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					Contact Lens Strategies for the Future
Report for the AOP 30th May 2006

Source: 0 PMSI White Lion House 64 Highgate High Street London N6 5HX T +44 (0) 20 8347 3500 F +44 (0) 20 8347 3501 E email@pmsi-consulting.com www.pmsi-consulting.com

Contact Lens Strategies for the Future

Disclaimer Whilst every effort has been made to ensure the reliability of the information contained in this report, PMSI makes no guarantee as to the accuracy or completeness of the information presented. PMSI expressly disclaims any and all liability which may be based on the use of this information, errors therein or omissions therefrom.

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Contents

Introduction………………………………………………………3 Executive summary……………………………………………..5 How has the market changed?………………………………..7
• • Trends in contact lens sales Trends in the wider retail market

How do these trends affect optometrists?.........................22 What are the challenges for optometrists?………...……...28
• • • Challenges in the professional environment Realising contact lens opportunities amongst consumer groups Adapting the business model

What actions should optometrists take?.………..………...55 Appendix: Practice pricing models………………………….61

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Introduction (1)

Project Objectives
Define the strategic options for independent and multiple optometrists facing supermarket and internet competition, in the context of an economic model of the contact lens market

Research Method
• Initial review of existing material, development of initial hypotheses for research and discussion with the AOP • Consultation with industry experts in the UK and other European markets and detailed analysis of published and unpublished material • Telephone interviews with a sample of UK optometrists

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Executive Summary (1) Initial hypotheses1:
Possible routes and opportunities

Research conclusions:
The key finding was the need for optometrists to improve their contact lens knowledge & skills in order to support a premium service based proposition There is great potential for optometrists to build their business on a high quality service based model. This approach found high acceptance amongst the practitioner sample, but is dependent on identifying ways to improve professional fee levels. Most respondents agree that a clearer distinction can be reached versus supermarkets - but optometrists need to be more proactive in relation to contact lenses, and that requires skills updating. Speciality/premium lens wearers are likely to appreciate the highquality service model, but occasional lens wearers are probably an even more important group in terms of future business. Optometrists need to have the right skill set to target them. This was not seen as a core opportunity by any respondents.

• Focus on key competencies: • A high quality, service based model • Professional expertise offers potential to capture higher spending customers via a model emphasising quality, ophthalmic experience, and all-round care and service • Develop a clear, communicable strategy distinct from basic, price-led models of supermarkets

• Build on existing relationships with those who wear speciality lenses requiring extra service

• Further enhance relations with NHS bodies, especially PCTs, to secure service contracts

• Consider potential of home delivery/home fitting services.

We found no evidence to suggest that home delivery or fitting schemes are a major opportunity, given tight practice schedules and the time available to optometrists in their day-to-day routine.

1.

PMSI briefing pack on the UK contact lens market, October 2005

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Executive Summary (2)

Initial hypotheses1:
Possible routes and opportunities • Recognise and target future growth areas • Develop a high profile advertising strategy

Research conclusions:
The key finding was the need for optometrists to be more proactive in targeting potential new lens wearers when they sell spectacles Despite some issues around lens quality and patient acceptance, there was positive feedback from practitioners, manufacturers and retailers that older wearers are an attractive target group for lens wear, and one which plays to optometrists’ professional service strengths. The research generated positive feedback on teenagers – and even children - as a target group for lenses in their own right. However, specific advertising was not suggested; generic public information campaigns are preferred. Optometrists need to promote aftercare plans more strongly and explain the benefits of inclusive care to the patient or – in the case of younger age groups - to their parents. We found no evidence that this is seen as a significant growth area in relation to contact lenses

• The UK population is ageing and presbyope people are the fastest growing demographic segment of potential contact lens wearers.

• Teenagers and older children may also be an important group to be targeted via their parents

• Develop more attractive aftercare offerings for these target groups – and promote them heavily.

• Smaller segments of the market requiring specialist care, such as people with diabetes, could also become a focus

1.

PMSI briefing pack on the UK contact lens market, October 2005

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Executive Summary (3)

Initial hypotheses1:
Possible routes and opportunities • Consider buying group potential • Establish an effective online strategy

Research conclusions:
The key finding was the need for optometrists to develop their commercial skills, especially in how they set and explain their fees Optometrists should consider opportunities to increase buying power. Improved negotiating skills are key, but buying groups such as Sight Care should also be re-considered for expansion. Optometrists are concerned about manufacturers discounting to supermarkets. But there is evidence to suggest optometrists could leverage their gatekeeper status better and exert a positive influence on lens product & pricing strategies. Optometrists rely more on ‘word of mouth’ than advertising, but marketing training would be highly beneficial, especially in how to separate out their fees and promote payment plans. Negotiating training would help improve purchasing deals. There is evidence pointing to optometrists’ longer term need for an online presence. In practice however, many are not yet in a position to explore this, due to time and financial constraints We found no evidence to suggest that cross-marketing activities or sponsorship would make a significant positive difference

• The supermarket price war means increased purchasing power may be key to survival

• Further develop existing manufacturer relationships and increase influence on R&D activity

• Further develop practitioners’ marketing/negotiation training

• An effective online strategy underlining quality and service could help to differentiate AOP members from online retailers focused on low cost offers.

• Explore the potential for cross-marketing activities and sponsorship

1.

PMSI briefing pack on the UK contact lens market, October 2005

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Market changes

How has the market changed in terms of:

•
•

Trends in contact lens sales? Trends in the wider retail market?

7

Source:

Many optometrists are concerned that recent regulatory changes will affect the balance of the UK retail environment for optical goods, and contact lenses in particular.
Fig 1.UK retailer share of optical goods and eye care product sales prior to recent regulatory changes, 1998-2002
100%
Other Supermarkets Chemists

50%

?
Opticians
1998 2002 2006

“A lot of optometrists work on the principle ‘if it ain’t broke don’t fix it’. They might not have noticed any change in the market, they haven’t actively lost customers, so they don’t adapt the running of their practice. But the market has changed, and optometrists need to move with the times.” (CL manufacturer)

0%

8

Source: Source: Mintel, Keynote, PMSI interviews and analysis

UK contact lens sales continue to grow, although the wearer base stagnated in the period 1998-2003
Fig 2. UK manufacturer sales of contact lenses and number of contact lens wearers, 1994-2004
£m

180 160 140 120 100 80 60 40 20 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Manufacturer lens sales lens wearers

4

m

3.5 3 2.5 2 1.5 1 0.5 0

“The contact lens market is growing - it’s profitable for manufacturers and retailers alike.” (FODO)

Fig 3. UK manufacturer sales by lens type in 2003 & 2004
100% 90% 80%
Rigid Traditio nal Silico ne hyd.

Fig 4. UK manufacturer sales by wearer base, 1992, 2003&2004
100% Rigid 90% 80% Rigid Traditional
Silico ne hyd.

Frequent replacement and daily disposable lenses now represent the largest percentage of the lens wearer base

70% 60% 50% 40% 30% 20% 10% 0% 2003

Frequent replacement

70% 60% 50% 40% Traditional Frequent replacement

Daily dispo sables

30% 20% 10% 0% 1992 2003 Daily disposables

2004

2004

9

Source: ACLM

The retail value of contact lenses and aftercare products has shown good growth over the past five years, despite the increasingly competitive retail environment

Fig 5. Estimated UK contact lens and contact lens aftercare retail sales market 1999-2004

• Steady rise in UK sales of
disposables and the recent uptake in continued wear lenses have had a positive effect on market growth overall, though growth in sales of aftercare products and solutions has slowed as a consequence.

£m
300

CAGR 1999-2004 10.7%

250

Lenses
200
4.42%

150

Aftercare (solutions & tablets)

100

50

0
1999 2000 2001 2002 2003 2004

Note: Updated figures for Aftercare to be obtained from the ACLM

10

Source: Euromonitor, PMSI desk research

The UK soft lens wearer base is relatively large and shows advanced use of daily and frequent replacement lenses
Fig 6. European soft lens wearer bases as % of adult population, by country and category in 2003 and 2004

%

7

•

Use of daily and frequent replacement lenses is well advanced in comparison with other European markets, but still has growth potential when compared with markets like the US. In Japan, the total wearer base is around 15-16% of adults. Within the European context, soft lens wearer rates have increased in all markets

6

5

4
Daily disposable

3

•

2

Frequent replacement incl silicone hydrogel

1

0
DE AT BE-LU ES FR IT

Traditional

'03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04
CH UK-IE NL NO-SE DK-FI

“We’re certainly towards the top end of the European league table in terms of our wearer base.” (Dr. Philip Morgan)

NOTE: Rigid lenses were excluded from the analysis as available data were inconclusive

11

Source: The Optician/Dr. Philip Morgan

However, the current age spectrum has potential for a broader appeal

% 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

Fig 7. % of UK population wearing lenses by age, 2002

Fig 8. % of UK population wearing contact lenses, 1997-2004
% 10

9
Women

8 7 6 5 4

Men

3 2 1 0

15-19 20-24

25-34

35-44 45-54

55-64

65+

1997 1998 1999 2000 2001 2002 2003 2004

• The percentage of the UK population wearing contact lenses overall is static at around 6%, with women using lenses substantially more
than men. Fashion trends account for some variation each year. Contact lens penetration is higher in countries such as the US, where figures have been steady at 12-13% in recent years. Growth there is stimulated by increased wear in speciality lenses as well the “Echo Boomers” – the generation of children of the baby boomers, reaching contact lens age - plus increase in myopia cases through computer exposure.

• According to “The Optician”, the typical UK lens wearer is female (62% of wearers) and around 33 years old. It is suggested that the
typical UK contact lens wearer will have had problems with eyesight from a young age.

12

Source: Mintel, the Optician, Optistock

The percentage of contact lens patients varies greatly by practice – again indicating untapped potential

• In specialist practices >80% of patients wear lenses at least occasionally.
can be as low as 10%.

But in others it

“Our contact lens work is not that big. I’d say that lens only and lens plus specs wearers do not make up more than 10% of our overall customer base, the rest are specs-only patients.” (Employed optometrist) “Circa 25% of my patients are contact lens patients.” (Independent Optometrist) “We’re a contact lens specialist. Around 80% of our patients are contact lens plus spec wearers, only around 20% are spectacle only wearers. We have developed into a contact lens practice over the years.” (Independent Optometrist)

• Location and socio-economic mix of patients may play a role
“In the first branch, the business split is around 60% lenses, 40% specs. That branch is close to the city centre, which I believe is the reason why it has a high contact lens percentage. It is in an affluent area... The second branch has 60% glasses vs. 40% lenses. And the third branch is 25% lenses, 75% spectacles. That branch is located in a poorer area, with a lot of NHS work being carried out.” (Employed Optometrist)

13

Source: PMSI interviews and analysis

Daily disposables are expected to remain the biggest growth area within contact lenses

• Around 80-85% of global
contact lens sales is now estimated to be in soft lenses.

Fig 9. Number of contact lens wearers in the UK in total and by type, 1992-2003 m
3.5 3 2.5
All lens types Other lenses

• In the UK up to 95% of new
fits and 80% of re-fits are reported to be soft lenses. Silicone hydrogels comprise 16% of re-fits and 6% of new fits.

2 1.5 1 0.5
Daily disposables

• Soft frequent replacement
lenses are now the most common type of lens at ca. 45% of wearers overall, followed by daily disposables at 30%.

0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fig 10. Prescribed replacement frequencies of new soft lenses, 2004
100% 90% 80% 70%
Daily 1-2 weekly

• Daily disposables account for
40% of new fits, compared to 55% for monthly replacement soft lenses. This is expected to move in favour of daily replacement.

60% 50% 40% 30% 20% 10% 0%
Monthly

14

Source:

The Optician, Contact Lens Spectrum

Silicone hydrogel materials are still a major trend within the daily soft lens segment

Fig 11. The proportion of silicone hydrogel lenses prescribed for soft lens daily wear, 2002-2005 %
35 30 25 20 15 10 5 0 2002 2003 2004 2005

Note: Nearly all extended wear soft lenses are silicone hydrogel in the UK

“There’s a new raft of lenses with silicone hydrogel technology now. It made us look at contact lenses more closely again.” (Independent Optometrist) “The introduction of silicone hydrogel lenses has been the latest fad; I reckon we’ll find that in 10 years time, most nondailies will be silicone hydrogels.” (Independent Optometrist) “Silicone hydrogels are relatively stable at around 10% of the overall contact lens market, but there is still good growth within dailies and manufacturers are still introducing new products.” (Dr. Philip Morgan)

15

Source: Morgan P /siliconehydrogels.com, PMSI Interviews

Laser surgery has not had any major detrimental effect on the UK contact lens market

“Laser surgery hasn’t impacted the industry anywhere near as much as was feared. D&A operates a policy of neutral advice on laser surgery. So we can point a customer who asks about it towards a clinic, but we won’t promote it actively. It is a permanent, irreversible procedure and not suitable for everyone. When Boots started going into laser surgery, the industry was curious whether it would take off in a major way. But Boots encountered some high profile challenges and has now got out of laser surgery – that put a dampener on the enthusiasm. And there are still some safety concerns over laser surgery” (Optical chain)

“We thought that Lasik might mean the demise of RGP fittings – but it never happened.” (CL manufacturer)

“I don’t think laser surgery is going to be a major trend either, it was always going to be a smallish element in the market. It’s an irreversible process, and also quite expensive. So I don’t see it as a threat to the optometric profession at all, unless one of the major companies gets into it and really starts to promote it in a big way.” (Optical chain)

16

Source: PMSI Interviews

Market changes

How has the market changed in terms of: • Trends in contact lens sales? Trends in the wider retail market?

•

17

Source:

The UK retail market for contact lenses shows a growing trend towards convenience oriented models
Convenience oriented models are distinguished by their large number of outlets (or internet access) and sale of a wide range of goods, which means contact lenses do not require a special shopping trip.
Fig 12. UK contact lens retail map 2005 High

• •

Supermarkets are currently estimated to have a lens market share of ca.6%, with internet-only retailers at up to 5%. To remain competitive, independent opticians may need to build on their professional authority/reputation and individual service offering rather than compete on convenience and price. A key question is whether other supermarkets or large pharmacy chains will follow Tesco’s example and sell contact lenses through pharmacies1, with on-site or access to employed optometrists to (the “general direction” requirement) ‘Destination credential’ in the high street and town centre locations is also key to continued success for independents and small multiples, as supermarket roll-out is likely to continue to concentrate on larger format outof-town locations.

Internet only retailers

Boots Supermarket pharmacies pharmacies Tesco / Asda Opticians Specsavers

Convenience

D&A Pharmacy multiples Boots Opticians Vision Express Optical Express

•

•

Smaller & independent opticians

Low Low Professional authority & individual service
Note: 1 Opaque shaded ellipses indicate potential post-deregulation players selling through pharmacy outlets. Bubble size is illustrative and does not represent company size.

High

18

Source: Mintel, PMSI research

Contact lens sales have begun at both Tesco and Boots pharmacies

•

In summer 2005, Tesco became the first national pharmacy to sell contact lenses. Asda is currently still considering strategic options.

•

Boots has also announced plans to sell contact lenses through its main chain of pharmacies and is running a trial involving 14 Boots the Chemist outlets. There is currently no indication as to whether this will include Alliance pharmacies after the Boots/Alliance merger.

?
19

•

The development could eventually open the market to other pharmacy groups, although there is currently no clear evidence to suggest immediate market developments.

“ I think it’s been a wake-up call. Optometrists have known for a long time that they need to change their practices, become more modern and aware of the market. But implementation has taken so long. Now that Tesco and others sell lenses and manufacturers discount, practitioners are all up in arms and upset.” (CL manufacturer)

Source: Company information, PMSI desk research and interviews

There is strong competitive pressure amongst larger UK contact lens retailers reflected in often similar pricing strategies
Retailer Monthly lenses
Direct Debit all-in per month: Premium: £10.(£12 before)· Standard: £8 (£10 before)·

Daily disposables
Direct Debit all-in per month: £22 – 30 pairs (£25 before)

Silicone hydrogels Extended wear
Direct Debit all-in per month: £15.50 (£18.50 before)

Service fees / other information
• Varifocals at £11.30 per month (6 pairs at £68), solutions at £4.30 per month

(all-in offers include free consultation, solutions, aftercare)

On Boots Vision Plan (min 12 month): From £6 per month reduced from £10 (Boots monthly lenses)

Lens only: £18.80 (B&L Soflens to £ 30.20 (J&J Acuvue)

All in service offer on daily silicone hydrogels: From £22 per month (Acuvue), £21.50(B&L Pure Vision), £30(CIBA Focus N&D). Extended wear lenses available • £8.74 per month (B&L Pure Vision) and £ 13.20 (CIBA Focus Night & Day)

• Advertising free 1 month’s lenses when newly joining up the Vision Plan, but initial consultation is charged for, free delivery and 2-yearly eye exam for daily disposable vision plan customers. Various add-on benefits promoted on quarterly/annual and plus plans. • Vari /bifocals from £15.58 (J&J Acuvue twoweekly) to £33.06 (CIBA Focus Dailies)

• Lens only: from £4.70 per month (B&L SofLens, Actifresh, J&J Surevue), £ 8.74 (O2 Optix), to £9.37 (Cooper Vision Hydron)

• From £ 18.80 (B&L Soflens 1 Day, Ciba Focus Dailies), £30.20 (J&J Daily Acuvue)

• (online plan): from £4.65 p.m. (Ciba Focus monthly, Precision UV, Cooper V. Frequency 55, Proclear Comp., B&L Soflens& own brand) to £8.07 (Ciba Optix)

• From £ 18.80 for 30 pairs (Ciba Focus Dailies, B&L Soflens I Day ), £ 19 (Ciba Focus All Day Comfort) £33.06 (Focus Dailies Progress and Toric), £30.20 (J&J Daily Acuvue)

• (online plan) from £8.07 (B&L Pure Vision) £13.20 Ciba Focus Night &Day and own brand extended wear), £15 (B&L Purevision Toric)

• Minimum order of 3-6 months’ supply on many offers. Advertising “30% of High Street prices” and free delivery on online purchases. Offering to contact prescribing optician for presciption if copies were not optained by the patient

20

Source: Company information, PMSI desk research

Advertising expenditure of the larger retailers reflects the increasingly competitive marketplace - Specsavers in particular follows an aggressive advertising strategy

Fig 13. UK opticians’ advertising expenditure 1997-2003
£m
40
CAGR 1997-2003 Smaller multiples and independents 20/20 4.73%

• Specsavers’ aggressive
advertising – with a budget of £21m in 2003 around the same size as all other optical players combined - is based mostly on TV campaigns (50+% of expenditure) and has made it a very recognisable brand in the UK.
30

D&A Optical X press Boots Opticians

20

Vision Express

10

Specsavers

0 1997 1999 2001 2003

21

Source: Mintel

Impact & implications of the changes

How has the market changed in terms of: • Trends in contact lens sales? Trends in the wider retail market?

•

How do these trends affect optometrists in practice, and how can they be addressed successfully?

22

Source:

Discounting by volume retailers is clearly a concern, and some independents have reacted by pulling purchasing away from discounting manufacturers

“You could compare the current situation with the recent decision at Sony to start charging online retailers higher prices to even out the pricing balance.... Except contact lens manufacturers are doing the opposite at the moment. They have gone away from the source of their long term business, optometrists, and are wooing supermarkets - not a good development.” (Independent Optometrist) “The other point is that we should be going to those suppliers who support us as well.. Independents should react….and buy from manufacturers who help us, not just the multiples.” (Independent Optometrist) “There has been a backlash from independents for some of the large manufacturers, I’m sure. Some of them are putting their patients onto RGP’s now, or onto smaller manufacturers of soft lenses, because they’re not happy about discounting to supermarkets.” (CL manufacturer)

“It is equally wrong, in my opinion, to go around scaremongering smaller practices. We are probably one of a few of the larger lens manufacturers who actively support independents and are not discounting… I’ve spoken to some independent optometrists who said they wouldn’t order their lenses from one or two of our competitors. I am aware that a lot of independents are very angry. But my question to them is – ‘How many patients have you actually lost?’ And usually the answer is none.” (CL manufacturer)

23

Source: PMSI interviews

Few independent practitioners have noticed a strong increase in requests for prescription verifications so far. But there are concerns over the practicalities of this process. Why should I spend my professional time sending a prescription out elsewhere when I don’t get paid for it?
“A very small number of my CL patients have so far jumped ship, 1-2% so far. Some will jump ship, that’s to be expected.” (Independent Optometrist) “Very few people have asked for their prescription and taken it to the local ASDA.” (Independent Optometrist) “Many of our customers, often the more successful practices, actually tell us that they’ve not had any impact on business yet from either supermarkets or online retailers. That is because they really provide an individual service to patients, and often get them involved in direct debit schemes and longer term relationships.” (CL manufacturer)

•

However, there are strong concerns over potential business disruption and unpaid services

“We have noticed some requests for prescription confirmations coming in from both Tesco and Asda now. I guess people must be ordering them via mail order or the internet. We don’t get paid for the time we spend finding the prescription and confirming it, which isn’t fair.” (Independent Optometrist) “I won’t assist supermarkets or online retailers in selling lenses. I’ll block their calls or charge them per prescription. It’s perfectly reasonable to charge, it’s my time wasted and income affected by this.” (Independent Optometrist) “I’ll fax prescriptions to Specsavers, but refuse to give them to supermarkets. They’ll have to send the patient back to me, who can obtain it and take it back to them, and I’ll quote the Data Protection Act. And if they claim they have a prescription, I say ‘You tell me the specifications, and I’ll tell you if they’re right!” (Independent Optometrist).
24
Source: PMSI interviews

There is good potential for optometrists to better leverage their gatekeeper position, even if they don’t purchase large volumes

Large lens retailers
Exercising pressure through volume purchasing

Manufacturers
Can exercise pressure through prescribing & recommendations

Small & independent optometrists

“In the end, the practitioner is the gatekeeper. People mostly just go to the supermarkets to buy their lenses, but they’ll be fitted by an optometrist, often in small and independent practices. It’s a delicate game, but optometrists do hold some influence with manufacturers.” (Dr. Philip Morgan) “I use two manufacturers mainly and they both follow a fair pricing strategy...Manufacturers are beginning to react to complaints about unfair pricing and discounting now, actually.” (Independent Optometrist) “[A manufacturer] is scared they’ll lose the support of independents.” (Sight Care) “What I would advocate is for trying to reach a more level playing field with manufacturers. At the moment, all the power lies with the large multiples and big retailers, not just in terms of bargaining. We need to have a much stronger lobby for independents to convince manufacturers that, actually, doing business with us is a good step for a long term future, and an advantage for them.” (Independent Optometrist)

25

Source: PMSI interviews

Many commentators believe the UK optical market will re-stabilise in the next few years, but only after a period of some uncertainty and necessary change
Supermarkets increase sales Independent optometrists exploit gatekeeper position Independents improve commercial awareness Many consumers will still purchase on quality

Some manufacturers discount to large retailers Some consumers will purchase on price only

“I believe the profession sometimes almost needs a shock to the system. I know how that sounds, but these changes might at last provide a bit of a wake up call for some who still believe they can run their practice without ever looking at it as a business. You need a crisis to wake them up out of their lethargy. I believe things may get worse before they get better and there will be problems by around mid 2006.” (Sight Care) “Things are very much evolving at the moment. It’s not even been 6 months since the section 60 regulatory changes, and I believe it is very hard to predict at the moment as to where the market is going and what impact exactly the changes will have. It depends on how all market participants position themselves….Personally, I believe the market may find a natural balance within the next 1-2 years. But it will be a turbulent period, no doubt.” (FODO) “Changing and challenging. It is increasingly difficult for everyone, manufacturers included, and the only solution is for practices to develop a modern business approach… It is exhausting, but nobody has a right to a protected existence.” (ACLM) “I believe the market will relax and settle in the next 2 years or so.” (Optical chain)
26
Source: PMSI Interviews and analysis

Internet lens retailers have apparently not yet had a strong influence on optometrists’ business

@
45 40 35 30 25 20 15 10 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009

%

Fig 14. Verdict forecast % of adult population shopping online, 2001-2009

• •

Wider access to the internet, combined with strong growth in UK high speed broadband connections mean the % of UK population shopping online is expected to increase steadily There are several legal disputes over ebay lens sales and alleged failure of internet retailers to verify prescriptions. “Internet retailers don’t play by the rules. I had patients who were suddenly wearing different lenses to the ones I’d prescribed; they had obtained them through the internet, without any prescription.” (Independent Optometrist)

•In 2003, Key Note reported that Postoptics claimed a share of 90% of the UK online contact lens sales and
predicted the % of contact lens users buying lenses online to grow from 3 to 12% within the next few years. However, optometrists have so far not noticed strong influence of internet retailers on their business “I’ve had no requests for prescription from any internet retailers.” (Independent Optometrist) “I don’t think online sales are a real threat to the profession. (Employed optometrist, supermarket) “Internet retailers won’t have the feared strong impact on the UK market at all. If you look at the US,, where internet sales of lenses have been around for a while, there’s still only ca. 5-10% of CL sales through internet sites.” (Optical chain)
27
Source: Verdict (online shopping forecast), PMSI Interviews

Challenges

•

What challenges do optometrists face in their professional environment? How can they better realise contact lens opportunities amongst consumer groups? How can their business model be adapted?

•

•

28

Source:

By international comparison the UK regulatory environment appears well-balanced and further changes strongly impacting on the contact lens market and optometrists are unlikely
Germany UK
De-regulation threshold (notional)

US
“Germany is highly regulated. Contact lens prescriptions are handled by opthalmologists, not optometrists, and only those qualified to do so may fit lenses.“ (Spectaris, Germany) “The UK market is generally one of the most advanced in Europe when it comes to the optometrists’ profession.” (ECOO) But – increasing retail concentration, and changes in primary care, are creating more competitive forces for optometrists

NL

“In the longer term, I don’t believe de-regulation of the [UK] market will cause any real damage beyond a natural balancing out. The US market has been deregulated for years, and supermarkets never reached more than 3-4% of the contact lens business there.” (Sight Care)

“The Dutch and Portugese markets are the only markets in Europe that are completely deregulated. Theoretically, anyone in the Netherlands can open an optical store and sell or fit lenses and glasses…Since 2000, at least the profession is recognised …but we had to fight for over 40 years to get to that stage. ” (ECOO)

“I don’t think the UK market will continue to be de-regulated any further.” (FODO)

29

Source: PMSI interviews and desk research

The customer base requires both high professionalism and commercial competitiveness - but is under pressure and is vulnerable to fee structures and changes in retail competition

Maintaining clinical excellence

Dealing with suppliers

Professional service pressures – how to get adequately paid for it?

Professional standards

Commercial demands

Aggressive supply side pressures – how to respond effectively and ethically?

Managing NHS and private fee structures

Facing retail & online competitors

Customer base - possible leakage

30

Source: PMSI interviews and analysis

There is healthy growth in optometrists going into the profession, though the overall number of premises in England & Wales is in slight decline
There was a decline of 6.2% in the number of premises between 1999/00 and 2003/04 but a rise in the number of optometrists and OMPs of 10.8% (to Dec 2003). This led to an increase in the average number of practitioners per site from 1.1 to 1.3 (+18.6%). Interview data indicates this reflects a rise in the number of employed as opposed to independent optometrists, and hence an increase in market concentration.
Fig 16. Optometrists and ophthalmic medical practitioners under contract to carry out NHS eye tests in England & Wales 1994-2004
10000 9000

Fig 15. GOS premises in England & Wales, 1994/5-2004/5
7500

*

7000

8000 7000

6500

6000 5000

6000

4000 3000 2000

5500

5000

1000

/5

/6

/7

/0

/1

/2

/3

/8

/9

/4

94

95

96

99

00

01

02

97

98

03

04

/5

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

19

19

19

19

20

20

20

20

19

19

20

* 2004 data may reflect changes in data collection methodology and planned introduction of new regulations April 2005

31

Source: Department of Health: General Ophthalmic Services: Workforce Statistics for England and Wales

Many optometrists view their role as clinician first, business manager second. Developing a stronger commercial focus & adequate business model will be vital to a successful future Why should I change my established working practice?
“The essential problem is that optometrists are usually very good clinicians, but often not such good business people. …There’s a certain lethargy, and a degree of arrogance. Practitioners are often somewhat blinkered, they see themselves as clinicians and don’t want to be associated with the words profit or business.” (Sight Care) “If independents do go out of business, it won’t be because of contact lens sales or changes to regulation, it will be because of not having an adequate service model.” (Optical chain) “Practitioners have a wide range of strengths and weaknesses, so a variety of support mechanisms is healthy. Even with this variety, promoting best practice is taking a long time. Commercial awareness for all practitioners should be introduced at an early stage.” (ACLM) • Some practitioners hold conservative views on lens prescribing “The main obstacle to growth in contact lens use is the conservative attitude many optometrists take. Many still represent the views their lecturers passed on to them 20 or 30 years ago.” (Optical chain)

“You will always get the early adopters, the early majority who will adapt successfully, but there’ll also be those who
cannot or will not change.” (Eyecare Trust)

32

Source: PMSI interviews

A difference in optometrists’ priorities and attitudes towards lens fitting and business practice is reported between older practitioners and the younger generation

“ I might be of a generation that was taught how to fit contacts properly at university, but a lot of the older generation have not been taught extensively and don’t like fitting lenses.” (Independent Optometrist)

“Looking at the demographics, a lot of the older optometrists are simply not motivated to change their ways, they’ve run their practice successfully for so many years and don’t want to do “business” – they’d rather go into early retirement or give up their practice.” (Eyecare Trust)

“No, I haven’t really been running any monthly lens schemes or direct debits, when you get to my age, you like things to be straightforward.” (Independent Optometrist)

“One aspect that may have an indirect influence on the balance between independent optometrists/opticians and
larger multiples is one that is perhaps often overlooked – the current age cohort of independent optometrists. You see, a lot of the independents are male, over the age of 50. And they will retire eventually… The demographics are changing and this may contribute to finding a more natural balance in future.” (FODO)

“I do think that there is an over supply of almost 20% of optometrists’ practices in the UK. Once things settle a bit, we will see a some of them going out of business – partly because the demographics are against them and a lot of them will simply give up because they are getting too old and don’t want to adapt to the modern market environment.” (Sight Care)

33

Source: PMSI Interviews

Challenges

•

What challenges do optometrists face in their professional environment? How can they better realise contact lens opportunities amongst consumer groups? How can their business model be adapted?

•

•

34

Source:

Practitioners can grow their contact lens business by attracting new wearers, re-capturing those who have dropped out, and selling more lenses to existing customers

Existing lens business

Growing the lens business

New wearers & drop-outs

Existing wearer base

Specs & lens wearers

Lens only wearers

Single lens wearers

Multi lens wearers

35

Source:

PMSI analysis and interviews

But practitioner attitudes to contact lens prescribing are often too cautious - a more proactive approach is needed to reach potential new wearers
Fig 17. JJVC / NOP Star survey of UK practitioners
100% 90% 80% 70% 60% 50% 40%
CL trialled CL discussion 100%

Fig 18. ACLM practitioner survey % 100

100% 90% 80% 70% 60% 50% 40%
43% CL purchased Patient initiated discussion No CL discussion

90 80 70 60 50 40 30 20
CL purchased No

30% 20% 10% 0%

30% 20% 10% 0%
26%
ECP initiated discussion CL trialled 23%

10 0
Yes

17%

Test group who discussed lenses with ALL patients

Control group with continued normal prescribing pattern

“I suggest or discuss contact lenses with all of my patients”

• •

In 1996, J&J surveyed 223 practitioners in two groups, those who discussed CL’s with all patients and those who continued with normal prescribing patterns. The lens prescribing rate was 50% higher in the former group. A 2001 ACLM survey amongst practitioners showed that less than 10% of optometrists discuss lenses with all their patients. “Research for the ACLM by ‘The Optician’ suggests that 48% of current spectacle wearers would be prepared to try contact lenses if their practitioner recommended them. A more determined and consistent approach to all current patients of all ages would produce startlingly positive results – we know this because some practitioners are already doing it.” (ACLM)

36

Source: ACLM practitioner research, PMSI desk research, J&J/NOP Star survey

Occasional wear of contact lenses is a strong trend which could be capitalised on with many existing specs patients Specs and lenses? Could it make sense to offer both?

•

The population is becoming more active “Yes people are becoming more active, even in my age group. So I think that lenses for sports use, for example, will be a growing trend in the next 10 years.” (Independent Optometrist)

•

Occasional lens wear is an important trend “I believe social wear of contact lenses is the biggest growth area. People who wear spectacles normally, but also want to have the freedom of wearing lenses on occasions where they might be more practicable.” (Independent Optometrist) “Occasional wear is a growth area, people will need lenses for i.e. motorcycle use.” (Employed Optometrist) “We get a real mix of patients between those who wear lenses all the time and those who want them just for special occasions, social wear or sports.” (Independent Optometrist)

37

Source: PMSI interviews

But patient communication is still strongly geared towards spectacle-only wear. Practitioners could reach more potential lens wearers without compromising their specs business If the patient doesn’t mention contact lenses, should I mention them?

•

Practitioners often spend less time promoting contact lenses. Lack of training, but also some lethargy around perceived patient preferences both play a role…

“No, to tell you the truth, I don’t discuss lenses with all of my patients. I don’t want to. I’d say I’ll mention the idea to perhaps 20% of patients. You see, I don’t actually want to do a lot more contact lens business.” (Independent Optometrist) “I will speak to patients who ask about lenses, but I won’t necessarily recommend them if they don’t.” (Independent Optometrist) “We know that over 85% of people who wear specs with a prescription could easily also wear contact lenses. But the greatest obstacle to them starting to wear lenses is the optometrists who doesn’t make them aware of that fact.” (Optical chain)

•

Volume retailers have been early adopters of a proactive approach:

“I generally would talk to all patients about specs and lenses, although a lot of them already have a good idea what they’re interested in before they come in.” (Employed optometrist, supermarket)

38

Source: PMSI interviews

As an example, older wearers are a potentially large growth area, yet practitioners often take a very cautious stance Contact lenses aren’t for older people, are they?

• Poor lens quality is often cited as a reason for not targeting older wearers
“For elderly patients to adopt the idea of contact lenses, we’d really need to get better bi-focal
lenses. I know that manufacturers are working on it, but they’ve not really got there yet.” (Independent Optometrist) “I wouldn’t want to push lenses to older patients unless they really want them. There have been problems with bi-focals, often patients are not happy with them.” (Independent Optometrist)

•

Common conditions in the older eye are also mentioned

“Poor quality of tears and poor tear count in general are other problems that might prevent older people from wearing
lenses.” (Independent Optometrist) There are a lot of generalisations, such as the common myth that ‘the ageing female suffers from dry eyes and is unsuitable for lenses” – well that may be true for many, but certainly not all female patients.” (Optical chain)

•

But some practitioners simply do not take a proactive stance

“Older people are often not interested, and I don’t really want to push them onto lenses for the sake of selling lenses…I’d go by the motto, ‘If it ain’t broke, don’t fix it.’ ” (Independent Optometrist) “I would say that many optometrists are certainly not as proactive as they could be when it comes to lenses and older patients - they assume they wouldn’t be interested.” (Optical chain)

39

Source: PMSI interviews

But there are many possible rewards from targeting the older age groups, without compromising professional standards So what could I gain from making older patients aware of lenses?
“A more proactive attitude by practitioners will have the same effect on their patients, of any age.” (ACLM) “I agree that the over 60’s are a huge potential future market for lenses and specs.. It’s not just that we’re an ageing population, but also that the grey pound is very attractive. These are now people going into retirement, who, unlike the previous generation… are ‘young at heart’, with time on their hands, they go walking and are active and lenses in addition to their specs are ideal. “ (Optical chain) “Yes, I believe that older wearers are a big market for the future. And they should be targeted a lot more. It would aid practice sales substantially.” (CL manufacturer) “My oldest contact lens patient is 103 years old and she’s very happy!” (Independent Optometrist)

…and volume retailers may have spotted the opportunity already
“People from the older age groups do ask about lenses now. Things are changing. Traditionally, older people would just have prescriptions for spectacles, but the generation of 60 and over people feel younger now, they’re more active. I believe that supermarkets appeal to them as the barriers to just have a quick chat about lenses are lower, we’re more accessible in a way. They walk in, may have questions or preconceptions about lenses or the level of service we offer. But then they notice that we are experienced professionals as well, that we do ask them the right questions.” (Employed Optometrist, supermarket)

40

Source: PMSI interviews

Teenagers and younger wearers are also a promising target group

Should I target just adults?

“I believe teenagers are a group that could be targeted more. I don’t see why we shouldn’t talk to high-school/secondary school children about lenses, especially for sports use. Children are more interested now in taking these decisions themselves, and a lot may know a little about lenses already from their mates and classmates.” (Independent Optometrist) “The younger patients are interested because of their more active lifestyle. They want an easier life and their parents are in a position to pay for lenses.” (Independent Optometrist)
“One

[target] group are young people, who will want to wear their lenses a lot, often daily, all their life.” (Independent Optometrist)

“All age groups are a good target. You may find this extreme, but children as young as 2 can be fitted with lenses. I fit children in the 6-8 year age range without problems. It’s great for them not to have to wear specs all the time.” (Independent Optometrist)

41

Source: PMSI interviews

Reassuring patients on some of their most common fears and misconceptions will also help gain new lens wearers I’m not sure if I should go for lenses
Fig 19. 2001 ACLM/NOP survey results: Most common reasons for not wearing contact lenses mentioned by consumers who were regular spectacle wearers, wore no contact lenses and had not tried them
CL would give me better vision than glasses CL are bad for the health of the eyes CL are expensive to use CL are complecated to look after My type of vision is not suitable for CL I don’t know enough about CL to try them CL are suitable for occasional use I don’t like the idea of putting CL in my eyes
0 10 20 30 40 50 60 70 %

Agree

Strongly agree

Base: 251

“A lot of optometrists are lazy. They find it easier to just sell the patient a pair of specs than to explain different lens options, talk the patient through it all and reassure them, take on aftercare.” (Independent Optometrist)

42

Source: 2001 ACLM /NOP survey

Challenges

•

What challenges do optometrists face in their professional environment? How can they better realise contact lens opportunities amongst consumer groups? How can their business model be adapted?

•

•

43

Source:

Some common practitioner perceptions relating to the profitability of contact lens sales and services may need to be challenged

“ Aren’t contact lens sales less profitable than specs? I spend less time promoting them and concentrate on specs.

“The notion that contact lenses and contact lens services are less profitable than specs is a common one, but it is a misconception. You might get, say £200 out of a spectacle customer every two years, when they might want to buy new glasses. But you’ll probably get twice that in revenues from a contact lens patient, i.e. £200 p.a., because they have tighter wearing schedules, may change lenses, try out different ones for different uses.” (Optical chain) “Contact lens users are the most loyal customers” (ACLM optical practice business model) “You know I really have no time for all that talk about contact lenses not being profitable. My practice is doing very well, and I have around 80% of patients with lenses. If you’ve got the right professional fees, and in most cases that means higher fees than before, then you can afford to sell lenses at market rate and still make a good profit. What we do have to watch out for is supermarkets undercutting prices so far that they’re cheaper than what we’re buying at from manufacturers, but that can be addressed – it’s not the lens business itself that is unprofitable – you just have to run it the right way.” (Independent Optometrist)

44

Source:

ACLM/London Business School practitioner research, PMSI desk research and interviews

Higher fees are key – especially if practices pursue any reduction in lens prices

Example of ACLM London Business School model on cumulative profit after direct costs with pre-set practice data input The ACLM London Business School “Optical Practice Business Model” shows the incremental profit achievable by selling contact lenses in addition to spectacles. (It does not allow a direct comparison between spectacles only and lens only sales)
£ 300
CL & specs patient best case worst case

200

100

The model also enables estimation of the profit impact of alternative lens pricing strategies. This shows that for a 33% reduction in lens and solutions prices in a hypothetical practice, fitting and annual care fees have to increase by 100% and 33% respectively, and the percentage of patients sold contact lenses also has to increase in order to reach breakeven. To maintain profitability on the basis of more aggressive product pricing fees have to increase substantially, and incremental lens sales have to be secured through both existing patients (specs+lens to previous specs only patients) and new patients. In addition, lowering purchasing costs to maintain margins will help - but this is not demonstrated in the “value for money” scenario of the model. (The starting margin on lens purchase at £36 is 217%)

Specs only patient

0
months

ACLM London Business School “value for money” scenario based on reduced contact lens & solutions prices
Base
Lens Sale Solution sale Fitting fee £114 £63 £20

Adjusted
£76 £42 £40

% adjustment
-33 -33 100 33 29 decline in net profit by £1,691 increase in net profit by £180

Annual care fee £30 £40 % Patients sold spec+CLs 7 9 Outcome for patient base of 5,000: If increase in CL patients is derived from existing patients only Outcome for patient base of 5,000: If increase in CL patients is derived from new patients

45

Source: ACLM/London Business School practitioner research

Monthly payment plans are a highly successful method of retaining customer loyalty and maintaining contact lens revenues – but myths still surround them

Direct debit schemes are complicated. Are they worth the hassle?

“Yes, “all round care” concepts can work very well, but again you have to convince many practitioners of their usefulness. It’s a slow moving profession.” (Independent Optometrist) “I do believe the independents need to be more proactive and not just sit on their backside. You see, some optometrists won’t even take credit cards, let alone have direct debit schemes. They need to wake up and face the reality, because those schemes are a good way to retain ongoing business. 70% of my turnover is now from payments made on credit or debit card.” (Independent Optometrist) “I’ve had people on standing orders for 10 years now. Patients love it and it’s good for me because they’ll become attached to the practice, some don’t even notice they’ve got the standing order any more, they forget” (Independent Optometrist) “We have around 14,000 direct debit schemes going… and we’re quite successful with it…They’ve been running for a long time.” (Independent Optometrist) “We have very positive experience with all-in direct debit schemes for lenses. It’s a concept that works well and takes the hassle out of lenses for patients. It sometimes gets a little tricky when people change their lens types, but it’s very effective and binds the patient to the practice.” (Independent Optometrist)

46

Source:

PMSI interviews and analysis

Managed vision care reduces the risk of customers purchasing lenses elsewhere; monthly lens patients appear particularly well suited to this kind of package.
Fig 20. Frequency of wear comparison between daily and monthly disposables

Monthly

Daily

Days worn per week

“Supermarket sales have had no effect on my business so far. I have had no requests for verification of a prescription, it seems that nobody has taken their business elsewhere yet. I believe that’s because a huge percentage of my patients are locked in with standing orders. I try to lock them into weekly/monthly disposables rather than dailies, because people tend not to go on standing orders when they use dailies, that’s because they often don’t actually wear them every day, just occasionally, and don’t require the same amount of lenses every month.” (Independent Optometrist) “Supermarket sales haven’t had a great effect yet in terms of my revenues. If I fit a monthly lens, I will try to tie that patient into a standing order.” (Independent Optometrist)

47

Source: PMSI interviews, Morgan P Contact Lens Spectrum 2004

Many optometrists have already started to use these business models successfully, and target the premium segment of lenses in particular

Eye test

Check ups Lens

“We have come up with our own version of Eye Plan. The patient agrees to pay a certain sum, say £7-8 per month and in return gets all his professional fees including examinations plus discounts on spectacles…A typical price plan for monthly disposables including fees and check ups would be £16.40 per month. That would include professional fees at £8, lenses at £3.50, solutions at £4.00. The dearest lenses, Acuvue extended wear, would be £35 per month.” (Independent Optometrist)

Solutions & tablets

Fitting

• “I’ve had my own business model for around 4 years now. I charge
monthly fees that are calculated at charge cost, plus 10% plus VAT.” (Independent Optometrist)

“On products, I’ll just charge product cost +20%, including VAT. But I have high professional fees, my patients come to me because they receive excellent service and pay for that, plus I am in a prime location. A typical annual aftercare plan would be £172, a single eye exam is £98.” (Independent Optometrist)

• The higher quality end of the contact lens spectrum appears an attractive segment for
independent optometrists
“As I mentioned before, aiming at the higher quality end of lenses is a good idea. Supermarkets and multiples tend to not go for that, they go for cheap lenses that can be sold in high volumes, whereas we go for the longer term relationship. The sector we market to is happy enough with our offer and we are running a very successful practice.” (Independent Optometrist)

48

Source:

PMSI interviews and analysis

Practice staff and colleagues need to be equipped with an adequate skillset and be highly motivated. Optometrists need to regularly review their own skills

%

Fig 21. ACLM practitioner survey
Disagree

100 90 80 70 60 50 40 30 20 10 0
Agree strongly Agree somewhat

“My contact lens fitting skills could be improved”

“Lack of awareness and experience of the latest contact lens technologies and lack of contact lens training and fitting practice in general are a problem, unwillingness to experiment with new products.” (ACLM) “I guess sending the receptionist off to a course to gain more of an understanding and also to perhaps speak to patients waiting in reception would be a good idea.” (Independent Optometrist)

49

Source:

ACLM/NOP survey, 2001, PMSI interviews

But adequately priced fees for professional services appear vital to the future of the profession

Is competing against the supermarkets on product price the only option?
“Independents who want to compete on product price only will fail…Proper charging for professional fees is essential. The problem is that we don’t have pain! People are far more easily convinced to pay a bit more at a dentist, for example, because of the pain involved.” (Optical chain) “We need to raise prices for the services we provide, not the products. Service charges are unrealistically low at the moment.” (Independent Optometrist) “One of the main points for the future is that we need to encourage practitioners to start charging appropriately for their professional services…That is the way forward.” (Sight Care) “We have to start charging more realistic fees. I can’t emphasize that enough.” (Independent Optometrist)

• There is a potential role for the AOP in this process:
“I believe what the AOP can do is help to convince practitioner members that they need to charge appropriate fees for their services and that the way forward is to have a clear breakdown for patients so they know what they are paying for. We have to bite the bullet and sell our professional services, separate our charges from the product price - it has to be a service based approach, not product price based.” (Independent Optometrist)

50

Source: PMSI Interviews

A clear, transparent fee and pricing structure should enable patients to understand charges;, separating cost of professional time encourages them to identify real value for money

Clinical time

Product cost

Individually tailored, high quality service

Fee package
What I’ve been doing for a number of years now is to give patients a full breakdown of cost included in their price plan. In the beginning, I thought that they’d not appreciate that, but it’s been very successful because they can see all the different elements and clearly know that I don’t overcharge on my fees.” (Independent Optometrist) “The profession has not been good at separating the supply side from the service side so far...It is a bit like making the difference between buying fuel for your car, and getting it serviced. You wouldn’t price the two the same, you can refuel yourself, but you go to the expert for services.“ (Independent Optometrist) “They need to properly separate out product and service costs to their patients, make them aware just how little they actually charge – even after raised service and consultation fees – in comparison to any other clinical profession, indeed most service based professions charge more. How many service professions will give you their time for £20?” (Optical chain)
51
Source: PMSI interviews and analysis

With adequate fees, chair time for complicated fittings should be less of an issue, allowing optometrists to consider more lens options for their patients Is it feasible to fit complicated or more time-intensive lenses?

“I have accumulated some expertise over the years, but I am sure that not everyone has been to courses etc. to actually learn how to deal with the more complicated lens cases. They’ll just refer patients elsewhere if they ask about lenses, or advise them to use specs instead. More and better training for those practitioners would be the answer.” (Independent Optometrist)

• For example, rigid lenses have had a new lease of life and can be a useful alternative
““65-70% of Ortho-K wearers are previous soft lens users now, who have switched…Part of the problem why soft
lenses have got such an overwhelmingly large market share is that practitioners are concerned about their chair time, rigid lenses take longer to fit…I would really hope that this may lead to the market picking up for RGP’s. You see the problem is that practitioners would only ever give the patient two choices, if at all: Hard or soft lenses. When you hear that, as a patient, of course you don’t ask for hard lenses…. But because Ortho K lenses are much larger in diameter now, comfort is much improved for the wearer.” (CL manufacturer)

• Chair time should also be less of an issue in regard to silicone hydrogel lenses
“Silicone hydrogels are not more complicated as such, but they do probably require more frequent aftercare appointments as they are seen as slightly more risky.” (Dr. Philip Morgan)

52

Source: PMSI interview and analysis

Independent optometrists favour word of mouth and reminders as a tool to maintain and grow business – but are up against aggressive competitive advertising Word of mouth works best for me!
“I don’t really believe in advertising. Awareness campaigns and loyalty appeals work best, a reminder system with regular mail-outs for example. We don’t really have the financial resource or time for larger advertising.” (Independent Optometrist) “Advertising doesn’t work. At least it doesn’t when you’re trying to advertise on the service angle. It only works for price.” (Independent Optometrist) “We have never really indulged in advertising as a practice, not many independent practices will have done so, because we often don’t have the time and resource to do so.” (Independent Optometrist) “Our patients come because they like the service they receive. I don’t really think a larger scale advertising campaign for independents would work anyhow - you can’t tell them what to do.” (Independent Optometrist)

• However, there may be opportunities for generic awareness-raising campaigns
“I would support the idea of a big public information campaign - that might be the way forward. People need to be made aware of what independent optometrists and opticians can do for them.” (Independent Optometrist)

53

Source: PMSI interviews

But there is clear opportunity to emphasize a quality driven service and best practice
Volume of product sales

Independent practitioners

Optical Multiples

Supermarkets

Individual, quality driven service “What we do need to do is to raise the profile of the profession in terms of the healthcare aspect and our service values, those really distinguish us...” (Independent Optometrist) “Yes large retail chains may be able to offer contact lenses themselves cheaper than independent optometrists, but I think they have a different proposition in any case. If independents manage to charge adequately for their services, then product price won’t be so much of an issue, they’ll be able to sell their lenses quite cheaply as well. They should try to offer as good a service as they can, with the full range of benefits.” (Optical chain) “Yes, people might buy from online retailers and grocers and yes the market is changing. But that does not automatically have to equal less patients for optometrists. They can be retained if you approach your business in the right way. Direct debit schemes are certainly an integral part of that strategy. And selling them the right lenses. The future is for them to retain loyalty, once people see that they are getting a different quality of service, then they’ll remain with the practice.” (CL manufacturer)
PMSI analysis, PMSI interviews

54

Source:

Challenges

•

What challenges do optometrists face in their professional environment? How can they better realise contact lens opportunities amongst consumer groups? How can their business model be adapted?

•

•

So what actions should optometrists take?

55

Source:

There are several potential opportunities for AOP members to respond to current market pressures (1)
Focus on key competencies and best practice: A high-quality, service based model • Emphasise professional expertise which offers ophthalmic experience, all-round quality care and a tailor-made service
Supermarkets entering the arena

• Develop a clear, communicable proposition distinct from price-led models of supermarkets (eyecare not just eyewear?) • Build relationships with occasional lens wearers and those requiring extra service. Embrace premium lenses and new lens technology. • Improve staff and practitioner training, skills and attitude.

Margin and competitive pressures increasing

Increasing online sales with little or no service

Sales through pharmacies

Aggressive advertising of large multiples

Consolidation of premises

56

Source:

PMSI analysis

There are several potential opportunities for AOP members to respond to current market pressures (2)

Target future growth areas for contact lenses: Recognise the ageing population, plus possibly the teenage market • Overcome conservative attitudes of both practitioners and patients • Emphasise the service value in addressing the older and younger target groups • Develop more attractive aftercare offerings for these groups • Consider public info/awareness-raising campaigns
Increasing online sales with little or no service Margin and competitive pressures increasing

Supermarkets entering the arena

Sales through pharmacies

Aggressive advertising of large multiples

Consolidation of premises

57

Source:

PMSI analysis

There are several potential opportunities for AOP members to respond to current market pressures (3)

Develop commercial skills: Charge realistically, utilise payment plans and improve purchasing negotiation • Consider visibly separating charges to patients, including realistic clinical fees • Introduce payment plans wherever possible, preferably on direct debit, and regular reminder systems • Develop negotiating skills and build on optometrists’ gatekeeper status to help negotiate better purchasing deals. • Reconsider buying groups.
Increasing online sales with little or no service Margin and competitive pressures increasing

Supermarkets entering the arena

Sales through pharmacies

Aggressive advertising of large multiples

Consolidation of premises

58

Source:

PMSI analysis

Closer working relationships of professional organisations are likely find support from many within the industry, and this research was well received as an AOP initiative

“In a way, it is really nice to see the AOP doing something like this, looking at their market and conducting some research. That is ABDO really a breath of fresh air…Our expertise lies in campaigns, we have the PR and creative resource, for College of example. I’d be more than happy to Optometrists speak to the AOP if they were interested in any type of campaign or promotional work for optometrists.” (Eyecare Trust) “I do believe that we should cooperate more with the AOP and the AOP with us, it can only strengthen the profession.” (Sight Care) BCLA

AOP FODO Sight Care Eyecare Trust

“ We intend to continue to support independent optometrists. One initiative we are running is that we’re sponsoring the “Independent of the Year” at the 2006 The Optician awards. Perhaps the AOP could do something similar, award or raise awareness of those optometrists who have successfully transformed their practice.” (CL manufacturer) “One very important point is that all the organisations within the optical market should work together more…I think it would do a lot of good to the industry if AOP, FODO and ABDO were to work more closely in terms of lobbying, they have started to recently, and it worked very well.” (Optical chain)

FMO ACLM

59

Source:

PMSI analysis and interviews

Despite the current market challenges, many optometrists take a positive view…

“I don’t think the market is as bleak as many optometrists might think. Yes, there is some pressure. But we had a similar situation 20 years ago, when VAT was a big issue. We got through that, and we’ll get through this as well.” (Independent Optometrist) “It is a wake-up call – but the profession needs it, otherwise nothing will change.” (Independent Optometrist)

60

Source:

PMSI analysis and interviews

Appendix: Practice pricing models

What potential pricing models could optometrists adopt for their practice?

61

Source:

PMSI analysis and interviews

The ACLM Optical Practice Business Model: Base model
Specs only patients
£ £ 120 40 30 28

Pricing and Sales
Average Sale of Specs Average Cost of Specs Time to Fit Specs (DO min) Repurchase Cycle of Specs

CL& specs patients
£ £ 120 40 30 36

PRACTICE DATA
Capacity utilised

Specs only patients % Mix of Patients
No. of Patients Annual Revenue

CL& specs patients

93
4,650 £ 146,674

7
350 £ 55,690 24% £ 202,364

Number of Patients 20
Optom/CL Optician Dispensing Optician OA / Receptionist P&L Input Data Inventory Interest Rate

5000
1 1 1 79% 52%

Contact Lens Fitting Fee
Time Initially Fit Contact Lenses (OO min) Review Time Fit Contact Lenses (DO min) Time for Initial I&R / Soln's Teach (OA min)

£
30 20 20

CL related income % Total Revenue

14%

VAT paid Cost of Goods

£ £ £ £

22,320 38,263 36,969 49,122 £ £ £ £ £ £ £ 150 5,000 52,620 15,000 3,897 779 3,118

£

6,520

£ 16,214 £ 5,411

Average Annual Sale of CLs
Average Annual Cost of CLs

£
£

114
36

1500 0.1 0.2

Direct Labour Cost Gross Profit Inventory Cost Marketing & Other costs Unallocated Labour cost Total Fixed Costs Profit Before Tax Tax

£ 27,545

Annual Care Fee
% All Px Purchasing CL Soln's from You

£

30
70%

Tax Rate

Average Annual Sale of CL Solutions
Average Annual Cost of CL Solutions Annual Customer Retention Annual CL Wearer Drop-out Rate 80%

£
£ 27

63
80% 10%

Target Net Profit (and Variance)

ACLM base model
•

Net Profit

£

3,118

The ACLM Optical Practice Business Model illustrates how changing variables around lens pricing, service fees and increase in lens patients affect bottom line profits in an optical practice environment. Fees and pricing for spectacles have been kept constant for this exercise. Note: Staff capacity/cost data was assumed to be £50,000 per Optometrist/CL Optician p.a, at 80% of time available to see patients, £30,000
per Optician DO p.a., again at 80% time availability and £15,000 per OA/Receptionist at 10% time availability. VAT rates were kept constant at current 17.5% rates throughout the exercises, but can be amended in the model.

62

Source:

ACLM/London Business School. PMSI analysis

The ACLM Optical Practice Business Model Scenario 1: Reduced product pricing

Pricing and Sales
Contact Lens Fitting Fee

CL& specs patients
£ 20

PRACTICE DATA
Number of Patients 5000 % Mix of Patients

Specs only patients

CL& specs patients

Average Annual Sale of CLs
Annual Care Fee

£
£

76
30

93

7

Average Annual Sale of CL Solutions

£

42

Net Profit

£ - 5,741

Scenario 1:
•
Reducing both lens and CL prices by 33% leads to a significant bottom line loss if service fee variables are unchanged

63

Source:

ACLM/London Business School. PMSI analysis

The ACLM Optical Practice Business Model Scenario 2: Higher service fees added

Pricing and Sales
Contact Lens Fitting Fee

CL&specs patients
£ 40

PRACTICE DATA
Number of Patients 5000 % Mix of Patients

Specs only patients

CL& specs patients

Average Annual Sale of CLs Annual Care Fee Average Annual Sale of CL Solutions

£ £ £

76 40 42

93

7

Net Profit

£

-2,904

Scenario 2:
•
Increasing service fees alone (100% increase on the one-off lens fitting fee applicable in the first year only, 33% increase on the annual care fee applicable from the second year onwards) with an unchanged % of contact lens patients improves results, but still makes this practice a loss making business. In order to justify fee increases and not lose patients, the practitioner would at this stage, need to clearly demonstrate value for money to his patients by emphasising a high quality, service driven approach.

•

64

Source:

ACLM/London Business School. PMSI analysis

The ACLM Optical Practice Business Model Scenario 3: Percentage of CL patients increased

Pricing and Sales Contact Lens Fitting Fee Average Annual Sale of CLs Annual Care Fee Average Annual Sale of CL Solutions

CL&specs patients £ £ £ £ 40 76 40 42

PRACTICE DATA
Number of Patients 5000

Specs only patients % Mix of Patients

CL& specs patients

91

9

Scenario 3:
•
If the practice then manages to increase the number of patients it sells contact lenses to, in addition to raising fees, profit increases. A 2% increase (representing 100 patients) in contact lens patients is sufficient to recover all losses for this practice, although profit is still £1,691 lower than in the base model.

Net Profit

£

1,427

PRACTICE DATA
Number of Patients 5100 % Mix of Patients

Specs only patients
95

CL&specs patients

9

Net Profit

£

3,298

•

If these additional 100 contact lens patients were in fact new patients the practice had gained, profit would increase to £3,298 – bringing it slightly above the level of profit in the base model. Note that customer retention, for example, may also have improved and could have a further positive impact on profitability, but this and marketing costs have both been kept constant for this example.

65

Source:

ACLM/London Business School. PMSI analysis

The ACLM Optical Practice Business Model Variation 4: Stronger increase in CL patients

Pricing and Sales
Contact Lens Fitting Fee

CL&specs patients
£ 40

PRACTICE DATA Number of Patients 5500 % Mix of Patients

Specs only patients

CL& specs patients

Average Annual Sale of CLs Annual Care Fee Average Annual Sale of CL Solutions

£ £ £

76 40 42

90

10

Net Profit

£

13,164

Scenario 4a:
•
If this could become a more contact lens focused business and increase its percentage of CL patients to 10%, net profit would be £13,164, assuming again that these were all new patients gained by the practice.
PRACTICE DATA Number of Patients 5300 % Mix of Patients Specs only patients CL& specs patients

90

10

Scenario 4b:
•
If the practice achieved its increase in CL % via a mix of selling CLs to existing patients (250) and to new patients (300), profit would still be £9,336

Net Profit

£

9,336

Scenario 4c:
•If the business was to become more of a CL specialist, able to convert a higher rate of its existing specs patients to 30% specs&CL, whilst still gaining the previous 300 new patients, profits could reach £55,245. The model suggests that for this hypothetical practice existing staff capacity, at 92% utilisation, should still be sufficient, but no marketing cost increase is assumed
66
Source: PMSI analysis and interviews

Specs only patients % Mix of Patients

CL& specs patients

70

30

Net Profit

£

55,245

The ACLM Optical Practice Business Model Variation 5: Stronger increase in service fees

Pricing and Sales

CL&specs patients

PRACTICE DATA
Number of Patients 5000 % Mix of Patients

Specs only patients

CL& specs patients

Contact Lens Fitting Fee
Average Annual Sale of CLs

£
£

60
76

85

15

Annual Care Fee
Average Annual Sale of CL Solutions

£
£

60
42

Net Profit

£

23,381

Scenario 5:
• If the practice was able to raise its professional fees by a further 50%, whilst also converting an increased number of existing patients to CL& specs (but not gaining any new patients) profits could still be improved substantially, to £23,381 (from a base case of £3,118). •
However, the practice would at this stage have to further differentiate its services as “premium” and “individual” to justify the fee increase and this might incur higher salary and/or marketing costs.

•

This model may be most suitable for practices with a relatively affluent patient base.

“I charge £60-70 in consultation fees for a 12 month period. Lenses go on top of that. So a typical package could be somewhere like £180 for monthly lenses…. The profession needs to be told, they need to have it explained how effective a decent fee structure is, and what best practice should mean. Of course the AOP or any other organisation won’t really be able to suggest fees, but they can however guide their members on best practice, explain just how important a good fee structure is, that it is no longer appropriate to supply lenses without explaining the different cost elements.” (Independent Optometrist)
67
Source: PMSI analysis and interviews


				
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