pay a premium price:
- Offers extended hours (evenings and weekends).
- Offers appointment booking online.
- Sells pet medications and food from their online store.
- Explains things well and involves me in the decision-making process about my pet.
- Makes a house call to see my pet in my home.
- Is accredited by the American Animal Hospital Association.
- Has Fear Free certification.
- Has Cat Friendly certification.
- Has friendly and knowledgeable staff who remember me and my pet.
- Respects my time so I don’t have to wait for my pet to be seen by a doctor.
- Offers overnight care when needed.
- Offers morning drop-off and evening pickup options.
- Offers a pickup and drop-off service to and from my home.
- Offers 24/7 virtual access to a veterinarian through the internet.
- Allows same-day appointment scheduling.
- Offers multiple payment options.
Responses for each feature were assessed using a five-point scale ranging from 1 (“I would not be willing to pay anything extra”) to 5 (“I would be willing to pay significantly more”). The results in Figure 4 show the percentage of pet owners who ranked the service as a 4 or 5, meaning they were willing to pay more.
The top three services and service features valued most by dog and cat owners are the availability of house calls, overnight care and extended hours. Dog owners are more willing to pay for these services.
What Does the Study Tell Us?
There’s not enough room to dissect all the information in the study; however, here are seven initial conclusions:
- The study provides specific dollar amounts that are in pet owners’ minds when they think about veterinary care and decide how much care they will provide and where to get that care. While the reference price for a physical exam in this study is similar to quotes in the AAHA Veterinary Fee Reference and the 2017 Well-Managed Practice Benchmarks Study, most of the prices that pet owners consider to be “reasonable” are below the averages seen in the published fee references and in many practices. This isn’t a surprise given that most practices feel pushback about the cost of veterinary care and many don’t get the desired client compliance with their recommendations. Individual practices can use the study to gain a better understanding of how much their prices differ from what pet owners value and are willing to pay. Reviewing the percentage of clients who accept the practice’s basic recommendations at the price the practice charges can help with understanding where the practice might need to think about pricing. Of course, pet owners might not accept a recommendation for multiple reasons, but the price must be considered one reason. Higher prices in a practice don’t mean the practice should lower all its fees, but this does mean the practice might be more limited in future fee increases unless it can provide greater value to the pet owner.
- Support for higher prices has to involve something the pet owner wants and finds value in, not what the veterinary practice thinks the pet owner should want. Interestingly, overnight care is one of the most valued services that pet owners say they will pay for, and yet it is one many practices have moved away from. Emergency clinic care is available in many communities but is almost always less convenient and more expensive for the pet owner, and easier for the general practice.
- The acceptable price range for dentistry services is very low compared to the time and cost incurred in providing such services. This is clearly an area in which client education is needed. This education should include why the dental services are needed, the effort the practice must expend on this work and what the pet owner can do to reduce future dental costs.
- Many practice leaders would consider the amounts that pet owners are willing to spend annually for all medical care to be reasonable for preventive care and basic sick-pet services, but not enough to cover a serious accident or illness. Many pet owners don’t have a realistic understanding of the cost of a major accident or illness. Educating them about these costs and payment alternatives will prepare them better.
- Pricing strategies aren’t just about the percentage by which fees should be increased. The goal of pricing changes is to increase profits, and this can often be done in other ways via strategic bundling of services and discounts and offering good/better/best service packages or pricing a service at a level that stimulates volume.
- Raising prices isn’t the only way to improve profitability. Profits also can be increased through marketing programs that bring in more clients, better retention of current clients, reduced expenses and improved productivity.
- Not all pet owners want gold-standard care, nor can they genuinely afford it. Veterinary medicine, both at the industry and practice levels, needs to focus on providing a spectrum of care and not just the best care. All care must, of course, meet some minimum standard of care but pet owners are more likely to provide care if they have choices that match their personal circumstances.
Dr. Karen E. Felsted is the founder of PantheraT Veterinary Management Consulting. She spent three years as CEO of the National Commission on Veterinary Economic Issues.