2010.06.24 16:57:27

John McDaniel

A question about an insurance company’s “free service” on the optcom list prompted a discussion about RFM market segmentation.  Since many questions were raised about RFM, I decided to draft a quick blog primer on the subject.  At the outset, I want to be clear that I believe this approach can have value in market segmentation for an optometric or other health care practice, but the logistics are a little daunting.  I will address a few of the issues I’ve encountered while attempting to implement RFM in optometric practice at the end of this blog entry.

What is RFM Market Segmentation?
The concept of RFM segmentation is not new and is rather straight forward.  There are three premises the concept is based on:

1.  Customers who have purchased recently (R) are more likely to purchase again, when compared to customers who have not purchased for a long time.

2.  Customers who purchase frequently (F) are more likely to purchase again when compared to customers who have purchased just once or twice before.

3.  Customers who have spent the most money (M) in total are more likely to purchase again.

These concepts are rather obvious.  But over time, the power of this notion of recency, frequency, and monetary level has been expanded into less obvious situations.  For example, even for someone who has never been your customer, you can predict the likelihood of them becoming a customer.  Assessing the recency of their visits to your website, the frequency of these visits, and money spent (even if it is zero) during those visits helps you predict the likelihood of them becoming your customer in the future.

In fact, the model has been used exclusively for non-customers where the monetary value is not utilized (since all non-customers have all spent zero money, the factor is of no value in rating the prospects).  This two factor, R and F, approach can be very powerful when determining which prospects should have marketing resources allocated toward attracting them.

The core idea of RFM (or RF) is to score customers/prospects on R, F, and M.  These scores are then compiled into a single value that is used to determine the relative worthiness of expending marketing resources on each individual customer/prospect.  There are many variations in scoring systems, and many specific corrections and adjustments that can be made to the process depending upon industry.  You will need to determine a cutoff score, then only allocate marketing resources to attract those with that score or higher.  This makes your marketing efforts both more efficient and effective.

What are the Pitfalls of RFM in Health Care Marketing?

Effective RFM needs one thing…data.  Lots and lots of data on who is accessing your website, when, and how often…who is calling your office, when, and how often…who is spending what, when, and how often…who is viewing your Facebook page, when, and how often…etc.  You get the idea.  The problem in optometric practices is that much of this data is either not collected at all, or it is collected in a form that is rather difficult to access and study.  If there is no data, there is no use for RFM.

Assuming you have enough accessible data, here is something else to consider: is the total market big enough to justify the analysis to further segment it?  An example may help explain this.  Let’s say a practice is one of two optometric offices in a smallish city of 50K people.  Assuming that the practice has about 10K active/semi-active patient files, that means 40K of the city's residents are not patients, or have not been patients for several years.  You also have to factor in the fact that the other practice will account for some of the 40K remaining people.  In case, let’s say that other practice will account for 10K folks.  Now, ask yourself, is it worth collecting the RFM data needed to segment that remaining 30K people to determine who you are going to prioritize your marketing efforts to attract?  Maybe.  Maybe not.  It depends upon what the marketing efforts are.  If it is a mass mailing effort that costs $0.50 a piece, you might be able to eliminate 10K from the mailing list.  That will save you $5K in costs.  But, how much will it cost you to access and analyze the RFM data and to score it?  Probably more than $5K.  Hopefully, you can see how this approach makes sense for more expensive per person efforts, but not for less expensive per person efforts.  In most optometric offices, the marketing activities are in the “less expensive” category.

As I said at the beginning of this blog, I do believe a form of RFM is valuable in the business of optometric market segmentation.  To be successful, the process requires a good data collection and retrieval system.  It also, likely, needs to focus on internal customers where that data collection is possible, at a very low cost.  Finally, the scoring system must be well crafted, weighted, and able to be incorporated into a solid practice management system (electronic PMS).  In other words, it has be easy to do and easy to access.  If it is not easy, it will never be used.

A final note – a large number of details have been omitted in this blog on RFM market segmentation.  There are text books dedicated to RFM and that level of detail is well beyond the scope of this blog.

Le Meas, 

John McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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RFM | marketing | market segementation

2009.11.27 21:46:46

John McDaniel

The power of touch is immense and yet often ignored by most owners of optical businesses. If you sell tangible product such as frames or contact lenses you need to get people to touch them. Why? It increases what social psychologists call the “sense of ownership” of whatever item is being touched. Is this psychological “trick” worth the effort to employ it? Undoubtedly it is worth doing because we’ve seen clients improve their tangible goods sales number by over a third or more by employing just this approach.

Break the Glass Barriers
Are your frames displayed behind glass? No matter the reason you chose to use this display technique, you are losing sales because of it. The most common reasons cited for the glassed displays are:

• It is a classy, high-end display approach that increases the perceived value of what is behind the glass, or
• It reduces theft and protects my capital investment in inventory

Think about these two reasons for a few minutes. I’ll wait for you…go ahead…have you figured out the problem yet? Of course you have; all of my blog readers are geniuses! The obvious incompatibility of these reasons means one of them has to right and one has to be wrong. There is not a clear cut, always correct answer, but I can safely say that over 90% of the time the right one is that it reduces theft. Well, maybe. At the very least it gives the customers the impression that you are attempting to reduce theft. That means most of the time the perception of the customer is “they must have a lot of frames stolen” and not “these must be high end frames.”

Get your frames out from behind the glass and employ other methods for theft reduction. You need people to touch and try on frames to be able to sell as many as you can. Other research shows that you want to get customers to look at themselves in a mirror in addition to touching to further increase their sense of ownership of the product. That includes contact lenses. Even though they can’t see the product they can see the benefit of the product – clear vision without glasses.

The Contact Lens Test Drive
Just as it is important to get patients to touch and see themselves in frames, people need to touch, experience, and visualize themselves during the contact lens experience. The contact lens test drive puts patients in lenses, without a complete fitting, to have a risk free opportunity to experience life in contact lenses. Whether doing this while in the exam chair or during special days/times in the office, you will see a jump in the number of contact lens wearing patients in the practice. This approach is especially useful for “specialty” lenses such as multifocal or toric designs.

“What Do I Do With the Dozen or so AR Displays in My Backroom?”
Um…use them. Get patients to touch them and handle them. Get them to feel the difference between CR 39 and a high index material. Get them to see how a sample of Transitions works in the sunlight. Have them feel the weight difference between lighter lens materials and heavier ones. This tactile approach is the best method (no, I am not over stating this) for handling objections to lens enhancements and they are frustratingly under used.

Le Meas,

John McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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marketing | Consumer behavior | touch | product marketing | product sales

2009.06.18 23:19:32

John McDaniel

You only get one chance to make a first impression.  I am guessing you’ve heard that before, right?  How does this impact the management of your office?  In what ways are you managing your patients’ first impressions?

In my experience, impression management is underrated and under emphasized.  If you doubt the seriousness of the impact of first impressions I direct you to Malcolm Gladwell’s book “Blink” and Michael Levine’s “Broken Windows, Broken Business.”  Or you can take my word for it and do this to get your thinking right on the importance of impression management:

1. Determine the level of importance you think first impressions have on your practice
2. Now double that importance
3. If you are not motivated to make immediate changes from this analysis, double it again

The purpose of this blog is to call attention to a few types of first impressions that many practices seem to neglect or consider less important.  These areas are the front door, the business sign, the parking lot, the landscaping around the building, and the reception area.  Below are a few thoughts on each of these critical areas.

The front door of most businesses is one of the most overlooked aspects of the physical plant.  In most cases, every customer walks through this to access the business, yet very little thought is given to the door and its condition.  Take one day a year and have the staff and yourself look at the door.  Consider a new door.  At the very least, keep the door clean and representative of the atmosphere you are aiming for.  Realize that the door has to be more than “just OK.”

Signs are more expensive than people expect.  This leads to some bad decisions regarding signage; specifically doing signs on the cheap.  Realize that the only people that do not use the sign to identify your business from the road are the already established customers.  Every single new patient is highly likely to see your sign before anything else related to your business.  Pay the extra money to have the best signage you can – it is worth it.

Your parking lot can make or break your business.  I am not exaggerating for effect or being flippant when I write that statement; it is a fact.  All patients that come to your office will use the parking facilities.  To them the parking lot is your lot.  Is it clean?  Is it kept up?  How convenient is it to get in and out of the lot and the individual spaces?  Is there more than enough parking for your busiest day of the decade?  Is it easy to find the parking spaces for your practice?  Parking lots are one of the top 3 issues for consideration when choosing a location for a business.

The landscaping (the hard and soft-scapes) for most offices fall into one of three categories: terrible, non-descript, or slightly above average.  All three assessments are unacceptable.  This is an opportunity to distinguish your practice from all other businesses and not just other practices.  Most towns/cities have a business that has a pond with fish, an outdoor seating area, or some other notable exterior feature.  Consider using the landscape to distinguish from the pack.  At the very least, landscape so people perceive something different and positive as they approach the building.

The reception area sets the tone for the entire internal experience in the practice.  Most reception areas in most office look OK and are utilitarian in their design.  That is fine for the reception area of a cheese sciences lab but not for a health care practice.  All of the senses should be considered when designing (or redesigning) the reception area.  The look should reflect the vision of the practice.  The smell should be inviting and pleasant.  The sounds should be relaxed and not chaotic.  The feel should be warm, cozy and comfortable.  Consider offering a way for the area to taste great as well, such as coffee or mints.  Reinvent the reception experience in your office and you will be rewarded down the road.

Le Meas,

John G. McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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first impressions | branding | marketing | office appearance | image management

2009.04.05 13:21:40

John McDaniel

When I ponder the concept of naming a business I automatically think of constipation.  Not that yours truly has suffered such ailments but a client that I remember has.  During the process of starting up his business (not optometry related) he phoned to say “I need to the right name for business and I need it now!”  I asked why the sudden urgency to make this decision.  Suffice to that I learned that increased stress levels and constipation are rather good friends.  It is funny what things you remember.

Naming a business is stressful.  A plan and some guidelines can reduce the stress.  That said, before I give my variation of naming guidelines it is imperative to point out that some of the best business names in history are the ones that break all the “rules.”

Purpose
It is important to consider the purpose of a business name.  A common misconception of this purpose is that a name should attempt to convey as much information as possible about the business.  That approach is a big mistake.  It leads to long, unruly, and unremarkable business names.  The real purpose of the name is to brand a business as succinctly as possible.  Branding is a broad concept but pertains to naming by dealing with two questions:

1. What is the “big” picture point of the business?
2. What differentiates you from your competition?

Crafting a list of adjectives and adverbs that seek to succinctly answer those questions is a good place to start.

Long Term Business Strategy
The next consideration is the long term strategy of the practice.  More specifically, an analysis of where the practice falls on the business life cycle is useful.  Early on in the life of a practice the name of the doctor tends to be of utmost importance.  It is often necessary to develop a “doctor centered” model to grow a practice during the early phases (including the early phases of an ownership transfer).  As a practice moves through the life cycle there is a tendency (a good tendency) to move toward a “practice centered” model.  This implies a stronger focus on the “entity” versus the “doctor.”  This results from, among other things, an increase is technical support as well as increased delegation of patient care tasks.  Some practices also find that their unique combination of human resources drives this change in focus of its own inertia.  Further along the life cycle exit or succession considerations become apparent.  A more transferable name is desired.  For example, it is easier to transfer equity in a practice named “Community Eye Center” than it is a practice named “Bob Smith, OD.”

Permanence
A name is forever.  Well, not really; but kind of.  I think it depends on what the meaning of “is” is.  This perception of permanence is what I believe to be the strongest factor in causing business owners so much stress when naming a business.  The sense is that once you commit to a name, you have committed to that name forever.  I say differently; only diamonds are forever.  Practice names can be changed as long as the process of changing the name is managed well and the time horizon is years versus months.  A common name change is to go from the doctors name to a less personal entity name, e.g. going from “Bob Smith, OD” to “Community Eye Center.”  This type of change happens all the time.  There are two key lessons here.  First, pick a name for the five year plan of the practice and not for the 15 year plan.  Long term, in this case, should mean five years.  Second, your practice will be dynamic and the branding needs will change.  When they change you should at least consider the possibility of a name change.  While not the first club out of the bag by any means it is, none-the-less, a club in the bag.

The key to a name change is going slow.  The process needs to take years and there should be well defined and well planned stages in the morphing process.  The name change should occur additively.  In other words don’t go from “Bob Smith, OD” to “Community Eye Center” all at once.  At first merge the names, if possible, or create a hybrid of the two.  Then, over the course 1-2 years, begin to drop the old name from things.  Do the name changes in stages that makes sense for your given situation.  Consider all things with the clinic name associated independently such as stationary, signs, the webpage, exam forms, e-mail addresses, etc.

General Recommendations

1. How memorable is the name?  This is likely the most important factor when selecting a name.  The more memorable the better assuming the associations and connotations are positive (e.g. Ted Bundy’s Eye Care)
2. Consider the web domain name – pick the name that is available in a domain name if possible
3. Legal – check with your state regulations regarding business names and have an attorney check the availability of names.  Before you have a lawyer check create a ranked list of 3-5 options in case the first few checked are not available
4. Check the competition – within your local market your name needs to help separate you from the competition; select a name that helps with this process of differentiation
5. Pronunciation – the name should be easy to pronounce.  Or you could just pick “Waugoo” and confuse everybody all the time.
6. If relevant to the life cycle stage of the practice, consider the ability to add doctors, staff, products, services, and locations with respect to the name.  The more flexibility the better.
7. Get three to five opinions from business people you respect.  It is best if some of those people have participated in the naming process before.

Finally, stop stressing too much.  I’ve never seen a practice not sell because of an incompatible name and I’ve never seen a practice thrive or starve because of a brilliant or disastrous name respectively.  Besides, whatever name you pick 10% of your patients will call you “Dr. McDonald” at the “ear clinic” anyway.  People…gotta love ‘em.

Le Meas,

John G. McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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Practice naming | business names | naming a business | marketing | branding

2009.03.28 14:30:12

John McDaniel

In the last consumer behavior blog I discussed the odd-numbered pricing theory.  A related, but distinct pricing theory is called the round numbers theory.  After some careful consideration it will become clear that if you follow the odd-numbered pricing theory to the fullest extent you will, by default, follow the round numbers theory as well.  That said, it is worth examining the two theories separately for two reasons.  First, many practitioners follow the odd-numbered theory selectively.  I commonly see people utilize the odd-numbered approach for materials but not for professional fees.  Second, if you aren’t going to follow the odd-numbered theory the round numbers theory can provide some improvement over the typical pricing approaches out there.

The round numbers theory says that the best pricing strategies never result in round numbers.  Round numbers are tempting for prices because they are easy for staff to work with.  If your primary pricing objective is the ease of the sales staff job then you have to reprioritize your objectives.  I commonly see professional fees priced in a way that violates this simple concept.  Even if calculations are used to aid in determining the fees there is a strong tendency to round the fees off for the sake of convenience.  Many times people feel that if they round up they will have higher returns than if they used the “ugly” calculated fee result.  Research shows that this is not the case.  Round numbers feel contrived, psychologically.  “Ugly” numbers feel legitimate and formulaic.  Go with ugly numbers.  Make the prices have cents; not just $0.80 but go for the $0.89!  At the very least the final dollars figure needs to be something that is not zero.

The next consumer behavior blog will discuss just noticeable differences and pricing.  Again, I’ll expect to see you sitting on the edge of your seat if not off the edge.

Le Meas,

John McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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pricing theory | marketing | pricing | Consumer behavior