Yaco 561 Week 2 Business Proposal
Business ProposalJennifer YacovazziECO/561April 14, 2014Dennis McGuckianBusiness Proposal“Doctors of Veterinary Medicine are medical professionals, whose main obligation is protecting the health and happiness of animals and people. The first College of Veterinary Medicine in the United States was established in 1879 at Iowa State University” (Veterinary Medicine, n.d.). Before this era pets were healed by veterinarians taught in Europe or by people lacking any proper training. Veterinary medicine has advanced quickly in the last one hundred years. “Today’s veterinarians are responsible for the health of approximately 52 million dogs and 55 million cats” (Veterinary Medicine, n.d.).
In this day and age there is usually a veterinary clinic …show more content…
on every corner or within a mile away. This field’s market structure consists of a monopolistic competition with a high amount of producers with a similar product. “Market structures in which many firms sell a different or similar product, into which entry is relatively easy, in which the firm has some control over its product prices, and in which there is considerable non-price competition” (McConnell, Brue & Flynn, 2009). With several vets in the business, there is no feeling of connection between them; every company can control its personal pricing structure without contemplating the likely responses of competing companies. The veterinary industry may recognize an uncertain rise in sales by reducing its prices, but the outcome of that action on competitor’s sales will be almost invisible and will possibly generate no reaction (McConnell, Brue & Flynn, 2009).
Elasticity is a profitable term used to measure awareness of quantity to price.
If a small change in price brings about a large change in quantity (i.e. a 1% change in price yields a 2% increase in the quantity demanded) the good or service is elastic (Bain & Dicks, 2014). If, however, a small change in price brings about an even smaller change in the amount (i.e. a 1% change in price yields a 0.2% increase in quantity demanded) the good or service is said to have a price inelastic demand (Bain & Dicks, 2014). “The price elasticity of demand tackled by the monopolistically competitive market depends on the amount of competitors and the number of product differences” (McConnell, Brue & Flynn, 2009). “The larger the number of competitor the weaker the product differences, the higher the price elasticity of each seller’s need, this is, the closer monopolistic competition will be a pure competition” (McConnell, Brue & Flynn, 2009). The veterinary business is in an inflexible environment. “A purely elastic demand means as the price goes down the market goes up. Inelastic demand means small changes in price have no effect on the market” (Veterinary Economics 101, 2008). If you reduce prices to increase revenue you will hurt your business in the long run. “In fact, in an average practice, if you drop fees 10% you would need to increase business by 30%-40% just to make the same profits” (Veterinary Economics 101, …show more content…
2008).
“In markets, the price elasticity of demand measures how much the quantity demanded changes with a change in price” (Bain & Dicks, 2014). Simply put, how much of an increase in the amount demanded would there be for veterinary services if prices were to decrease. An important note here is that the price elasticity of demand will be different for different socioeconomic groups, and it may be different at different current price levels (Bain & Dicks, 2014). Veterinary income for the pet owner comes from optional income. “People who have a tough time keeping gas in the car, food on the table and a roof over their heads will not be showing up at our doors” (Veterinary Economics 101, 2008). After the bills are paid, what is left over for enjoyment is also what pays veterinarians for services. If you can not pay the mortgage, taking your animal in for the annual examine will not happen. Price elasticity related to veterinary practice may or may not have an effect on the number of people that will come in the door. Suppose the price of vaccination to the pet owner is $25 and the cost is $15. The veterinarian finds that a price decrease to $20 causes the number of animals being vaccinated to rise from 50 per month to 100 per month (Bain & Dicks, 2014). The price change is a 100% increase (100-50/50) in the amount demanded from a 20% decline in price indicating the vaccination service is price elastic (Bain & Dicks, 2014).
As a veterinarian, certain services likely have higher price elasticity than others. Emergency care, for instance, is likely less price-responsive while routine, preventative care is likely to be more price-responsive (Bain & Dicks, 2014). Thus, to determine what price to charge for any particular service will require knowing the true total cost of providing the service and the price responsiveness (elasticity) of the need for the service (Bain & Dicks, 2014). Therefore, it is valuable to track changes needed in a personal practice to gauge the price elasticity of the services offered (Bain & Dicks, 2014).
“Marginal cost can be defined as the cost associated with selling one more unit of something, whether that something is a bottle of shampoo or a dog spay” (Olcott, 2012). Developing an idea to the whole hospital, it means the last appointments of every day are the most useful ones. “Additionally, despite the temptation to add things like the $200,000+ you spent on your education to the equation, these sunk costs are irrelevant” (Olcott, 2012). Finally, you may have some room to lower your prices if you think being more competitive will increase the number of surgeries or services you do every month. In the veterinary industry, a change in marginal revue will depend if the services are considered elastic or inelastic. “The price elastic service in our example of vaccinations increases revenue from $1,250 ($25*50) to $2,000 ($20*100), an increase of $750” (Bain & Dicks, 2014). In addition to this, and perhaps more importantly, a price decrease in the price elastic service brings 50 additional pet owners into the clinic, providing an opportunity to increase the customer base (Bain & Dicks, 2014). “For the price inelastic service (emergency surgery), a price reduction from $2,500 to $2,000 caused a decline in revenue from $25,000 ($2500*10) to $22,000 ($2000*11), a $3,000 reduction” (Bain & Dicks, 2014). It would appear to be more useful to drop the prices on price elastic services than on price inelastic services. The main hope in changing the elastic services will be to bring in more customers or hopefully new ones.
“The lowest price is often associated with a lower value. Veterinary clients understand this price/value relationship, and they seek value, not price, as do consumers of any other product or service” (The Layers of Veterinary Financial Success, n.d.). In considering the service, a veterinary customer decides a value of a good or service. A client, who understands the value equal to, or higher than the price, will be interested in becoming a client. “As the comprehended value exceeds the monetary price by greater amounts, the motivation to purchase increases” (The Layers of Veterinary Financial Success, n.d.). It is the value, and not price, that increase purchase motivation and produces an increase for services. Another non-price strategy that veterinary clinics can use is the effects of customer service and how well the staff knows what they are doing. Clients come in and out of veterinary clinics and clients will change faster than you know it if your customer service is not up to par. Clients like to have a prompt greeting and have their pet identified by name. Clients also enjoy the fact that we treat their pets as they are our own. Having a knowledgeable staff and doctors will keep clients loyal and wanting to come back. If the veterinary clinic has a good base for customer services and staff is friendly and knowledgeable client will continue to come back even if your prices are not the cheapest.
Changes in business operations can alter the mix of fixed and variable costs based on how many additional services are performed based on the price changes due to the economy changing.
“Let’s take surgeries, for example, and assume your fixed costs (i.e. rent/mortgage things that don’t change depending on how busy you are) are $1000 per month attributable to your surgery room. Then add up the variable costs: surgeon time, suture, anesthesia, autoclave costs, cage space, and technician time attributable to surgery. Let’s say this is $100 per procedure. So your surgery costs are $1000 per month PLUS $100 per procedure. If you charge $250 per procedure, you will have to do 7 per month to cover your fixed costs. But on the eighth, or marginal, procedure your cost is only $100, netting you $150 profit for each procedure you do above 7 per month” (Olcott, 2012). Depending on the financial figures of the clinic will help to determine if there will be any changes in the variable costs for services or
procedures.
Veterinary clinics need to check over the numbers to see what areas could use improvements. Clinics should perform price shopping at least once or twice a year to make sure the practice is in line with other competitors in the area. Working in a competitive market can cause an issue for some practices that are not paying attention to what the clients want for their pets and what they are willing to pay. If veterinary clinics prices are matching or close to the competition and has a friendly knowledgeable staff clients will return for services no matter what the price is.
References
Bain, B & Dicks, M (2014, August 26). Managing Prices for Profit. Retrieved from http://www.researchgate.net/profile/Michael_Dicks/publication/256440793_Managing_Prices_for_Profit/file/60b7d52290bc821295.docx
Market Segment Specialist Program (n.d). Veterinary Medicine. Retrieved from http://www.smallbusinessnotes.com/pdf/veterinary.pdf
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). .Economics: Principles, Problems, and Policies (18th ed.). Boston, MA: McGraw-Hill Irwin.
Olcott, M. (2012, December 19). Marginal Cost and the Pricing of Services. Retrieved from http://www.beyondindigopets.com/blog/2012/12/marginal-cost-and-the-pricing-of-services/
Pricing Veterinary Services. (n.d.) The Layers of Veterinary Financial Success. Retrieved from http://www.bdvaluation.com/documents/prices.pdf
Veterinary Economics 101. (n.d.). Retrieved from http://vbma.utscavma.org/wp-content/uploads/2008/03/vet-econ-101.pdf
In this day and age there is usually a veterinary clinic …show more content…
on every corner or within a mile away. This field’s market structure consists of a monopolistic competition with a high amount of producers with a similar product. “Market structures in which many firms sell a different or similar product, into which entry is relatively easy, in which the firm has some control over its product prices, and in which there is considerable non-price competition” (McConnell, Brue & Flynn, 2009). With several vets in the business, there is no feeling of connection between them; every company can control its personal pricing structure without contemplating the likely responses of competing companies. The veterinary industry may recognize an uncertain rise in sales by reducing its prices, but the outcome of that action on competitor’s sales will be almost invisible and will possibly generate no reaction (McConnell, Brue & Flynn, 2009).
Elasticity is a profitable term used to measure awareness of quantity to price.
If a small change in price brings about a large change in quantity (i.e. a 1% change in price yields a 2% increase in the quantity demanded) the good or service is elastic (Bain & Dicks, 2014). If, however, a small change in price brings about an even smaller change in the amount (i.e. a 1% change in price yields a 0.2% increase in quantity demanded) the good or service is said to have a price inelastic demand (Bain & Dicks, 2014). “The price elasticity of demand tackled by the monopolistically competitive market depends on the amount of competitors and the number of product differences” (McConnell, Brue & Flynn, 2009). “The larger the number of competitor the weaker the product differences, the higher the price elasticity of each seller’s need, this is, the closer monopolistic competition will be a pure competition” (McConnell, Brue & Flynn, 2009). The veterinary business is in an inflexible environment. “A purely elastic demand means as the price goes down the market goes up. Inelastic demand means small changes in price have no effect on the market” (Veterinary Economics 101, 2008). If you reduce prices to increase revenue you will hurt your business in the long run. “In fact, in an average practice, if you drop fees 10% you would need to increase business by 30%-40% just to make the same profits” (Veterinary Economics 101, …show more content…
2008).
“In markets, the price elasticity of demand measures how much the quantity demanded changes with a change in price” (Bain & Dicks, 2014). Simply put, how much of an increase in the amount demanded would there be for veterinary services if prices were to decrease. An important note here is that the price elasticity of demand will be different for different socioeconomic groups, and it may be different at different current price levels (Bain & Dicks, 2014). Veterinary income for the pet owner comes from optional income. “People who have a tough time keeping gas in the car, food on the table and a roof over their heads will not be showing up at our doors” (Veterinary Economics 101, 2008). After the bills are paid, what is left over for enjoyment is also what pays veterinarians for services. If you can not pay the mortgage, taking your animal in for the annual examine will not happen. Price elasticity related to veterinary practice may or may not have an effect on the number of people that will come in the door. Suppose the price of vaccination to the pet owner is $25 and the cost is $15. The veterinarian finds that a price decrease to $20 causes the number of animals being vaccinated to rise from 50 per month to 100 per month (Bain & Dicks, 2014). The price change is a 100% increase (100-50/50) in the amount demanded from a 20% decline in price indicating the vaccination service is price elastic (Bain & Dicks, 2014).
As a veterinarian, certain services likely have higher price elasticity than others. Emergency care, for instance, is likely less price-responsive while routine, preventative care is likely to be more price-responsive (Bain & Dicks, 2014). Thus, to determine what price to charge for any particular service will require knowing the true total cost of providing the service and the price responsiveness (elasticity) of the need for the service (Bain & Dicks, 2014). Therefore, it is valuable to track changes needed in a personal practice to gauge the price elasticity of the services offered (Bain & Dicks, 2014).
“Marginal cost can be defined as the cost associated with selling one more unit of something, whether that something is a bottle of shampoo or a dog spay” (Olcott, 2012). Developing an idea to the whole hospital, it means the last appointments of every day are the most useful ones. “Additionally, despite the temptation to add things like the $200,000+ you spent on your education to the equation, these sunk costs are irrelevant” (Olcott, 2012). Finally, you may have some room to lower your prices if you think being more competitive will increase the number of surgeries or services you do every month. In the veterinary industry, a change in marginal revue will depend if the services are considered elastic or inelastic. “The price elastic service in our example of vaccinations increases revenue from $1,250 ($25*50) to $2,000 ($20*100), an increase of $750” (Bain & Dicks, 2014). In addition to this, and perhaps more importantly, a price decrease in the price elastic service brings 50 additional pet owners into the clinic, providing an opportunity to increase the customer base (Bain & Dicks, 2014). “For the price inelastic service (emergency surgery), a price reduction from $2,500 to $2,000 caused a decline in revenue from $25,000 ($2500*10) to $22,000 ($2000*11), a $3,000 reduction” (Bain & Dicks, 2014). It would appear to be more useful to drop the prices on price elastic services than on price inelastic services. The main hope in changing the elastic services will be to bring in more customers or hopefully new ones.
“The lowest price is often associated with a lower value. Veterinary clients understand this price/value relationship, and they seek value, not price, as do consumers of any other product or service” (The Layers of Veterinary Financial Success, n.d.). In considering the service, a veterinary customer decides a value of a good or service. A client, who understands the value equal to, or higher than the price, will be interested in becoming a client. “As the comprehended value exceeds the monetary price by greater amounts, the motivation to purchase increases” (The Layers of Veterinary Financial Success, n.d.). It is the value, and not price, that increase purchase motivation and produces an increase for services. Another non-price strategy that veterinary clinics can use is the effects of customer service and how well the staff knows what they are doing. Clients come in and out of veterinary clinics and clients will change faster than you know it if your customer service is not up to par. Clients like to have a prompt greeting and have their pet identified by name. Clients also enjoy the fact that we treat their pets as they are our own. Having a knowledgeable staff and doctors will keep clients loyal and wanting to come back. If the veterinary clinic has a good base for customer services and staff is friendly and knowledgeable client will continue to come back even if your prices are not the cheapest.
Changes in business operations can alter the mix of fixed and variable costs based on how many additional services are performed based on the price changes due to the economy changing.
“Let’s take surgeries, for example, and assume your fixed costs (i.e. rent/mortgage things that don’t change depending on how busy you are) are $1000 per month attributable to your surgery room. Then add up the variable costs: surgeon time, suture, anesthesia, autoclave costs, cage space, and technician time attributable to surgery. Let’s say this is $100 per procedure. So your surgery costs are $1000 per month PLUS $100 per procedure. If you charge $250 per procedure, you will have to do 7 per month to cover your fixed costs. But on the eighth, or marginal, procedure your cost is only $100, netting you $150 profit for each procedure you do above 7 per month” (Olcott, 2012). Depending on the financial figures of the clinic will help to determine if there will be any changes in the variable costs for services or
procedures.
Veterinary clinics need to check over the numbers to see what areas could use improvements. Clinics should perform price shopping at least once or twice a year to make sure the practice is in line with other competitors in the area. Working in a competitive market can cause an issue for some practices that are not paying attention to what the clients want for their pets and what they are willing to pay. If veterinary clinics prices are matching or close to the competition and has a friendly knowledgeable staff clients will return for services no matter what the price is.
References
Bain, B & Dicks, M (2014, August 26). Managing Prices for Profit. Retrieved from http://www.researchgate.net/profile/Michael_Dicks/publication/256440793_Managing_Prices_for_Profit/file/60b7d52290bc821295.docx
Market Segment Specialist Program (n.d). Veterinary Medicine. Retrieved from http://www.smallbusinessnotes.com/pdf/veterinary.pdf
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). .Economics: Principles, Problems, and Policies (18th ed.). Boston, MA: McGraw-Hill Irwin.
Olcott, M. (2012, December 19). Marginal Cost and the Pricing of Services. Retrieved from http://www.beyondindigopets.com/blog/2012/12/marginal-cost-and-the-pricing-of-services/
Pricing Veterinary Services. (n.d.) The Layers of Veterinary Financial Success. Retrieved from http://www.bdvaluation.com/documents/prices.pdf
Veterinary Economics 101. (n.d.). Retrieved from http://vbma.utscavma.org/wp-content/uploads/2008/03/vet-econ-101.pdf