Patients are More Profitable?
study set out to determine the lifetime profitability of contact lens patients and
By Mark Ritson, PhD
Figure 1. Spectacle patients bring in a high
profit per visit, but their visits are infrequent.
2001 while at the London Business School, I was approached by representatives from
Johnson & Johnson Vision Care and Bausch & Lomb. They explained that
they represented Euromcontact, a larger industry group comprised of the European
arms of Allergan, B&L, CIBA Vision, Essilor and J&J, with the purpose of
cooperating on general industry issues. They wanted a marketing professor to investigate
a major question, perhaps their biggest business question: Are spectacles really
more profitable for eyecare practitioners than are contact lenses?
According to the member companies of Euromcontact,
many eyecare practitioners who sell contact lenses believe that they're more profitable
than are spectacles. But, they said it was equally clear that many other practitioners
are reluctant to offer or promote contact lenses because they feel that spectacles
are far more profitable. I set out to learn which group of practitioners was right.
Designing the Study
One of the first decisions I made at the outset
was to not do any of the work or take any fee for this project myself. Instead,
I recruited 15 MBA students to answer Euromcontact's question while I assumed
a supervisory role. The students completed the project as part of their second-year
MBA studies. The London Business School ranks as the fifth best MBA program in the
world, and with an international class of students who already have extensive work
experience, the talent pool is outstanding.
To ensure that the research would be completely
objective and legitimate, I stipulated to Euromcontact that the team had to
operate completely independently during the project. I also made clear that if we
were to discover that spectacles are actually more profitable than are contact lenses,
then that's what we would report.
1. Method Stages
The research method we designed lasted
for almost six months, included two major data collection stages and spanned five
different countries and more than 200 eyecare practitioners. To answer the research
question, we needed to build a model for both spectacle sales and contact lens sales
and then compare the two. To accomplish this we needed to collect three very different
types of data. First, we needed to understand all of the revenues that the typical
spectacle patient and contact lens patient brought into an eyecare practice. This
figure would have to include the fees received for goods, services and any additional
The next step was to calculate the
costs associated with serving both patient types in order to calculate what proportion
of those revenues was actually generating a profit. That meant not only understanding
the mark-up on goods sold, but also understanding the complex set of costs associated
with various staff members spending time with each patient.
we also had to consider lifetime value. Rather than simply take a snapshot of the
customer by examining a single transaction, we needed to evaluate the more protracted
purchase cycles to get a true sense of value. Lifetime value is usually a calculation
of three things: How much is spent, how often and for how long. Our research needed
to compare not only the revenues and costs of spectacle patients vs. contact lens
patients, it also needed to examine how often these customers returned to their
eyecare practitioners and under what circumstances.
FIgure 2. Contact
lens patients are initially less profitable, but more frequent visits for goods
and services result in higher lifetime profitability.
Researching the Industry
The first stage of our research was qualitative.
Good market research usually begins with an inductive stage in which the research
team goes out on site to learn about the issue first hand. In this case we divided
the MBAs into five different country teams based on the various languages that each
was fluent in. We assigned teams of three to Italy, Spain, France, Germany and Britain.
Each team went to 20 different eyecare practices and spent a day at each practice
talking to the staff, observing the various activities that occur and conducting
a time and motion study.
The groups took great care in selecting a
range of contrasting eyecare practices. In each country we tried to draw our observations
from a spectrum of urban and rural locations, from chains, multiples and single
outlets and from large as well as small outlets. This stage proved vital for many
reasons. The time and motion studies gave us a good overview of the different stages
inherent in treating a patient and helped formulate the kinds of questions we would
ask in the survey stage of the research.
We repeatedly observed the contrasting
perspectives of different practitioners regarding contact lens profitability. Some
were avid believers and claimed that it had made their businesses more successful,
while others were reluctant to focus on lenses because they felt that simply too
much time and cost were tied up in them and the payoff was demonstrably less impressive
than for spectacles. As one German practitioner put it: "In the time it takes me
to fit one pair of contact lenses, I can sell two pairs of spectacles at four times
3. Contact lens patients who also purchase spectacles are much more profitable for
your practice than are spectacle-only patients.
The biggest insight that came from
this stage of our research was totally unexpected. From our original meetings with
Euromcontact and throughout the project thus far, we'd made the huge assumption
that there were two kinds of patients those who buy contact lenses and those
who buy spectacles. This is entirely consistent with the perspective of Euromcontact's
constituent manufacturers, who often think in a product-centered way. But as our
teams spent more time in the field, they realized that this actually was entirely
the wrong perspective. When seen from the point of the view of a patient, contact
lenses and spectacles are not mutually exclusive. It's true that many spectacle-wearing
patients have no interest in contact lenses. But many contact lens patients also
buy spectacles. They might not buy them as often, but when they do buy a pair a
proportion of these sales may also go to the practitioner who is providing them
with contact lenses. This proved to be an important insight for the model.
Gathering Survey Data
By March 2001 we were ready for the second stage
of the research and the one that would provide the data that would drive our model.
We spent that month devising and testing a questionnaire (Table 2) that was then
conducted across our five European countries using a professional marketing research
firm. In each country, the research firm called approximately 250 eyecare practitioners
and asked them to take part in a 15-minute interview about their business. The practitioners
were told that the London Business School was running the study, which was sponsored
by several companies who would remain anonymous until the end of the interview,
at which time they would be revealed to the practitioners. Sixty percent of those
called agreed to take part, resulting in a pan-European sample of 750 different
Once the data was collected we arrived at
the interesting part. Using the 43 data points, we were able to build a model of
typical eyecare patients in Europe. The one question we didn't ask during the phone
interviews related to the amount of mark-up each practitioner applied to his products.
We knew this was a sensitive topic and, potentially, one that we couldn't legally
ask. Instead we assumed a 300-percent mark-up for spectacles (a generous one) and
only a 50-percent mark-up for contact lenses (a worst case). We applied this mark-up
calculation to the list prices the practitioners gave us to arrive at a measure
of unit profitability. This is in turn allowed us to build a complex economic picture
of each eyecare practitioner and his revenues, costs and profits. We were then able
to compare spectacles customers with contact lens customers (who also occasionally
purchased spectacles, too).
42 & 43
Size of business
Contact lens business as proportion of total business
Attitude of respondent toward contact lenses
Frequency of patient transactions
estimates for core products for a single patient type
over a set period of observation
estimates for repeat/associated purchases for a
single patient type over a set period of observation
Detailed time and
motion questions. Who is responsible for primary tasks
in the practice and how long do standard operations last?
Proportion of practice
space devoted to primary product lines
levels: total practice and contact lens specific
Thank you and close
The results immediately made sense. If you were
to compare only the first transaction with a spectacle wearer vs. with a lens wearer,
it would seem that the latter is much less attractive. The lower unit prices paid,
the lower margins, the extra time spent with each patient all combined into a generally
negative perception of contact lens patients.
But we realized that much of the optical industry
is ironically very myopic seeing only the transactions that occur immediately
rather than taking a more long-term perspective. With the lifetime data from the
survey, we were able to look beyond the initial transaction and the picture gradually
began to change. Over time the spectacles-only patients remained dormant, adding
no new business for their practitioners until their next potential repurchase (Figure
1). Meanwhile, the continuing return of the contact lens patient who now needed
less service attention but a constant supply of lenses began to have an impact (Figure
2). Add to that the occasional purchase of spectacles or sunglasses that the lens
patient made while renewing his lens order (Figure 3) and the picture became even
clearer. Across each of the five European markets we studied, contact lens patients
were demonstrably more profitable than the spectacle-only patients.
On average we found that contact lens
patients were 60 percent more profitable than spectacle patients across Europe.
To put that in perspective, this meant in 2001 an additional 70 Euros ($85) for
every patient. Of course this result depends on a number of factors, and tremendous
variance existed across the markets we studied. The single most important factor,
however, was the managerial approach of the eyecare practitioner. Simply offering
contact lenses is probably not going to achieve the kind of profits we uncovered
in our research. Instead practitioners need to fundamentally revisit how they approach
their business and their patients.
Look at the Big Picture
It took six months, 15 MBA students, five countries,
43 questions, 220 participating eyecare professionals and a 300-page report
but finally we saw the European eyecare market clearly. Obviously, patient care
issues must always remain paramount. But practitioners must begin to see the world
from a patient's perspective. That means accepting that there's no binary divide
between contact lenses and spectacles. If you consider them as products, they're
entirely different but if you look at them as solutions to a patient's needs,
then it's clear that a practitioner can successfully promote both to patients.
Another key factor is lifetime value.
If eyecare practitioners focus on the long-term relationships that they can form
with their patients, then four things are likely to happen. First, practitioners
will begin to see that the profit contribution of contact lenses is initially poorer,
but eventually greater than that of spectacles alone. Second, they will begin to
move their business model from one that focuses on a single transaction to one that
builds long-term, recurring relationships with patients. Third, practitioners will
also begin to realize the additional selling advantages of longer-term relationships
with contact lens patients as, on their repeat visits, they purchase spectacles
and sunglasses in addition to more contact lenses. The final advantage occurs as
long-term, satisfied contact lens patients recommend their practitioner to other
Dr. Ritson is now an associate
professor of marketing at the Melbourne Business School in Australia. An
acclaimed expert on marketing and branding, he is a prize winning academic,
teacher and writer.
His fifteen students
from the London Business School now work in 9 different countries in a variety
of roles that range from strategy consultant, investment banker to corporate
lawyer and fund raiser.
LTV Spectacles (EUR)
LTV CL LTV
Ratio LTV CL/
Contact Lens Spectrum, Issue: March 2006