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




    0                                                     Source:
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.




1                                       Source:
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




2                Source:
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           of published and unpublished material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




3                               Source:
  Executive Summary (1)


                  Initial hypotheses1:                               Research conclusions:
  Possible      • Focus on key competencies:                   The key finding was the need for optometrists to improve their contact lens
 routes and     • A high quality, service based model
opportunities                                                  knowledge & skills in order to support a premium service based proposition

                • Professional expertise offers potential to                  There is great potential for optometrists to build their business on a
                  capture higher spending customers via
                                                                              high quality service based model. This approach found high
                  a model emphasising quality,
                  ophthalmic experience, and all-round                        acceptance amongst the practitioner sample, but is dependent on
                  care and service                                            identifying ways to improve professional fee levels.

                • Develop a clear, communicable strategy                      Most respondents agree that a clearer distinction can be reached
                  distinct from basic, price-led models of                    versus supermarkets - but optometrists need to be more proactive
                  supermarkets
                                                                              in relation to contact lenses, and that requires skills updating.

                • Build on existing relationships with                        Speciality/premium lens wearers are likely to appreciate the high-
                  those who wear speciality lenses                            quality service model, but occasional lens wearers are probably an
                  requiring extra service                                     even more important group in terms of future business.
                                                                              Optometrists need to have the right skill set to target them.
                • Further enhance relations with NHS
                  bodies, especially PCTs, to secure                          This was not seen as a core opportunity by any respondents.
                  service contracts


                • Consider potential of home
                                                                              We found no evidence to suggest that home delivery or fitting
                  delivery/home fitting services.
                                                                              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


  4                                                 Source:
 Executive Summary (2)


                    Initial hypotheses1:                              Research conclusions:
  Possible
 routes and     • Recognise and target future growth areas         The key finding was the need for optometrists to be more proactive in
opportunities   • Develop a high profile advertising strategy      targeting potential new lens wearers when they sell spectacles

                                                                                Despite some issues around lens quality and patient acceptance,
                • The UK population is ageing and presbyope
                  people are the fastest growing demographic
                                                                                there was positive feedback from practitioners, manufacturers
                  segment of potential contact lens wearers.                    and retailers that older wearers are an attractive target group for
                                                                                lens wear, and one which plays to optometrists’ professional
                                                                                service strengths.
                • Teenagers and older children may also be an                   The research generated positive feedback on teenagers – and
                  important group to be targeted via their
                                                                                even children - as a target group for lenses in their own right.
                  parents
                                                                                However, specific advertising was not suggested; generic public
                                                                                information campaigns are preferred.
                • Develop more attractive aftercare offerings
                  for these target groups – and promote them
                                                                                Optometrists need to promote aftercare plans more strongly and
                  heavily.                                                      explain the benefits of inclusive care to the patient or – in the
                                                                                case of younger age groups - to their parents.

                • Smaller segments of the market requiring
                  specialist care, such as people with diabetes,                We found no evidence that this is seen as a significant growth
                  could also become a focus                                     area in relation to contact lenses



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




 5                                                   Source:
 Executive Summary (3)


                  Initial hypotheses1:                              Research conclusions:
  Possible      • Consider buying group potential              The key finding was the need for optometrists to develop their commercial
 routes and     • Establish an effective online strategy
opportunities                                                  skills, especially in how they set and explain their fees

                                                                             Optometrists should consider opportunities to increase buying
                • The supermarket price war means
                  increased purchasing power may be key to                   power. Improved negotiating skills are key, but buying groups
                  survival                                                   such as Sight Care should also be re-considered for
                                                                             expansion.
                                                                             Optometrists are concerned about manufacturers discounting
                • Further develop existing manufacturer
                                                                             to supermarkets. But there is evidence to suggest
                  relationships and increase influence on
                  R&D activity                                               optometrists could leverage their gatekeeper status better and
                                                                             exert a positive influence on lens product & pricing strategies.
                • Further develop practitioners’                             Optometrists rely more on ‘word of mouth’ than advertising,
                  marketing/negotiation training                             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.
                • An effective online strategy underlining                   There is evidence pointing to optometrists’ longer term need
                  quality and service could help to                          for an online presence. In practice however, many are not yet
                  differentiate AOP members from online
                  retailers focused on low cost offers.                      in a position to explore this, due to time and financial
                                                                             constraints
                • Explore the potential for cross-marketing                  We found no evidence to suggest that cross-marketing
                  activities and sponsorship                                 activities or sponsorship would make a significant positive
                                                                             difference


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


 6                                                   Source:
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                                                    “A lot of optometrists work on the
                                   Chemists
                                                                                                   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
                 50%
                                                                                                   practice. But the market has
                                                                                                   changed, and optometrists need
                                   Opticians
                                                                                                   to move with the times.”
                                                                                                   (CL manufacturer)


                  0%
                            1998                  2002                   2006




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                                                               m
180                                                              4

160                                                              3.5
140
                  lens wearers                                   3
120
                                                                 2.5              “The contact lens market is growing - it’s profitable for
100           Manufacturer lens
                                                                 2
                                                                                        manufacturers and retailers alike.” (FODO)
                   sales
80
                                                                 1.5
60
                                                                 1
40

20                                                               0.5

    0                                                            0
        1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004                Fig 3. UK manufacturer sales               Fig 4. UK manufacturer sales by
                                                                               by lens type in 2003 & 2004                wearer base, 1992, 2003&2004
                                                                       100%                                       100%
                                                                                                      Rigid                                        Rigid
                                                                                                 Traditio nal     90%
                                                                       90%
                                                                                                 Silico ne hyd.              Rigid              Traditional
                                                                       80%                                        80%                           Silico ne hyd.

                                                                                                   Frequent       70%
                Frequent replacement and daily                         70%
                                                                                                 replacement
                                                                       60%                                        60%                             Frequent
               disposable lenses now represent                                                                                                  replacement
                                                                       50%                                        50%
               the largest percentage of the lens                      40%                                        40%
                                                                                                                           Traditional
                          wearer base                                  30%                           Daily        30%
                                                                                                 dispo sables
                                                                       20%                                        20%                               Daily
                                                                                                                                                disposables
                                                                       10%                                        10%

                                                                        0%                                         0%
                                                                                    2003            2004                     1992        2003      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

                                           £m                                                                                  CAGR
• Steady rise in UK sales of                 300
                                                                                                                            1999-2004
     disposables and the recent                                                                                                 10.7%

     uptake in continued wear                250
     lenses have had a positive
                                                                                  Lenses
     effect on market growth                 200

     overall, though growth in                                                                                                  4.42%
                                             150
     sales of aftercare products                                                 Aftercare
                                                                                 (solutions
     and solutions has slowed as                                                 & tablets)
                                             100
     a consequence.
                                              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              6

     advanced in comparison with
     other European markets, but             5

     still has growth potential
     when compared with markets              4

     like the US. In Japan, the
                                             3                                                                     Daily disposable
     total wearer base is around
     15-16% of adults.                                                                                       Frequent replacement
                                             2                                                               incl silicone hydrogel
•    Within the European context,
     soft lens wearer rates have
                                             1
     increased in all markets
                                             0                                                                       Traditional

                                                  '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04 '03 '04
                                                     DE          AT      BE-LU         ES         FR          IT           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



                 Fig 7. % of UK population wearing lenses by age, 2002                   Fig 8. % of UK population wearing contact lenses, 1997-2004
                 %                                                                            %
                 15                                                                          10
                 14
                                                                                              9
                 13
                                    Women
                 12                                                                           8
                 11
                                                                                              7
                 10
                  9                                                                           6
                  8
                                                                                              5
                  7
                  6                                                                           4
                  5                 Men
                                                                                              3
                  4
                  3                                                                           2
                  2
                                                                                              1
                  1
                  0                                                                           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.                      But in others it
     can be as low as 10%.
     “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                        Fig 9. Number of contact lens wearers in the UK in total and by type,
                                                                               1992-2003
     contact lens sales is now                               m
                                                                   3.5
     estimated to be in soft
     lenses.                                                         3

                                                                   2.5
 • In the UK up to 95% of new                                               All lens types
                                                                                             Other lenses

     fits and 80% of re-fits are                                     2
     reported to be soft lenses.                                   1.5
     Silicone hydrogels comprise
                                                                     1
     16% of re-fits and 6% of new
     fits.                                                         0.5
                                                                                                            Daily disposables
                                                                     0
 • Soft frequent replacement                                             1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
     lenses are now the most
                                                   Fig 10. Prescribed replacement frequencies of new soft lenses, 2004
     common type of lens at ca.
     45% of wearers overall,                                     100%                               1-2 weekly
     followed by daily disposables                                 90%
     at 30%.                                                       80%
                                                                                                       Daily
                                                                   70%
 • Daily disposables account for                                   60%
     40% of new fits, compared to                                  50%
     55% for monthly replacement                                   40%
     soft lenses. This is expected                                 30%                                Monthly
     to move in favour of daily                                    20%

     replacement.                                                  10%
                                                                    0%



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                                                                  Note: Nearly all extended
                                                                                                     wear soft lenses are silicone
                                             2002              2003              2004         2005
                                                                                                              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 non-
  dailies 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

•    Supermarkets are currently estimated to




                                                                          High
     have a lens market share of ca.6%, with
                                                                                       Internet only
     internet-only retailers at up to 5%.                                                 retailers    Supermarket
                                                                                                                         Boots
                                                                                                                      pharmacies
                                                                                                       pharmacies
•    To remain competitive, independent opticians                                                            Tesco / Asda
     may need to build on their professional                                                                   Opticians

     authority/reputation and individual service                                                                          Specsavers
     offering rather than compete on convenience


                                                            Convenience
                                                                                                                               D&A
     and price.
                                                                                                                             Boots
•    A key question is whether other                                                                         Pharmacy       Opticians
                                                                                                             multiples
     supermarkets or large pharmacy chains will                                                                          Vision Express
     follow Tesco’s example and sell contact                                                                             Optical Express
     lenses through pharmacies1, with on-site or
     access to employed optometrists to (the                                                                                                           Smaller &
     “general direction” requirement)                                                                                                                independent
                                                                                                                                                       opticians
•    ‘Destination credential’ in the high street and
     town centre locations is also key to continued
     success for independents and small
                                                                          Low




     multiples, as supermarket roll-out is likely to
     continue to concentrate on larger format out-
                                                                                 Low                                                                           High
     of-town locations.                                                                                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.

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.




                  •   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)



19                                 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

                                                                                                     Silicone hydrogels
 Retailer                     Monthly lenses                   Daily disposables                                                     Service fees / other information
                                                                                                     Extended wear
                              Direct Debit all-in per          Direct Debit all-in per               Direct Debit all-in per         • Varifocals at £11.30 per month (6 pairs at
                               month:                           month:                                month:                           £68), solutions at £4.30 per month
                              Premium: £10.(£12 before)·       £22 – 30 pairs (£25 before)           £15.50 (£18.50 before)
                               Standard: £8 (£10
     (all-in offers include
                               before)·
     free consultation,
     solutions, aftercare)


                              On Boots Vision Plan (min         Lens only: £18.80 (B&L               All in service offer on daily   • Advertising free 1 month’s lenses when
                               12 month): From £6 per            Soflens to £ 30.20 (J&J               silicone hydrogels:             newly joining up the Vision Plan, but initial
                               month reduced from £10            Acuvue)                             From £22 per month                consultation is charged for, free delivery and
                               (Boots monthly lenses)                                                  (Acuvue), £21.50(B&L            2-yearly eye exam for daily disposable vision
                                                                                                       Pure Vision), £30(CIBA          plan customers. Various add-on benefits
                                                                                                       Focus N&D). Extended            promoted on quarterly/annual and plus
                                                                                                       wear lenses available           plans.


                              • Lens only: from £4.70 per       • From £ 18.80 (B&L                  • £8.74 per month (B&L          • Vari /bifocals from £15.58 (J&J Acuvue two-
                                month (B&L SofLens,               Soflens 1 Day, Ciba Focus            Pure Vision) and £ 13.20        weekly) to £33.06 (CIBA Focus Dailies)
                                Actifresh, J&J Surevue),          Dailies), £30.20 (J&J Daily          (CIBA Focus Night & Day)
                                £ 8.74 (O2 Optix), to £9.37       Acuvue)
                                (Cooper Vision Hydron)




                              • (online plan): from £4.65       • From £ 18.80 for 30 pairs          • (online plan) from £8.07      • Minimum order of 3-6 months’ supply on
                                p.m. (Ciba Focus monthly,         (Ciba Focus Dailies, B&L             (B&L Pure Vision) £13.20        many offers. Advertising “30% of High Street
                                Precision UV, Cooper V.           Soflens I Day ), £ 19 (Ciba          Ciba Focus Night &Day           prices” and free delivery on online
                                Frequency 55, Proclear            Focus All Day Comfort)               and own brand extended          purchases. Offering to contact prescribing
                                Comp., B&L Soflens& own           £33.06 (Focus Dailies                wear), £15 (B&L                 optician for presciption if copies were not
                                brand) to £8.07 (Ciba             Progress and Toric),                 Purevision Toric)               optained by the patient
                                Optix)                            £30.20 (J&J Daily Acuvue)




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                                                                CAGR
                                                   40                                                             1997-2003
                                                                     Smaller multiples
                                                                     and independents                                 4.73%
• Specsavers’ aggressive
 advertising – with a budget of                                            20/20
                                                                           D&A
                                                   30
 £21m in 2003 around the
                                                                      Optical X press
 same size as all other optical                                           Boots
                                                                         Opticians
 players combined - is based
                                                   20
                                                                      Vision Express
 mostly on TV campaigns
 (50+% of expenditure) and
 has made it a very                                10
                                                                       Specsavers
 recognisable brand in the UK.

                                                   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



                                                                                         Small &
             Large lens
                                                                                       independent
              retailers                            Manufacturers                       optometrists
                             Exercising                               Can exercise
                              pressure                              pressure through
                          through volume                              prescribing &
                             purchasing                            recommendations




“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

                    Some manufacturers                                               Independents improve
                  discount to large retailers                                        commercial awareness


                    Some consumers will                                            Many consumers will still
                   purchase on price only                                            purchase on quality




       “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




                                                                                @
        Fig 14. Verdict forecast % of adult                   •   Wider access to the internet, combined with strong growth in UK
      population shopping online, 2001-2009
 %                                                                high speed broadband connections mean the % of UK population
 45
 40
                                                                  shopping online is expected to increase steadily
 35
 30
                                                              •   There are several legal disputes over ebay lens sales and alleged
 25                                                               failure of internet retailers to verify prescriptions.
 20
 15                                                               “Internet retailers don’t play by the rules. I had patients who were
 10                                                               suddenly wearing different lenses to the ones I’d prescribed; they had
  5
                                                                  obtained them through the internet, without any prescription.”
  0
      2001 2002 2003 2004 2005 2006 2007 2008 2009
                                                                  (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
                                    “The UK market is
                                                                                                                            NL
     regulated. Contact lens
     prescriptions are handled by   generally one of the most
     opthalmologists, not           advanced in Europe when
     optometrists, and only those   it comes to the
     qualified to do so may fit     optometrists’ profession.”                  “In the longer term, I don’t
     lenses.“ (Spectaris,           (ECOO)                                      believe de-regulation of the
     Germany)                                                                   [UK] market will cause any     “The Dutch and Portugese
                                    But – increasing retail                     real damage beyond a           markets are the only markets
                                    concentration, and                          natural balancing out. The     in Europe that are completely
                                    changes in primary care,                    US market has been de-         deregulated. Theoretically,
                                    are creating more                           regulated for years, and       anyone in the Netherlands
                                    competitive forces for                      supermarkets never             can open an optical store and
                                    optometrists                                reached more than 3-4% of      sell or fit lenses and
                                                                                the contact lens business      glasses…Since 2000, at least
                                                                                there.” (Sight Care)           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                                                                       Dealing with
          clinical                                                                          suppliers
         excellence



                                Professional                                          Aggressive supply side
       Professional service                                              Commercial     pressures – how to
      pressures – how to get    standards                                  demands    respond effectively and
      adequately paid for it?                                                               ethically?




                                                                                           Facing retail
         Managing NHS                                                                        & online
         and private fee                                                                   competitors
           structures


                                                           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 15. GOS premises in England & Wales, 1994/5-2004/5                                                                       Fig 16. Optometrists and ophthalmic medical practitioners under
                                                                                                                             contract to carry out NHS eye tests in England & Wales 1994-2004

     7500                                                                                                                         10000

                                                                                                                                   9000                                                                            *
     7000                                                                                                                          8000
                                                                                                                                   7000
     6500
                                                                                                                                   6000

                                                                                                                                   5000
     6000
                                                                                                                                   4000

                                                                                                                                   3000
     5500
                                                                                                                                   2000

     5000                                                                                                                          1000
                                                                                                                                       0
            /5


                      /6


                                /7


                                          /8


                                                    /9


                                                              /0


                                                                        /1


                                                                                  /2


                                                                                            /3


                                                                                                      /4


                                                                                                                /5
        94


                  95


                            96




                                                          99


                                                                    00


                                                                              01


                                                                                        02


                                                                                                  03
                                      97


                                                98




                                                                                                            04




                                                                                                                                           1994 1995    1996 1997     1998   1999 2000      2001 2002     2003 2004
       19


                 19


                           19


                                     19


                                               19


                                                         19


                                                                   20


                                                                             20


                                                                                       20


                                                                                                 20


                                                                                                           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 &                                          Existing wearer base
                   drop-outs


         Specs & lens               Lens only                         Single lens       Multi lens
           wearers                   wearers                           wearers          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                                                            Fig 18. ACLM practitioner survey
                                                                                                                       %
      100%                                                100%                                                        100
       90%                                                 90%       No CL                                             90
             CL discussion                                         discussion
       80%                                                 80%                                                         80
                100%
       70%                                                 70%                                                         70
       60%                                                 60%                                                         60                             No

       50%                                                 50%                                                         50
       40%                                                 40%     Patient initiated                                   40
                             CL trialled                             discussion
       30%                      43%                        30%                                                         30
       20%                                 CL purchased    20%                    CL trialled
                                                                                                                       20
                                                                  ECP initiated
       10%
                                              26%
                                                           10%     discussion          23%      CL purchased           10
                                                                                                                                                     Yes
        0%
                                                                                                   17%                   0
                                                            0%
               Test group who discussed                             Control group with continued                                         “I suggest or discuss contact
                lenses with ALL patients                             normal prescribing pattern                                         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              Agree                  Strongly agree

                    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 %

                                                                                                                    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                                           300

     Business Model” shows the incremental profit achievable by                                                             CL & specs patient best case
     selling contact lenses in addition to spectacles.
                                                                                                                       worst case
                                                                                                 200
     (It does not allow a direct comparison between spectacles
     only and lens only sales)

                                                                                                 100
     The model also enables estimation of the profit impact of                                                                         Specs only patient
     alternative lens pricing strategies. This shows that for a 33%
     reduction in lens and solutions prices in a hypothetical                                     0
     practice, fitting and annual care fees have to increase by
     100% and 33% respectively, and the percentage of                                                                               months
     patients sold contact lenses also has to increase in order                          ACLM London Business School “value for money” scenario
     to reach breakeven.                                                                    based on reduced contact lens & solutions prices
     To maintain profitability on the basis of more aggressive                                                                      Base           Adjusted       % adjustment

     product pricing fees have to increase substantially, and                                     Lens Sale                                £114             £76               -33

     incremental lens sales have to be secured through both                                       Solution sale                              £63            £42               -33
     existing patients (specs+lens to previous specs only                                         Fitting fee                                £20            £40               100

     patients) and new patients.                                                                  Annual care fee                         £30          £40                      33
                                                                                                  % Patients sold spec+CLs                  7             9                     29
     In addition, lowering purchasing costs to maintain margins will                              Outcome for patient base of 5,000:                              decline in net
                                                                                                  If increase in CL patients is derived from existing             profit by £1,691
     help - but this is not demonstrated in the “value for money”
                                                                                                  patients only
     scenario of the model. (The starting margin on lens purchase                                 Outcome for patient base of 5,000:                              increase in net
     at £36 is 217%)                                                                              If increase in CL patients is derived from new patients         profit by £180




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


                                                         “We have come up with our own version of Eye Plan. The patient agrees
                               Check                     to pay a certain sum, say £7-8 per month and in return gets all his
          Eye test
                                ups                      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
                      Lens                               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 &            Fitting                   • “I’ve had my own business model for around 4 years now. I charge
          tablets                                        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
                              100
                                                                     Disagree
                               90
                               80
                               70
                               60
                               50                                    Agree
                                                                   somewhat
                               40
                               30
                               20
                               10                              Agree strongly

                                0
                                                        “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                                            Product
                                        time                                                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                                    Optical           Supermarkets
                practitioners                                 Multiples



                                         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
       Super-           • Develop a clear, communicable proposition distinct from
                                                                                              Margin and
       markets            price-led models of supermarkets (eyecare not just                  competitive
     entering the
        arena
                          eyewear?)                                                            pressures
                                                                                              increasing
                        • 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.
        Increasing
       online sales
       with little or                                                                     Consolidation
        no service                         Sales                 Aggressive                of premises
                                          through                advertising
                                         pharmacies               of large
                                                                  multiples




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
       Super-                                                                             Margin and
       markets          • Emphasise the service value in addressing the older and         competitive
     entering the         younger target groups                                            pressures
        arena                                                                             increasing
                        • Develop more attractive aftercare offerings for these
                          groups
                        • Consider public info/awareness-raising campaigns

        Increasing
       online sales
       with little or                                                                 Consolidation
        no service                         Sales                Aggressive             of premises
                                          through               advertising
                                         pharmacies              of large
                                                                 multiples




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
       Super-                                                                              Margin and
       markets          • Introduce payment plans wherever possible, preferably on         competitive
     entering the         direct debit, and regular reminder systems                        pressures
        arena                                                                              increasing
                        • Develop negotiating skills and build on optometrists’
                          gatekeeper status to help negotiate better purchasing
                          deals.
                        • Reconsider buying groups.
        Increasing
       online sales
       with little or                                                                  Consolidation
        no service                         Sales                Aggressive              of premises
                                          through               advertising
                                         pharmacies              of large
                                                                 multiples




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



                                                                                             “ We intend to continue to support
“In a way, it is really nice to see the                                                         independent optometrists. One
AOP doing something like this,                                                                   initiative we are running is that
looking at their market and                                                AOP              we’re sponsoring the “Independent
conducting some research. That is                                                                   of the Year” at the 2006 The
                                              ABDO                               FODO
really a breath of fresh air…Our                                                            Optician awards. Perhaps the AOP
expertise lies in campaigns, we have                                   Sight                 could do something similar, award
the PR and creative resource, for                                      Care                       or raise awareness of those
example. I’d be more than happy to       College of                               Eyecare                optometrists who have
speak to the AOP if they were           Optometrists                               Trust      successfully transformed their
interested in any type of campaign or                                                              practice.” (CL manufacturer)
promotional work for optometrists.”
(Eyecare Trust)                                                                             “One very important point is that all
                                                                                             the organisations within the optical
“I do believe that we should co-                                                                   market should work together
operate more with the AOP and the               BCLA                             FMO
                                                                     ACLM                      more…I think it would do a lot of
AOP with us, it can only strengthen                                                         good to the industry if AOP, FODO
the profession.” (Sight Care)                                                                     and ABDO were to work more
                                                                                               closely in terms of lobbying, they
                                                                                                  have started to recently, and it
                                                                                              worked very well.” (Optical chain)



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                    CL& specs
                                                          Specs only          CL& specs
                                                                                                                                                               patients                      patients
Pricing and Sales                                         patients            patients         PRACTICE DATA
Average Sale of Specs                                     £    120            £    120                                        Capacity    % Mix of
                                                                                                                              utilised
Average Cost of Specs                                     £     40            £     40                                                    Patients                93                           7
Time to Fit Specs (DO min)                                      30                  30
                                                                                               Number of                                  No. of Patients               4,650                       350
                                                                                               Patients              5000
Repurchase Cycle of Specs                                       28                  36                                                    Annual Revenue           £ 146,674                   £ 55,690
                                                                                               Optom/CL Optician         1          79%
Contact Lens Fitting Fee                                                      £          20                                               CL related income                                           24%
                                                                                                                                          %
Time Initially Fit Contact Lenses (OO min)                                          30         Dispensing Optician       1          52%
                                                                                                                                          Total Revenue                         £ 202,364
Review Time Fit Contact Lenses (DO min)                                             20         OA / Receptionist         1          14%
                                                                                                                                          VAT paid                 £   22,320                  £   6,520
Time for Initial I&R / Soln's Teach (OA min)                                        20         P&L Input Data
                                                                                                                                          Cost of Goods            £   38,263                  £ 16,214
Average Annual Sale of CLs                                                    £      114       Inventory              1500                Direct Labour Cost       £   36,969                  £   5,411
Average Annual Cost of CLs                                                    £     36                                                    Gross Profit             £   49,122                  £ 27,545
                                                                                               Interest Rate            0.1
Annual Care Fee                                                               £          30                                               Inventory Cost                        £     150
                                                                                               Tax Rate                 0.2
% All Px Purchasing CL Soln's from You                                                   70%                                              Marketing & Other                     £    5,000
                                                                                                                                          costs
Average Annual Sale of CL Solutions                                           £          63                                               Unallocated Labour                    £   52,620
Average Annual Cost of CL Solutions                                           £     27                                                    cost

Annual Customer Retention                                            80%                 80%                                              Total Fixed Costs                     £   15,000

Annual CL Wearer Drop-out Rate                                                           10%                                              Profit Before Tax                     £    3,897

                                                                                                                                          Tax                                   £     779

                                                                                                                                          Target Net Profit (and Variance)      £    3,118

       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



                                                                                                                    Specs only               CL& specs
                                            CL& specs
                                                                                                                    patients                 patients
     Pricing and Sales                      patients                PRACTICE DATA
     Contact Lens Fitting Fee                £       20             Number of                          % Mix of
                                                                    Patients           5000            Patients       93                       7
     Average Annual Sale of CLs              £       76
     Annual Care Fee                         £       30

     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



                                                                                                                   Specs only                CL& specs
                                            CL&specs
                                                                                                                   patients                  patients
     Pricing and Sales                      patients             PRACTICE DATA
     Contact Lens Fitting Fee                £       40          Number of                            % Mix of
                                                                 Patients             5000            Patients        93                       7
     Average Annual Sale of CLs              £       76
     Annual Care Fee                         £       40
                                                                                                      Net Profit                £   -2,904
     Average Annual Sale of CL Solutions     £       42




                                                          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



                                                                                                                     Specs only               CL& specs
                                                  CL&specs
                                                                                                                     patients                 patients
     Pricing and Sales                            patients             PRACTICE DATA
     Contact Lens Fitting Fee                      £       40          Number of                        % Mix of
                                                                       Patients             5000        Patients       91                       9
     Average Annual Sale of CLs                    £       76
     Annual Care Fee                               £       40
     Average Annual Sale of CL Solutions           £       42


                                                                                                        Net Profit                £   1,427
             Scenario 3:
     •    If the practice then manages to increase
          the number of patients it sells contact
             lenses to, in addition to raising fees,                                                                 Specs only               CL&specs
                      profit increases. A 2% increase                                                                patients                 patients
                                                                       PRACTICE DATA
                (representing 100 patients) in contact
              lens patients is sufficient to recover all               Number of                        % Mix of             95
                                                                       Patients             5100        Patients                                         9
           losses for this practice, although profit is
          still £1,691 lower than in the base model.
                                                                                                        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



                                                                                                                Specs only                 CL& specs
                                                CL&specs
                                                                                                                patients                   patients
     Pricing and Sales                          patients               PRACTICE DATA
     Contact Lens Fitting Fee                   £         40           Number of                  % Mix of
                                                                       Patients           5500    Patients        90                         10
     Average Annual Sale of CLs                  £        76
     Annual Care Fee                             £        40
     Average Annual Sale of CL Solutions         £        42                                      Net Profit                  £   13,164


    Scenario 4a:
•    If this could become a more contact lens focused                                                            Specs only                CL& specs
              business and increase its percentage of CL                                                         patients                  patients
                                                                        PRACTICE DATA
              patients to 10%, net profit would be £13,164,
                                                                        Number of                  % Mix of
                assuming again that these were all new                  Patients           5300    Patients        90                         10
                          patients gained by the practice.
    Scenario 4b:
    •  If the practice achieved its increase in CL % via a                                         Net Profit                 £   9,336
     mix of selling CLs to existing patients (250) and
      to new patients (300), profit would still be £9,336

            Scenario 4c:                                                                                         Specs only                CL& specs
                                                                                                                 patients                  patients
                    •If the business was to become more of a CL specialist,
                  able to convert a higher rate of its existing specs patients to                  % Mix of
                     30% specs&CL, whilst still gaining the previous 300 new                       Patients        70                         30
                   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                  Net Profit                 £   55,245
                                                       cost increase is assumed
    66                                          Source:    PMSI analysis and interviews
The ACLM Optical Practice Business Model Variation 5: Stronger increase in service fees



                                                                                                               Specs only                CL& specs
                                          CL&specs
                                                                                                               patients                  patients
 Pricing and Sales                        patients              PRACTICE DATA

 Contact Lens Fitting Fee                  £        60          Number of                       % Mix of
                                                                Patients           5000         Patients          85                       15
 Average Annual Sale of CLs                £        76

 Annual Care Fee                           £        60
 Average Annual Sale of CL Solutions       £        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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