Three Things to Know
Private veterinarians express concern about unfair competition from grant-funded low-cost clinics. This study used simulation to examine the impact of these clinics on private practice revenue and profits.
Researchers found that In a market with only full-service clinics, those with higher willingness to pay are more likely to utilize services, maximizing clinic revenue and profitability.
On the other hand, the presence of low-cost clinics expands access for price-sensitive pet owners. Interestingly, its long wait times can drive clients to full-service clinics, particularly when a significant price differential exists, ultimately benefiting the full-service clinic’s client base and revenue.
For Dog Welfare Practitioners
This study demonstrates that low-cost clinics can effectively serve vulnerable pet owners without negatively impacting full-service clinic revenue. Furthermore, proactive engagement with local veterinarians, including explaining the clinic’s rationale and exploring collaboration opportunities, is recommended. Given the ethical challenges faced by veterinarians, such as a lack of health insurance leading to “financial euthanasia”, they may welcome the availability of affordable care options.
The Full Picture
The veterinary medicine services industry is booming, fueled by increased pet ownership, longer pet lifespans, and rising veterinary costs. Yet, a significant affordability crisis persists. Millions of pets in the U.S., particularly those in poverty or underserved communities, never receive veterinary care, primarily due to cost.
This access barrier has led to the emergence of low-cost veterinary clinics, designed to bridge the gap. However, these clinics have sparked controversy within the industry, with some private practice veterinarians viewing them as unfair competition. Low-cost clinics, often funded by grants and operating tax-free, can offer services at lower prices, leading to concerns and resulting in legislative restrictions in some states.
Despite the debate, the actual impact of low-cost providers on the overall veterinary market remains largely unknown. To address this knowledge gap, the study “Simulation of the effect of low-cost companion animal clinics on the market for veterinary services” utilizes simulation modeling. The goal is to provide data-driven insights into the market dynamics, clarifying the role of low-cost clinics in improving access to care while maintaining financial sustainability.
Study Methods
The study utilized a Monte Carlo simulation to model variability in consumer behavior and demand for veterinary services. Two market models were developed to analyze demand across different consumer segments.
Model 1 simulated a single veterinary clinic serving two market segments: price-sensitive and price-insensitive consumers. The price-insensitive segment, representing pet owners with higher disposable income, had a normal WTP distribution centered around $120, while the price-sensitive segment had a gamma distribution with a mean WTP of $50. The simulation iterated through service prices ranging from $0 to $250 to determine the proportion of potential clients willing to pay at each price point. The model assumed a $57 variable cost per visit and an even distribution of clients between the two segments.
Model 2 introduced competition by simulating two veterinary clinics: a full-service clinic with a fixed price of $120 and a low-cost clinic with varying prices. In addition to WTP, the model accounted for willingness to wait (WTW), assuming that lower WTP clients were more willing to wait for lower-cost services. The simulation ran over 365 days, with daily client demand sampled from a normal distribution. Each clinic had a maximum capacity of 30 clients per day, and if demand exceeded capacity, clients entered a waiting queue. Clients who found the wait time unacceptable either switched to the full-service clinic or opted out of care. The study evaluated how price differentials between clinics influenced revenue, profitability, and client distribution across the two market segments.
Study Results
First Simulation: A Market Without Low-Cost Clinics
The first simulation model demonstrated that at very low prices, both price-sensitive and price-insensitive clients demanded a high quantity of services. However, as prices increased, demand from price-sensitive clients declined more rapidly than from price-insensitive clients. At a price of $100, nearly all clients were from the price-insensitive segment. The clinic achieved maximum revenue at a price of $90 and maximum gross profit at $110, with the majority of clients in both cases coming from the price-insensitive segment. In other words, price-sensitive clients are not viable for full-service clinics, as the optimal pricing for maximum profit attracts only a small percentage of them.
Second Simulation: Both Full-Service and Low-Cost Clinics
The second model showed that as the low-cost clinic lowered its prices, demand increased, leading to longer wait times. Clients who were unwilling to wait and had a willingness to pay (WTP) equal to or greater than the full-service clinic’s price opted for the full-service clinic instead.
The key determinant of customer distribution between the two clinics was the degree of overlap between the price-sensitive and price-insensitive segments. When the full-service clinic was not at full capacity, its utilization ranged from 37% with no price differential to 61% at maximum price difference, while the low-cost clinic operated at full capacity until the price differential reached 47%.
In another scenario, where demand exceeded both clinics’ service capacity, increasing the expected daily client load from 75 to 200 resulted in the full-service clinic operating at full capacity across all price differentials. In this case, the low-cost clinic’s pricing had no impact on the full-service clinic’s revenue or profit, as clients unwilling to wait at the low-cost clinic filled all available capacity at the full-service clinic.
The most significant takeaway from the models was that having both clinic types expanded the overall market for veterinary services, allowing more pets to receive care. At the greatest level of price dispersion, market access increased by over 50%, potentially enabling millions more pet owners to obtain veterinary services and strengthening the industry’s economic standing. Future modeling efforts incorporating demographic, economic, and geographic data could further assess the impact of low-cost clinics in specific markets.
Conclusion
The study demonstrated that low-cost veterinary service providers serve a distinct market segment from full-service clinics, meaning they do not take away clients from the latter. This natural market segmentation ensures that clients seeking low-cost services are different from those opting for full-service clinics.
The study’s conceptual models provided insights into a complex market beyond just pricing. The findings emphasized the importance of considering various competitive forces, including client preferences and economic constraints. Restricting low-cost veterinary practices would reduce market efficiency and leave a segment of pet owners unserved, ultimately diminishing the overall market for veterinary services. If the goal is to enhance the economic value of veterinary care and improve access for companion animals, low-cost clinics should be embraced as a vital component of the industry.
Miscellaneous
Data From Study:
–
Year of Publication:
2021
External Link:
Haston RB, Pailler S. Simulation of the effect of low-cost companion animal clinics on the market for veterinary services. Am J Vet Res. 2021;82(12):996-1002. Published 2021 Nov 26. https://doi.org/10.2460/ajvr.21.08.0116