Think Your Customers Are Price Sensitive? Check into a Hospital
Peter Waldman published an article titled "Why Baby Costs Less Down the Road in Silicon Valley". It outlines how different hospitals charge significantly different rates for the exact same procedures.
Let's take that premise and expand its message.
The healthcare industry offers surprising price paradoxes. It's something we all need. It's an industry where there is huge pressure from major insurance companies, the media, governmental agencies, and even consumer groups to cut costs and prices. However, even with these factors prices have never been driven down to commodity levels or even to parity.
How is this possible? Like almost everything in pricing, human psychology is at the root. For example, when was the last time you used price to decide where you were going to have a medical procedure done? When was the last time you even knew the price of the service before going in?
Most people don't pay attention to prices because their insurance company pays. Yet virtually everyone has co-pays, and therefore knows the general cost and has an incentive to 'price shop'. Think about it. Even a 10% co-pay on $1,000 is $100. Isn't it worth $100 to find the best deal for a procedure? So most people have financial incentives to shop around for price, but don't.
There's the lesson. Most customers clearly do not shop around for price. Think carefully about your own industry. What percentage of your current/future customers shop price? Can you make more money by focusing on those not concerned about price?
Of course, every market has price sensitive customers, typically driven by human psychology. A rich industrialist in India built a $1 billion home, yet refuses to pay more than $40 for jeans as an example. Can you develop programs that allow your "price-buyers" to get a discount while those who are less price sensitive to not?
Action: Investigate human psychology. Which of your customers are price-buyers and what are their common characteristics? More importantly, what are the characteristics of your customers that aren't price sensitive? The answers mean more money for you!
