Our Very Final Paper - 12/10/06 6:30 PM
Hi Maria, Juan and Zoe:
I made a lot of changes on the headings because somehow we missed them earlier when we did the table of content. I also made several changes to our references. I tried to follow the APA format we have to be consistent. I also modified my part and Juan also made changes to his. Please reviewed and If you have any questions or do not agree, please call us at (650)588-5453(home) or at work(800)998-2937 Ext. 6266.
Thanks
Rosaura A. Arevalo
Pacific Cataract and Laser Institute:
Competing in the LASIK Eye Surgery Market
Anabel Arevalo
Juan Arevalo
Zoe Ann Caires
Maria Tapia
Business Policies & Strategies
Peter Young
12 December 2006
Introduction.. 3
External Environment.. 4
Market Pricing and Structure. 7
Information Available to Consumers. 9
Consumer Shopping Behavior. 9
Consumer Satisfaction. 10
Issues Facing LASIK Customers. 10
Misleading Advertisements. 11
Other Self Pay Markets. 13
General Environment.. 15
Industry/Competitive Analysis.. 17
Threat of new entrants. 18
Bargaining Power of Suppliers. 18
Bargaining Powers of Buyers. 19
Threat of Substitute Products. 19
Rivalry Between Competing Firms. 20
Internal Analysis.. 20
PCLI’s Intangible Assets. 20
Reach customers. 21
Richness Dimension. 21
Affiliation. 22
SWOT Analysis.. 22
Strengths. 22
Weaknesses. 23
Opportunities. 24
Threats. 24
Major issues.. 25
Pricing.. 26
Arrogance and Pride. 27
Transportation Cost. 28
Marketing Strategy.. 29
Conclusions.. 31
Pacific Cataract and Laser Institute
Introduction
Our case analysis takes into consideration not only Pacific Cataract and Laser Institute, but also its competitors, businesses, and the current business environment.
Pacific Cataract and Laser Institute (PCLI) was founded in 1985 by Dr. Robert Ford and specialized in eye treatment. With headquarters in Chehalis, Washington, it operated clinics in Washington, Oregon, Idaho and Alaska. In addition to laser vision correction, PCLI provided cataract surgery, glaucoma consultation and surgery, corneal transplants, retinal care and surgery, and eyelid surgery (Hitt, M., Ireland, D. Hoskisson, R., 2005).
The use of SWOT analysis identifies ways to minimize the effect of Pacific Cataract and Laser Institute’s weaknesses while trying to maximize its strengths and at the same time recognize ways to exploit its opportunities and respond to its threats. The use of Porter’s five-force model helps analyze the entire LASIK surgery industry by using the five competitive forces (i.e., supplier power, buyer power, potential entrants, substitute products, and rivalry among competitors), which affect Pacific Cataract and Laser Institute’s business strategy. These forces help identify opportunities and threats relative to differentiation, low cost and competition, and focus on the market microstructure. We begin by taking into account PCLI’s competitor’s current strategies, strategic intent, capabilities, and core competencies. This data is useful to Pacific Cataract and Laser Institute for the purposes of formulating a better strategy and being able to predict their competitor’s possible responses. Pacific Cataract and Laser Institute (PLCI) is a privately held eye care clinic specializing in refractive eye surgeries. With locations in eleven cities in the Pacific Northwest, the clinic began facing stiff competition from other laser eye surgery centers located in Canada, as well as other larger, publicly traded laser eye care centers in the United States, who were charging less for LASIK eye surgery. Dr. Ford founded PCLI on the principle that doctors must go beyond science and technology to practice the art of healing through the Christian principles of love, kindness, and compassion. The organization had defined eight core values based on those principles. Those core values guided PCLI’s decision-making, as it attempted to fulfill its stated mission of providing the best possible “co-managed” services to the optometry profession. (Pacific Cataract and Laser Institute (2006), A Company You Can Trust, Values and Vision, retrieved November 26, 2006).
As LASIK surgery continued to rapidly expand, PCLI realized it was losing potential U.S. patients to lower-priced clinics, and in order to be competitive and maintain a strong market share in the Pacific Northwest operations, it had to reevaluate its market efforts and its services operations process.
External Environment
Whether the public belongs to conventional health plans with rising cost-sharing requirements, or enroll in consumer-driven health plans with high deductibles and a spending account, consumers are facing more incentives to make cost-conscious decisions about medical services. Consumer-oriented approaches to health care emphasize price shopping as a tool for individual consumers to obtain better value, and for the health system as a whole to curb rising costs and improve quality through increased competition. Until recently, most insured consumers have been sheltered from rising health care costs and have had few incentives to shop for the best deal. The extent to which consumers actually can become effective shoppers in the health care marketplace remains largely unexplored. Self-pay markets in health care—those markets in which consumers largely pay out of pocket for services because of little or no insurance coverage—provide insights into how markets work when consumers must pay the total costs of services without the benefit of discounted rates negotiated by health plans or the restrictions of a provider network chosen by insurers. LASIK is widely regarded as the self-pay market with the most favorable conditions for consumer shopping. It is an elective, non-urgent, simple procedure, giving consumers time and ability to shop. Screening exams are not required to obtain initial price quotes, keeping the dollar and time costs of shopping reasonable, and easy entry of providers (ophthalmologists) into the market has stimulated competition and kept prices down. While LASIK is a good procedure to evaluate for price shopping for these reasons, it is important to note that patients are rarely in a position to shop for completely elective, non-time-sensitive procedures, even if good price and quality information are available.
Our initial research into LASIK included a review of existing literature and news stories, informational material published by professional associations and government regulators, and industry consultants' market reports. In addition, we found researchers reviewed online patient forums and examined LASIK providers’ Web sites and print advertisements. LASIK is an outpatient surgical procedure performed by an ophthalmologist that permanently reshapes corneal tissue to reduce light-refraction error and improve vision. A surgical blade creates a flap in the outer layer of the cornea. After the flap is folded back, a laser is used to reshape the underlying corneal tissue, and the flap is replaced. The surgery takes 10-15 minutes per eye, and the only anesthetic is an eye drop that numbs the eye's surface. LASIK was first performed in the United States in clinical trials in 1995. In the past few years, two new technologies have emerged in the LASIK industry. The first, custom wavefront-guided LASIK, uses wavefront technology to measure precisely how each eye refracts light and then guides the laser in customizing the corneal reshaping. Unlike conventional LASIK custom LASIK can treat higher-order aberrations and is more likely to produce 20/20 or better vision and is less likely to result in visual distortions. Providers have widely adopted custom LASIK: 80 percent of providers now offer this technology, and the procedure accounted for nearly half of all LASIK procedures in 2005, according to MarketScope, LLC data (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006). A second refinement, called blade-free or all-laser LASIK involves the use of a laser instead of a surgical blade to create the corneal flap and is usually referred to as IntraLase. Many surgeons believe that IntraLase creates a more precise flap and results in fewer complications. Compared to custom LASIK, however, IntraLase market penetration has not been nearly as high: The technology was used in one in 10 LASIK procedures in 2005, according to MarketScope, LLC data (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006).
Market Pricing and Structure
Market insiders describe the LASIK market as having three pricing tiers: discount, mid-priced and premium-priced providers. Discounters tend to market aggressively based on price. They typically handle a high volume of procedures, and patients often have little or no contact with the surgeon before or after surgery. While discount providers are almost always high volume, experts note higher pricing does not necessarily equate to lower volume. What all premium providers tend to have in common is that they are surgeons whose credentials (such as research publications, affiliations with teaching hospitals and participation in clinical trials) enable them to command top dollar. Beyond this common trait, however, it is harder to generalize about these practices. Many premium providers run relatively low-volume LASIK practices that offer patients personalized care from the surgeon, both before and after surgery. Other premium-priced providers operate on a different business model: marketing themselves heavily, performing high volumes of LASIK procedures, and often relying on optometrists to conduct pre- and post-operative exams. Many mid-priced providers are somewhat like the premium providers but without the top-notch credentials or surgical experience to command higher prices. Other mid-priced providers are large chains that may have started out as discount providers but moved to the mid-price segment through an emphasis on customer service, celebrity endorsements or other means. In 2005 the price of LASIK averaged approximately $1,680 per eye for the conventional procedure and $2,030 for the custom procedure. Premium-priced providers currently charge about $2,200 per eye for conventional LASIK and $2,700-$2,800 for the most advanced technology (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006). Although discount providers often advertise that LASIK is available for only a few hundred dollars, market experts note that the actual price of LASIK from a discounter averages $1,100-$1,200 per eye for the conventional procedure and $1,500-$1,600 per eye for custom LASIK, both with a surgical blade. (Most discounters have yet to adopt IntraLase technology.) This substantial discrepancy between actual and advertised prices exists largely because very few LASIK patients are medically eligible for the lowest prices. Indeed, it has been estimated that only 3 percent of LASIK procedures are performed for less than $1,000 per eye. In the decade that LASIK has been performed in the U.S., price and volume have fluctuated somewhat, but overall the average price for conventional LASIK has declined nearly 30 percent in inflation-adjusted terms. Two factors appear to be largely responsible for this market's price competitiveness: on the provider side, a large number of providers (ophthalmologists) can enter the market relatively easily, and on the consumer side, price quotes can be obtained at little cost and inconvenience. However, the decline in LASIK price is much less steep than what a casual observer might infer, given the pervasive advertisements of LASIK for only a few hundred dollars per eye. There is no consistent bundling of LASIK services across providers. A high-end LASIK surgeon's fee might include a thorough screening exam, the procedure itself, and several post-operative exams, all conducted by the surgeon. If enhancement surgery is needed, a premium-priced surgeon might charge the patient nothing at all or only the procedure fee charged by the laser manufacturer. At the other extreme, some discount providers charge patients a nonrefundable fee for the screening exam, include little post-operative care and require full payment for enhancement surgery.
Information Available to Consumers
Reliable consumer information about LASIK is available from several sources, including the Federal Trade Commission (FTC) and the American Academy of Ophthalmology (AAO), which jointly produced a free consumer brochure, titled Basik LASIK. This consumer resource discusses the procedure, its risks and possible complications, how to locate a surgeon, and what to expect before, during and after surgery. To help consumers find a surgeon, the American Academy of Ophthalmology (AAO) Web site lists all AAO members performing refractive surgery. Basic LASIK and similar sources provide guidance to consumers on questions to ask of surgeons, but consumers still must gather this information from each provider. No centralized source is available for information such as number of procedures performed, success rates or enhancement rates for each surgeon, so consumers seeking to compare such quality-related measures across providers must invest considerable effort to gather this information.
Consumer Shopping Behavior
Although LASIK consumers are a heterogeneous group, the majority shares one trait, according to industry experts: Word-of-mouth recommendation from a previous LASIK patient is the most common way to select a LASIK surgeon. This holds true for all market segments, from discount to premium-priced providers. Practices that advertise heavily do draw many new patients through marketing efforts, but word-of-mouth still plays an important role; accounting for perhaps half of most discount providers' LASIK customers, according to industry observers. According to premium-priced surgeons, well over half of their patients tend to be focused on quality considerations. These patients are likely to ask prospective providers about LASIK technology, safety and outcomes, and a subset of these patients has done extensive research before contacting a provider. Among discount practices, not surprisingly, price tends to be the most important priority, and patients are much less inclined to focus on quality or to have done research. Industry experts estimate that perhaps one in five LASIK consumers overall—and a much larger proportion of discount providers' customers—tend to shop intensively for the lowest price (often by telephone) and base their purchasing decision solely on price. In the LASIK market—in contrast to other self-pay markets—it is possible for a consumer to obtain telephone price quotes if they have their vision prescription. An in-person exam is still needed, however, before the provider can assess the patient's eligibility for surgery.
Consumer Satisfaction
Satisfaction rates among LASIK patients are high—about 90 percent industry-wide. Among premium-priced practices, especially those that emphasize careful screening and patient preparation, satisfaction rates can reach the high 90s. Even among high-volume discounters, some of which have received negative publicity for questionable business practices and some bad outcomes, satisfaction rates still appear to range in the 80th percentile.
Issues Facing LASIK Customers
Because the package of services that are included in the LASIK procedure fees vary across providers, and consumers shopping in this market are confronted with "apples vs. oranges" comparisons. One critical factor when comparing providers' fees is to consider whether the provider includes the cost of enhancement surgery in the quote. A price quote that appears to be the best deal but does not cover follow-up operations may end up being the highest-cost option if enhancement surgery is needed.
Misleading Advertisements
Misleading advertisements have been a recurring problem with some LASIK providers, most notably discounters and federal and state regulators have taken action against some providers—and investigated many more—for making claims about price and quality that were found to be unwarranted. In 2003, for instance, the FTC issued a consent order against LASIK Vision Institute (LVI) after finding that the national chain falsely claimed that consumers would receive a free consultation to determine their LASIK eligibility. Instead, consumers, after an initial meeting with a salesperson, were required to pay a $300 deposit before they could meet with an optometrist to be told of risks, possible complications and medical eligibility. If the consumer decided not to proceed with surgery, the entire deposit was nonrefundable. If the consumer chose to undergo surgery but was rejected for medical reasons, only a portion of the deposit was refunded. Although LVI signed an FTC consent decree, the practice of advertising but not providing a free screening has persisted in some markets. In November 2005, the Illinois Attorney General took action against LVI for this same violation, along with other misleading practices. Advertisements run by discount providers touting very low LASIK prices are another important source of consumer misinformation. LVI, for example, runs advertisements promising "LASIK for $299." On Lasik Vision Institute's Web site, the fine print states the offer is for surgery on one eye and applies only to those with no astigmatism and very low myopia; conditions that apply to a small portion of the LASIK patient base. Similar problems have occurred with print advertisements, leading at least two state attorney generals, in Illinois and Florida, to take action against LVI in 2005 (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006). Consumers can be misled on quality issues as well as by some advertisements. The 2003 Federal Trade Commission (FTC) consent decree against LVI cited the provider for making unsubstantiated claims that LASIK would eliminate the need for glasses and contact lenses for life. Another national provider, LasikPlus, also was cited for making this claim, as well as additional unfounded claims that the procedure posed less risk to patients' eyes health than wearing glasses or contacts and that the procedure carried no risk of side effects. In many cases questionable practices have persisted despite the settlements. Regulators note that for the FTC to take official enforcement action against a provider, a practice must be "egregious" and "widespread;" they concede that consumers can also be misled by many questionable practices that fall short of these criteria. For example, local LASIK providers engaging in some of the same advertising practices as LVI would not be targets of FTC action, since their practices are not national in scope. Policing such providers generally would be left to state and local regulators, which vary greatly in the extent to which they enforce consumer protection. Many industry observers express concern that LASIK is regarded as a commodity by some consumers—leading them to shop only on price—when provider quality, in their opinion, varies considerably. Quality differences may be obscured by the fact that LASIK is a relatively simple surgery with low complication rates, but for patients whose eyes have certain "problem" characteristics (e.g., abnormal topography, large pupils, thin corneas), quality differences may be critical. Screening is the first step where provider quality differences matter. Industry insiders note that some providers—especially high-volume discount providers-may not adequately screen out patients who are not good LASIK candidates. When such patients are accepted for surgery, whether through revenue pressures or less-experienced or skilled screening staff, they suffer serious complications at much higher rates than average. Investments in technology are another area where providers differ. The lower the price charged by providers, the less likely they are to use state-of-the-art technology that may provide better results. According to experts, the very low prices quoted by discount providers assume the use of older, less expensive laser technology that may produce an acceptable result (for example, 20/40 vision with visual aberrations) when a newer, more expensive technology might have produced a better outcome (better than 20/20 vision with no aberrations). Poor quality outcomes, including severe pain, loss of best-corrected vision, or persistent double vision have been well documented in media accounts, online health forums and other sources. Such outcomes can result not only from poor screening but also from inadequate skill or experience from the surgeon, providing further evidence that LASIK is not a commodity and that quality differences can be substantial across providers.
Other Self Pay Markets
Consumer-oriented approaches to health care often focus on price shopping, without giving adequate priority to comparing quality across providers. Yet, widespread reliance on word-of-mouth recommendation in self-pay markets suggests that many consumers place a high priority on quality but may be using referrals from physicians or previous patients as a proxy for quality, given the absence of, or shortcomings in concrete quality measures. Concerns about quality disparities across providers appear to be warranted: Even for the relatively simple LASIK procedure—sometimes considered a commodity—quality differences across providers can be marked and can prove critical, particularly for the significant minority of consumers who have "problem" characteristics that put them at greater risk for complications or unsatisfactory outcomes. Consumers who consider only price when shopping for LASIK may end up with providers they would not have chosen if they had been aware of quality disparity issues. These consumers may not receive the best value for their money, even if they obtained the lowest price. For consumers who do take quality into account when shopping, comparing quality across providers can be challenging.
Providing information such as what credentials to look for in providers, how to compare prices and quality across providers, and what misleading claims to look out for is essential if consumers are to act as their own agents in the marketplace. As the number and complexity of health care markets in which consumers are expected to shop on their own behalf expand, resources devoted to consumer protection will need to be increased substantially. If all the tools discussed here were implemented, many consumers would benefit from improved price and quality transparency, but the benefits would not accrue to all consumers equally. Previous research has found that consumers with more education are much more inclined to seek health information on their own behalf, so they are the most likely to benefit directly from any measures that improve price and quality transparency.In applying lessons learned from self-pay markets to services covered by health insurance, it should be noted that many covered services are more urgent and more complex than the procedures we have analyzed - factors that would greatly reduce consumer inclination and ability to comparison shop. In addition, the fact that insurance will cover part of the cost reduces the financial incentive for the consumer to shop vigorously. Given that consumer shopping is not prevalent or active in most self-pay markets we would expect the extent of shopping to be even more limited for many insured services.
General Environment
The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. We group these dimensions into six environmental segments: demographics, economic, political/legal, socio-cultural, technological, and global. Demographic trends can be a powerful underlying force in a market and can be predictable. Among the influential demographic variables are age, income, education, and geographical location (Aaker, D. 2001). In the case of LASIK surgery, the generation X, those born roughly between 1960 and 1965, represent a target market due to the perception that they are more concerned about their appearance, lead more dynamic life styles due to their current age, and are more atone with technology. The non-use of glasses or contact lenses could be appealing to these people. The average Lasik patient is about 39 years old with an income of about $88,000, said Dave Harmon, President of Market Scope, a company that tracks the industry. “Their education level is significantly higher than average,” Harmon said. “Very few people in their 20s have it done. Very few people in their 50s have it done.” (MSNBC, 2005, After a decade, lasik surgery is still a luxury, Retrieved November 19, 2006).
Targeting minority groups is another source of consideration in the global economy. The ethnic population is rising rapidly and support whole firms and industries. The Hispanic population, for example, is growing rapidly and they are gaining in income as well. The Hispanic population is up 79.7 % since 1970, in the Pacific Northwest according to 1980 Census data. (Eric ed. Gov site, Hispanics in the Pacific Northwest, Cook, A., 1983).
Cultural trends can present both threats and opportunities for a wide variety of firms (Aaker, D., 2001). For example the fact that in the case of LASIK surgery, U.S Patients choose their doctors by word of mouth, Harmon said. (MSNBC, 2005, After a decade, lasik surgery is still a luxury, Retrieved November 19, 2006).
In the case of LASIK surgery there are two new technologies. One allows the patients to heel faster and the other, results in better vision for some patients. One is called “blade-free” with the use of a laser named IntraLase, the other, is called wavefront-guided Lasik, and recently was approved by the Food and Drug Administration for both nearsightedness or astigmatism, expanding the number of people eligible for the surgery by about 1 million. It has also been approved for farsightedness (MSNBC, 2005, After a Decade, LASIK surgery is Still a Luxury, retrieved November 19, 2006).
Global trends consist of important political events, critical global markets, newly industrialized countries, and different cultural and institutional attributes. A global trend called medical tourism, once a fringe concept limited to niche specialties, is on the rise around the world. It is not just Americans going to Costa Rica for rhinoplasty or to Canada for LASIK. The cost of surgery in India, Bolivia, Thailand, or South Africa can be one-tenth of what it is in the United States or Western Europe, and sometimes even less. A heart-valve replacement that would cost $200,000 or more in the U.S., for example, goes for $10,000 in India—and that includes round-trip airfare and a brief vacation package. Similarly, a metal-free dental bridge worth $5,500 in the U.S. costs $500 in India, a knee replacement in Thailand with six days of physical therapy costs about one-fifth of what it would in the States, and LASIK eye surgery worth $3,700 in the U.S. is available in many other countries for only $730. Cosmetic surgery savings are even greater: A full facelift that would cost $20,000 in the U.S. runs about $1,250 in South Africa." (MSNBC, 2005, After a Decade, LASIK surgery is Still a Luxury, retrieved November 19, 2006).
Industry/Competitive Analysis
Forces driving the industry and competitive analysis for Pacific Cataract and Laser Institute: Competing in the LASIK Eye Surgery Market include:
- Competition from firms in Canada
- Surgery being offered at lower prices by competitors
- Various degrees of treatments among competitors
- Locations of eye surgery centers around the country
- Types of competitors – General ophthalmologists, surgery centers, and
specialized LASIK clinics
- Varying degrees of before and after surgery procedures
Threat of new entrants
PCLI (Pacific Cataract and Laser Institute), a firm who operated a total of eleven clinics throughout the northwestern Unites States, faced threats of new entrants into the laser eye surgery field from Canada and firms within the United States. The largest of these firms was TLC Laser Eye Centers, Inc., based in Mississauga, Ontario, who also had 56 clinics in the U.S. and 7 in Canada. New entrants also specialized solely in LASIK surgeries, and the largest of these firms was a Canadian competitor called LASIK Vision Corporation (LVC), based in Vancouver, British Colombia. LVC operated 15 clinics in Canada and 14 in the United States and was growing rapidly. (Hitt, M., Ireland, D. Hoskisson, R., 2005).
Bargaining Power of Suppliers
PCLI ‘s clinic provided medical and surgical eye treatments, including laser vision correction, and based the organization’s success on surgical excellence and compassioned concern for its patients and the doctors who referred them. Clinics in Canada, offering the same services as PCLI, were advertising laser eye surgery at a lower price and soon PCLI found themselves in competition. Since most medical insurance programs covered only a small portion of the cost of this procedure people were swayed by the low prices and would travel to Canada to have the procedure performed. Procedures for setting up the surgery date also differed from PCLI and in some cases a simple call to a toll-free number was needed to schedule a time to have the surgery performed. The patient was in and out of the clinic within three days, whereas, PCLI’s clinic would partner with the prospective patient’s doctor of Ophthalmology, who would provide information about LASIK and PCLI to the patient, the Ophthalmology doctor would perform a pre-exam to make sure the patient was a suitable candidate for the surgery, forward the exam to the doctor at PCLI, PCLI would then discuss payment options with the patient, have the risks of the surgery explained, and then the operation was performed.
While the recuperation and follow-up to surgery (24 hrs., one-week, one-month, three months, six-months and one-year for PCLI vs. 24 hrs., one-week, and three months in Canada) procedures were somewhat identical, the process in Canada was designed to accommodate the patient and differed significantly from PCLI’s services. PCLI did all the follow-up appointments for the patients and Canada was letting their patients see the Ophthalmology doctor for the follow-up visits.
Bargaining Powers of Buyers
The bargaining power of the buyers was that they could go to clinics in Canada, or their affiliates in the United States and have the LASIK eye surgery done for half the price of what PCLI was charging, or at the least, a significantly lower price. They were provided with information regarding these clinics through advertisements and even provided a toll-free number to call for information.
Threat of Substitute Products
Clinics in Canada, their affiliates in the United States, and other low-cost eye surgery clinics provided a threat to PCLI in terms of offering services at a lower price. This was accomplished by not having to pay a royalty to the manufacturers of the equipment, paying lower fees to the surgeons in Canada, the weak Canadian dollar vs. the U.S. dollar, and speculation among U.S. clinics that some low-priced Canadian clinics were making a variety of care-compromising quality tradeoffs, such as not performing equipment calibration and maintenance as often as recommended by the manufacturer, and reusing the blades used to make the initial incisions.
Rivalry Between Competing Firms
PCLI built its reputation by establishing eight core values that were based on the principles of practicing the art of healing through love, kindness and compassion and providing the best possible “co-managed” services to the profession of optometry.
Soon PCLI and other U.S. clinics found themselves in competition with firms who were compromising quality service and patient care for lower prices. To remain in competition and prevent the loss of customer’s subsidiaries, parent companies were created and offered lower prices for laser eye surgery. This was accomplished by employing their own surgeons or the parent companies providing only the facilities and equipment, and contracting out with independent surgeons to perform the procedures.
Internal Analysis
PCLI’s Tangible Assets consisted of:
1). A Staff of fully trained doctors
2). Eleven clinics strategically located in the Pacific Northwest
3). Aircraft to transport doctors between facilities
4). Resident optometric physicians
5). A caring and supportive staff for each clinic
6). Patient counselors
7). A financial team of experts
PCLI’s Intangible Assets
1). Their belief of practicing their art through Christian principles of love kindness &
compassion
2). Ability to provide a range of medical and surgical eye treatments including
laser vision correction
3). Organization success based on surgical excellence and compassioned
concern for its patients and the doctors who referred them.
4). The ability to operate eleven clinics in a very coordinated manner.
5). Successful co-management with patients optometrist or OD (doctor of
optometry)
6). The quality of service that patients remember—the excellent surgery,
exceptional patient care, and professional cooperation with their family eye
doctors (Pacific Cataract and Laser Institute, (2006), retrieved November
17, 2006).
As a result of the tangible and intangible assets the company possessed and integrated, these resources provided them the ability to:
Reach customers
PCLI reached its customer basis by working closely with a patient’s optometrist or Doctor of Optometry in co-managed eye care. When surgery was needed the family Ophthalmology doctor referred patients to ophthalmologists (e.g. PCLI’s eye surgeons). PCLI also operated eleven clinics throughout Washington Oregon, Idaho and Alaska, which added to the ability of reaching customers further across the Pacific Northwest.
Richness Dimension
The richness of PCLI revolved around the ability of the doctors and staff to provide the depth and detail of information to their customers on what they could expect regarding LASIK eye surgery. Through the operation of their eight core values and the compassion showed their customers the success of their co-managed business provided a relationship of mutual trust and respect built through shared learning, constant communication and commitment to providing quality patient care.
Affiliation
Through interactions with their customers PCLI was able to help their patients make informed decisions regarding LASIK eye surgery. Working with patients, developed through a network of family Optometry doctors, also provided insurance mutual values existed, between PCLI and the Optometry doctors in the regions where PCLI had clinics.
SWOT Analysis
At the time the article was written, PCLI had been operating for almost twenty years. For some companies this would be considered an advantage. One could say PCLI had passed their survival stage. However, between 1999 and 2002 the competition had become so fierce it threatened the continuation of service for PCLI. The following is a SWOT analysis to understand better the current situation of the company and conclude how PCLI’s competitors are taking a better advantage of the market, business strategies, and technology.
Strengths
- Outstanding business reputation for many years- Highly qualified team composed of seven surgeons that specialized in the various
forms of eye surgery- Company created value for customers through surgical excellence approach and consideration- Effective use of science, technology, and Christian principles- Constant communication with patients and the patient’s optometrist- Shared knowledge with patient’s optometrist for better results- Modern facilities located in a single region- Development of a network of 150 family Ophthalmology doctors in a region- Motivation through high compensation for surgeons- Ownership of two aircrafts used to fly the surgical team between the centers- Great finance team that help patients with medical insurance claims and financing arrangements- Enhanced software calibration unique to PCLI developed by one of its own surgeons- Development of a system to track eye movements by the founder of the company
Weaknesses
- Unsuccessful marketing strategies; inability to capture new segments of the population (did not advertise aggressively)- Extreme capital cost of the equipment to perform LASIK procedures- Less time in the market performing laser surgery- Only three of PCLI’s seven surgeons specialized in LASIK and related procedures- Infrastructures located only in the Northwestern United States.- High royalties paid for specialized equipment in the US only- Unable/unwilling to open more facilities closer and more convenient for other patients- Inability to provide for patients’ continuity of care at the same location by the same doctor- Unable to provide for patients’ basic eye care needs- Food and Drug Administration’s tight and adverse regulations that delayed the use of advanced technology- High salaries as opposed to their competitors- Inflexible marketing strategies: not allowing patients to see their own OD and be referred by them- Presentation of a whole package at high prices- Inability/unwilling to participate in discount plans like other companies to attract more clients- Lack of communication to PCLI’s clients of the company’s innovative technology and achievements- Relied on referrals from independent optometrists (network only)- Inflation rate benefiting competitors from Canada
Opportunities
- Opportunity to capture a bigger share of the market if they “branched out”
- Expand company facilities in other states and increase revenues- Expand the types of services such as basic eye care needs, continuity of service pre- and post-operation, cataract surgery, etc.- Partner with small clinics in different regions (out of network)- Research and use of new methods to improve vision: Intraocular lenses- Partnership with employers to offer laser surgery benefits- Exploring services for additional members of the family i.e., surgery for pets in the future.
Threats
-Increasing competition and reduction in share of the market- Surgeons leaving the company and opening their private office and collaborating with competitors- Low employee morale- Reductions of salaries- Suits for mal practice- National competition- Loss of revenues due to excessive royalties
- People traveling to other countries for surgeries- Innovative equipment becoming less expensive- Laser surgery to correct other problems: e.g., cataracts- People caring more about pets’ health (pet surgery)
Major issues
Pacific Cataract and Laser Institute has several major issues that need to be addressed for their survival as a business. These include the need to address their high prices, limited number of doctors that can perform LASIK surgeries, some arrogance and pride, high transportation costs, and a better market strategy that can help them advertise their services better. The most pressing problem they face is the fact that they cannot compete with the prices their competitors are currently offering. They cannot compete with such low prices because they pay their doctors higher salaries and have to pay royalties for the use of LASIK equipment every time a surgery takes place. Arrogance and pride is another issue that is affecting them because they felt that their reputation and expertise will draw customers to them and have not look for alternatives to attract more patients. They felt like an upscale surgery center and for them to compete based on price is a humiliation. Another issue is the fact that they do not have enough doctors to cover a rather extensive area. This issue has forced them to have a very high transportation cost since they have to fly their doctors around eleven different locations. Pacific Cataract and LASIK Institution needs to focus on a new management strategy, capacity utilization, cost control and marketing approach.
Pricing
The pricing of the surgeries is a major issue that Pacific Cataract and Laser Institute competition has to deal with and it is not an easy situation because their competition is fierce and they are able to offer surgeries for one quarter of the price that PCLI. It is impossible for Pacific Cataract and Laser Institute to cut their prices as low as the competition because they have high expenses and the cost of their competitors in Canada would not even cover their variable cost. Companies in Canada have more advantages because they have been using their equipment for many years and might have already coved their initial equipment investment, they do not have to pay royalties, they pay lower salaries, and even the currency conversion plays in their favor. PCLI has the advantage of being in the US. People do not have to travel if they can convince their customers that they are better than Canada’s companies because they can offer the care needed pro and post surgery. PCLI should not cut their prices as low as the competition but can considered lowering the price a little bit if they can cut their cost on other areas like their transportation in a private jet. A restructuring of their price analysis and their expenses would provide an opportunity to line their surgery costs more closely with their competitions. It could also differentiate their surgeries from the competition by emphasizing in the safety issue and the pre-surgery and post-surgery care that they can offer their patients from qualified doctors that are well compensated for their services.
Arrogance and Pride
Arrogance and pride are also playing a part in the major issues that Pacific Cataract and Laser Institute because they view themselves as the best and are discarding the abilities in this area from their competition. It is true that they have doctors that have many abilities. Dr. Ford, for example, has developed a system to track eye movement using superimposed live and saved computer images of the eyes. He has also developed an enhanced software calibration system for PCLI’s laser that it is better than the one provided by the manufacturer. He has also performed sixteen thousand surgeries so he has a vast experience probably more than any other doctor does. This is an issue because they know they have this doctor’s expertise many of the patients do not even know what he has achieved. They are so confident that they are the best when it comes to LASIK surgery that have discounted the abilities of the competition which is little by little gaining and gaining more patients. PCLI needs to market the capabilities and the innovation their doctors have accomplished and they have to highlight to their customers what is it that they do better that the competition which is their care, their expertise, the safety, and the peace of mind they can provide to their patients because their doctors are experts in LASIK surgeries. Hire more doctors
Another major issue that Pacific Cataract and Lacer Institution have to address is the number of doctors in their staff that can perform the LASIK surgeries. Out of seven surgeons, they have only three that can perform the LASIK surgery. PCLI needs to restructure this part of their business because they can cut transportation cost if they have more surgeons in permanent locations and at the same time expand their business to cover more areas. If they have more doctors, they need to consider leaving a surgeon and its team in a specific area instead of flying them all over the place. These trips in jets have to inconvenient the surgeons and their people because they do not have a comfort zone and the closeness of their own families. These doctors would probably agree to a lower salary if they have a more stable business environment. This would probably helped the doctors be more in touch with the people in the communities they are serving PCLI needs to increase the number of doctors that can perform the surgeries because with seven surgeons it is impossible to cover a lot of more of what they are covering. The more use they give their equipment the cheaper the operations can be done for in the future allowing them to compete in the long run with lower prices. PCLI needs to train the other four doctors that they already have to do the LASIK surgeries too. If they have more doctors capable of performing more surgeries they can also look into expanding to other areas or just giving better service to the areas that they are already covering.
Transportation Cost
Pacific Cataract and laser Institute also needs to evaluate their transportation cost. PCLI flies their doctors and their staff in private jets to go from one city to the other at a very high price. It is an expensive transportation cost because they have invested large sums of money in two jets that they owe in addition to paying for large amounts of expensive fuel and a pilot that needs to be in stand by in a daily basis. This seems as a luxury that would be unnecessary if they plan their strategy better. The transportation cost for flying a doctor back and forth is very high. PCLI can easily save this money by hiring more surgeons and they could save this money and use it for other issues like hiring more doctors or giving them more training.
Marketing Strategy
Their marketing strategy is also an issue that needs to be addressed as soon as possible because they do not have a market strategy. The advertising is inadequate because it does not even print the prices and it does not tell us why they are better than the competition. The advertising is very vague and does not give us any information on who they are, what their values are, or what are their achievements. Their ad in the newspaper is only making people think about having a LASIK surgery but it is not inviting the reader to seek them for their expertise. The market strategy has to present the Pacific Cataract and LASIK Institute as the crème of the crème for LASIK surgery. Prices are not as low as the competition because they will not compromise any safety issues and because they make sure their patients are treated with care respect and as kings and queens pro and post surgery. LASIK surgeries are not difficult but if a bad outcome happens a person can be scarf for life and that is why it is important the market strategic takes this into consideration. Another Niche for the strategic market is to advertise the knowledgeable Dr. Ford has. He has performed over 16,000 surgeries and has been the innovator and many of the procedures in the LASIK field and also in the equipment used. Many refractive surgery centers are advertising in newspapers, on the radio, and on TV. And Pacific Cataract and Laser Institution has to also advertise if these mediums of information. The market strategy has to realize that their ads have to have a good amount of information and even to include the price because the price gives people the idea of how much it will cost and it they can afford to have it done. Emphasizes has to be made on the differentiation of their product. PCLI should also do some of the things that the competition is doing such as collaborating with insurance companies like Vision Service Plan or just making employers realize how important it can be for workers to have this surgery done and not have to use glasses anymore. PCLI has to convince their customers that they are a better option for people because their doctors are very knowledgeable like Dr. Ford and because they are a team of doctors that care about their patients and will do everything in their power to do the best job possible. The price can be the starting point for people considering a LASIK surgery, but it should not be the criteria for choosing a doctor.
The major issues that are affecting PCLI can be turned around if PCLI can vision and recognizes that they are failing to market their services in a better way. By choosing to operate only in the Pacific Northwest they limited themselves in capturing the market share of business and the possibility to expand globally. They also chose not to participate in discounts offered by managed care vision plans such as Vision Service Plans (VSP). This gave their competitors an advantage because patients, who knew they could possibly get discounts through the managed care plans, would choose to go to clinics or surgery centers who offered this opportunity. PCLI limited them and as a result found they losing to other companies. The major issues for PCLI need a better strategy such as more doctors that can perform surgeries and that can be spread to other areas to avoid transportation cost in addition to helping PCLI expand and grow more and to even considering expanding and doing more. There are many things working for PCLI such as their doctor’s expertise, their excellent customer care, surgeons that are passionate about their work and truly care for their patients, their innovations in regards to LASIK surgeries and equipment. PCLI has many positive aspects that if supported by a better advertising campaign, some cuts on costs like transportation, increase the number of doctors, more customers through offering discounts and a less arrogant view of themselves they can achieve a better business strategy for their future. PCLI displayed a certain amount of arrogance in the way they conducted business.
Conclusions
PCLI is a company that has demonstrated it has capabilities for success. Even today, we can access their website and discover that their presence has not vanished after twenty years of market competition. The company has developed into a modern center with great facilities and cutting-edge technology. However, PCLI with its prestige and capabilities remains in the same regional location. In twenty years, PCLI has not been able to enter new markets in different regions of the United States. After a careful revision and analysis, our team concludes that PCLI was facing great challenges back in 2002. The adverse situation was created in part by the company’s response to core values and in part due to a lack of understanding of the external environment in a highly competitive market. The SWOT analysis on PCLI revealed the factors that played an important role in the company’s business strategies, inadequate marketing strategies, lack of corporate level vision of the future, inappropriate use of corporate capital and human capital, inability to differentiate themselves from competitors, and inability to understand client’s demands. In 2002, Pacific Cataract Laser Institute had the capacity to do more vision correction than they were actually doing (Lawrence & Morris, 2002). The institute had all the resources, tangible and intangible, to exploit at maximum level and achieve strategic competitiveness, but chose not to do it because it was against the company’s core values. PCLI could not treat eye surgery as a commodity and advertised it based solely on price. The management team did not understand that advertisement was a key strategy to make the company visible in the market. The company had excellent surgeons and their quality of service was the best they could offer. This concept matched the company’s core values. The human capital that the company possessed had in fact accomplished outstanding goals. For example, one of the surgeons even researched and developed a machine that was not equal to the others being used in the market. These achievements were never advertised, so the human capital did not get the recognition they deserved. In addition, PCLI had seven surgeons that specialized in various forms of eye surgery. Out of those seven doctors, only three were trained to perform laser surgery. In our opinion, this was a mistake because the company had to fly those three surgeons and their assistants from location to location in order to attend their limited number of patients. The company allowed high compensation for this human capital and did not train the rest to do the same type of surgery. Due to the number of providers performing laser surgery being limited to three, the company had to spend their corporate capital flying two private aircrafts. The company’s intention was good; they wanted to give their clients the possibility to be seen by their best team. However, we believe that by constantly flying their surgeons from one area to another, helped increase the cost of laser surgery for the patients. PCLI did not develop a plan to have surgeons in each location to develop an opportunity for future growth. In 2002, the company had been in the business of laser surgery for three years, while their competitors had the advantage of being in the market for almost a decade. Other companies had a competitive advantage because of the number of procedures performed for a long time. Competitors charged less because they were able to save on royalties and transportation expenses. They opened multiple locations, trained different doctors, and collaborated with various surgeons. The competitors saw the opportunity to expand their company through these strategies. PCLI did not understand the external environment at that time. Patients wanted the procedure but they were limited by their economies. The simplicity of the procedure (5 to 15 minutes) also played an important role. These patients did not want to pay excessive amounts of money for a procedure that did not take a prolonged time even if the surgery was performed by the best surgeon. PCLI’s marketing department did not find the way to differentiate its services from the competitors’ in order to justify the high amounts of money it charged. The institution did not realize that its capabilities were substitutable. PCLI’s management team did not consider advertising aggressively to attract more prospective clients because it was too attached to its core principles. In our opinion, the corporate had a business-level strategy that was non reactive to market trends. They only focused in one type of service and one region of the United States when the competitors were finding opportunities in different locations. While the competitors were moving to small towns to allow more people to enjoy the wonders of technology, PCLI spent all their capital in providing outstanding customer service in fixed locations. PCLI’s doctors were focusing only in the quality of their services, meanwhile the company failed to recognize customers’ various demands. Patients in the states were not only looking for corrective vision surgery, but also other types of services such as evaluations, follow up visits, corneal care, etc. PCLI did not provide these kinds of services, and by doing so, inadvertently reduced the number of prospective clients. PCLI’s management wanted the company to be recognized as one of the best technological centers, with innovative equipment, and excellent surgeons so they chose to specialize in one type of surgery. Besides fierce competition and the company’s own strategies, there were other factors from the external environment that affected PCLI’s business. PCLI had to pay royalties to providers of the equipment ($250 per surgery), which was reflected in the final cost to their patients. While the competitors were using new technology, PCLI had to use old equipment until the FDA tested and approved the new technology. PCLI could not afford to cut their doctors salary because that was already part of their culture. Had the company been able to cut on salaries, transportation expenses, and had FDA’s regulations been in their favor, it could have been able to save substantial amounts of money and apply those savings to their customers. We believe that PCLI did not see the possibilities of expanding their clientele; the company did not seek to grow beyond the Pacific Northwestern region. To prove this concept, we only need to check the current company’s website. The advertisement still focuses on this region only. On the positive side, we can name some things that PCLI changed and seem beneficial. For example, the company not only expanded the number of services offered but also increased the number of doctors performing these services. Today, the Institute provides high caliber medical care in the areas of: · Cataract surgery · LASIK surgery—treatment of nearsightedness, farsightedness, and astigmatism · Glaucoma care · Corneal care· Eyelid surgery· Retinal care(Source: Pacific Cataract and Laser Institute [PCLI], 2006, 1)Currently PCLI offers its prospective patients education through a free book on Cataract surgery, free LASIK DVD on video, and free Infant Eye Assessment.
PCLI has taken steps to position themselves to be more in line with their competitors and in doing so are able to offer consumers quality doctors, service and quality information on LASIK surgery. If they chose to expand beyond the Pacific Northwest we believe their marketing power would be greatly enhance.
Reference:
Aaker, D. (2001). Developing Business Strategies, Sixth ed., New York: John Wiley & Sons, Inc.
Cook, A. (1983), Hispanics in the Pacific Northwest, retrieved from Eric ed. Gov site on November,20,2006 from http://eric.,d.gov/ERICWebPortal/Home.portal?_nfpb=true&_pageLabel=RecordDetails&ERICExtSearch_SearchValue_0=ED237305&ERICExtSearch_SearchType_0=eric_accno&objectId=0900000b80104a81
How Consumers Shop, (2006). Congressional testimony, retrieved on December 5, 2006 from http://www.hschange.com/CONTENT/862/?PRINT=1
Hitt, M., Ireland, D. Hoskisson, R. (2005). Strategic Management:Competitiveness and Globalization: Concepts and Cases. 6th edition,Ohio: Thompson South- Western.
MSNBC, (2005), After a Decade, LASIK surgery is Still a Luxury, retrieved November 19, 2006 from
http://www.msnbc.msn.com/id/10380838/page/2/
Pacific Cataract and Laser Institute (2006). Company index. Retrieved from www.pcli.com/company/index.html accessed December 3, 2006,
Subject Index
A
advertisements · 6, 8, 11, 19
C
competition · 3, 5, 18, 20, 22, 25
E
environmental · 15
I
industry · 3, 5, 6, 9, 10, 12, 15, 17
L
LASIK · 1, 4, 5, 6, 7, 9, 10, 11, 14, 15, 16, 17, 18, 19, 21, 22, 23, 25, 37
M
marketing · 7, 9, 23, 26
P
PCLI · 3, 4, 18, 19, 20, 21, 22, 23
procedures · 5, 6, 7, 9, 15, 18, 19, 20, 23
Q
quality · 5, 9, 10, 11, 13, 14, 19, 20, 21, 22, 32
S
services · 4, 8, 10, 15, 18, 19, 20, 24, 27
strategies · 3, 22, 23, 31
I made a lot of changes on the headings because somehow we missed them earlier when we did the table of content. I also made several changes to our references. I tried to follow the APA format we have to be consistent. I also modified my part and Juan also made changes to his. Please reviewed and If you have any questions or do not agree, please call us at (650)588-5453(home) or at work(800)998-2937 Ext. 6266.
Thanks
Rosaura A. Arevalo
Pacific Cataract and Laser Institute:
Competing in the LASIK Eye Surgery Market
Anabel Arevalo
Juan Arevalo
Zoe Ann Caires
Maria Tapia
Business Policies & Strategies
Peter Young
12 December 2006
Introduction.. 3
External Environment.. 4
Market Pricing and Structure. 7
Information Available to Consumers. 9
Consumer Shopping Behavior. 9
Consumer Satisfaction. 10
Issues Facing LASIK Customers. 10
Misleading Advertisements. 11
Other Self Pay Markets. 13
General Environment.. 15
Industry/Competitive Analysis.. 17
Threat of new entrants. 18
Bargaining Power of Suppliers. 18
Bargaining Powers of Buyers. 19
Threat of Substitute Products. 19
Rivalry Between Competing Firms. 20
Internal Analysis.. 20
PCLI’s Intangible Assets. 20
Reach customers. 21
Richness Dimension. 21
Affiliation. 22
SWOT Analysis.. 22
Strengths. 22
Weaknesses. 23
Opportunities. 24
Threats. 24
Major issues.. 25
Pricing.. 26
Arrogance and Pride. 27
Transportation Cost. 28
Marketing Strategy.. 29
Conclusions.. 31
Pacific Cataract and Laser Institute
Introduction
Our case analysis takes into consideration not only Pacific Cataract and Laser Institute, but also its competitors, businesses, and the current business environment.
Pacific Cataract and Laser Institute (PCLI) was founded in 1985 by Dr. Robert Ford and specialized in eye treatment. With headquarters in Chehalis, Washington, it operated clinics in Washington, Oregon, Idaho and Alaska. In addition to laser vision correction, PCLI provided cataract surgery, glaucoma consultation and surgery, corneal transplants, retinal care and surgery, and eyelid surgery (Hitt, M., Ireland, D. Hoskisson, R., 2005).
The use of SWOT analysis identifies ways to minimize the effect of Pacific Cataract and Laser Institute’s weaknesses while trying to maximize its strengths and at the same time recognize ways to exploit its opportunities and respond to its threats. The use of Porter’s five-force model helps analyze the entire LASIK surgery industry by using the five competitive forces (i.e., supplier power, buyer power, potential entrants, substitute products, and rivalry among competitors), which affect Pacific Cataract and Laser Institute’s business strategy. These forces help identify opportunities and threats relative to differentiation, low cost and competition, and focus on the market microstructure. We begin by taking into account PCLI’s competitor’s current strategies, strategic intent, capabilities, and core competencies. This data is useful to Pacific Cataract and Laser Institute for the purposes of formulating a better strategy and being able to predict their competitor’s possible responses. Pacific Cataract and Laser Institute (PLCI) is a privately held eye care clinic specializing in refractive eye surgeries. With locations in eleven cities in the Pacific Northwest, the clinic began facing stiff competition from other laser eye surgery centers located in Canada, as well as other larger, publicly traded laser eye care centers in the United States, who were charging less for LASIK eye surgery. Dr. Ford founded PCLI on the principle that doctors must go beyond science and technology to practice the art of healing through the Christian principles of love, kindness, and compassion. The organization had defined eight core values based on those principles. Those core values guided PCLI’s decision-making, as it attempted to fulfill its stated mission of providing the best possible “co-managed” services to the optometry profession. (Pacific Cataract and Laser Institute (2006), A Company You Can Trust, Values and Vision, retrieved November 26, 2006).
As LASIK surgery continued to rapidly expand, PCLI realized it was losing potential U.S. patients to lower-priced clinics, and in order to be competitive and maintain a strong market share in the Pacific Northwest operations, it had to reevaluate its market efforts and its services operations process.
External Environment
Whether the public belongs to conventional health plans with rising cost-sharing requirements, or enroll in consumer-driven health plans with high deductibles and a spending account, consumers are facing more incentives to make cost-conscious decisions about medical services. Consumer-oriented approaches to health care emphasize price shopping as a tool for individual consumers to obtain better value, and for the health system as a whole to curb rising costs and improve quality through increased competition. Until recently, most insured consumers have been sheltered from rising health care costs and have had few incentives to shop for the best deal. The extent to which consumers actually can become effective shoppers in the health care marketplace remains largely unexplored. Self-pay markets in health care—those markets in which consumers largely pay out of pocket for services because of little or no insurance coverage—provide insights into how markets work when consumers must pay the total costs of services without the benefit of discounted rates negotiated by health plans or the restrictions of a provider network chosen by insurers. LASIK is widely regarded as the self-pay market with the most favorable conditions for consumer shopping. It is an elective, non-urgent, simple procedure, giving consumers time and ability to shop. Screening exams are not required to obtain initial price quotes, keeping the dollar and time costs of shopping reasonable, and easy entry of providers (ophthalmologists) into the market has stimulated competition and kept prices down. While LASIK is a good procedure to evaluate for price shopping for these reasons, it is important to note that patients are rarely in a position to shop for completely elective, non-time-sensitive procedures, even if good price and quality information are available.
Our initial research into LASIK included a review of existing literature and news stories, informational material published by professional associations and government regulators, and industry consultants' market reports. In addition, we found researchers reviewed online patient forums and examined LASIK providers’ Web sites and print advertisements. LASIK is an outpatient surgical procedure performed by an ophthalmologist that permanently reshapes corneal tissue to reduce light-refraction error and improve vision. A surgical blade creates a flap in the outer layer of the cornea. After the flap is folded back, a laser is used to reshape the underlying corneal tissue, and the flap is replaced. The surgery takes 10-15 minutes per eye, and the only anesthetic is an eye drop that numbs the eye's surface. LASIK was first performed in the United States in clinical trials in 1995. In the past few years, two new technologies have emerged in the LASIK industry. The first, custom wavefront-guided LASIK, uses wavefront technology to measure precisely how each eye refracts light and then guides the laser in customizing the corneal reshaping. Unlike conventional LASIK custom LASIK can treat higher-order aberrations and is more likely to produce 20/20 or better vision and is less likely to result in visual distortions. Providers have widely adopted custom LASIK: 80 percent of providers now offer this technology, and the procedure accounted for nearly half of all LASIK procedures in 2005, according to MarketScope, LLC data (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006). A second refinement, called blade-free or all-laser LASIK involves the use of a laser instead of a surgical blade to create the corneal flap and is usually referred to as IntraLase. Many surgeons believe that IntraLase creates a more precise flap and results in fewer complications. Compared to custom LASIK, however, IntraLase market penetration has not been nearly as high: The technology was used in one in 10 LASIK procedures in 2005, according to MarketScope, LLC data (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006).
Market Pricing and Structure
Market insiders describe the LASIK market as having three pricing tiers: discount, mid-priced and premium-priced providers. Discounters tend to market aggressively based on price. They typically handle a high volume of procedures, and patients often have little or no contact with the surgeon before or after surgery. While discount providers are almost always high volume, experts note higher pricing does not necessarily equate to lower volume. What all premium providers tend to have in common is that they are surgeons whose credentials (such as research publications, affiliations with teaching hospitals and participation in clinical trials) enable them to command top dollar. Beyond this common trait, however, it is harder to generalize about these practices. Many premium providers run relatively low-volume LASIK practices that offer patients personalized care from the surgeon, both before and after surgery. Other premium-priced providers operate on a different business model: marketing themselves heavily, performing high volumes of LASIK procedures, and often relying on optometrists to conduct pre- and post-operative exams. Many mid-priced providers are somewhat like the premium providers but without the top-notch credentials or surgical experience to command higher prices. Other mid-priced providers are large chains that may have started out as discount providers but moved to the mid-price segment through an emphasis on customer service, celebrity endorsements or other means. In 2005 the price of LASIK averaged approximately $1,680 per eye for the conventional procedure and $2,030 for the custom procedure. Premium-priced providers currently charge about $2,200 per eye for conventional LASIK and $2,700-$2,800 for the most advanced technology (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006). Although discount providers often advertise that LASIK is available for only a few hundred dollars, market experts note that the actual price of LASIK from a discounter averages $1,100-$1,200 per eye for the conventional procedure and $1,500-$1,600 per eye for custom LASIK, both with a surgical blade. (Most discounters have yet to adopt IntraLase technology.) This substantial discrepancy between actual and advertised prices exists largely because very few LASIK patients are medically eligible for the lowest prices. Indeed, it has been estimated that only 3 percent of LASIK procedures are performed for less than $1,000 per eye. In the decade that LASIK has been performed in the U.S., price and volume have fluctuated somewhat, but overall the average price for conventional LASIK has declined nearly 30 percent in inflation-adjusted terms. Two factors appear to be largely responsible for this market's price competitiveness: on the provider side, a large number of providers (ophthalmologists) can enter the market relatively easily, and on the consumer side, price quotes can be obtained at little cost and inconvenience. However, the decline in LASIK price is much less steep than what a casual observer might infer, given the pervasive advertisements of LASIK for only a few hundred dollars per eye. There is no consistent bundling of LASIK services across providers. A high-end LASIK surgeon's fee might include a thorough screening exam, the procedure itself, and several post-operative exams, all conducted by the surgeon. If enhancement surgery is needed, a premium-priced surgeon might charge the patient nothing at all or only the procedure fee charged by the laser manufacturer. At the other extreme, some discount providers charge patients a nonrefundable fee for the screening exam, include little post-operative care and require full payment for enhancement surgery.
Information Available to Consumers
Reliable consumer information about LASIK is available from several sources, including the Federal Trade Commission (FTC) and the American Academy of Ophthalmology (AAO), which jointly produced a free consumer brochure, titled Basik LASIK. This consumer resource discusses the procedure, its risks and possible complications, how to locate a surgeon, and what to expect before, during and after surgery. To help consumers find a surgeon, the American Academy of Ophthalmology (AAO) Web site lists all AAO members performing refractive surgery. Basic LASIK and similar sources provide guidance to consumers on questions to ask of surgeons, but consumers still must gather this information from each provider. No centralized source is available for information such as number of procedures performed, success rates or enhancement rates for each surgeon, so consumers seeking to compare such quality-related measures across providers must invest considerable effort to gather this information.
Consumer Shopping Behavior
Although LASIK consumers are a heterogeneous group, the majority shares one trait, according to industry experts: Word-of-mouth recommendation from a previous LASIK patient is the most common way to select a LASIK surgeon. This holds true for all market segments, from discount to premium-priced providers. Practices that advertise heavily do draw many new patients through marketing efforts, but word-of-mouth still plays an important role; accounting for perhaps half of most discount providers' LASIK customers, according to industry observers. According to premium-priced surgeons, well over half of their patients tend to be focused on quality considerations. These patients are likely to ask prospective providers about LASIK technology, safety and outcomes, and a subset of these patients has done extensive research before contacting a provider. Among discount practices, not surprisingly, price tends to be the most important priority, and patients are much less inclined to focus on quality or to have done research. Industry experts estimate that perhaps one in five LASIK consumers overall—and a much larger proportion of discount providers' customers—tend to shop intensively for the lowest price (often by telephone) and base their purchasing decision solely on price. In the LASIK market—in contrast to other self-pay markets—it is possible for a consumer to obtain telephone price quotes if they have their vision prescription. An in-person exam is still needed, however, before the provider can assess the patient's eligibility for surgery.
Consumer Satisfaction
Satisfaction rates among LASIK patients are high—about 90 percent industry-wide. Among premium-priced practices, especially those that emphasize careful screening and patient preparation, satisfaction rates can reach the high 90s. Even among high-volume discounters, some of which have received negative publicity for questionable business practices and some bad outcomes, satisfaction rates still appear to range in the 80th percentile.
Issues Facing LASIK Customers
Because the package of services that are included in the LASIK procedure fees vary across providers, and consumers shopping in this market are confronted with "apples vs. oranges" comparisons. One critical factor when comparing providers' fees is to consider whether the provider includes the cost of enhancement surgery in the quote. A price quote that appears to be the best deal but does not cover follow-up operations may end up being the highest-cost option if enhancement surgery is needed.
Misleading Advertisements
Misleading advertisements have been a recurring problem with some LASIK providers, most notably discounters and federal and state regulators have taken action against some providers—and investigated many more—for making claims about price and quality that were found to be unwarranted. In 2003, for instance, the FTC issued a consent order against LASIK Vision Institute (LVI) after finding that the national chain falsely claimed that consumers would receive a free consultation to determine their LASIK eligibility. Instead, consumers, after an initial meeting with a salesperson, were required to pay a $300 deposit before they could meet with an optometrist to be told of risks, possible complications and medical eligibility. If the consumer decided not to proceed with surgery, the entire deposit was nonrefundable. If the consumer chose to undergo surgery but was rejected for medical reasons, only a portion of the deposit was refunded. Although LVI signed an FTC consent decree, the practice of advertising but not providing a free screening has persisted in some markets. In November 2005, the Illinois Attorney General took action against LVI for this same violation, along with other misleading practices. Advertisements run by discount providers touting very low LASIK prices are another important source of consumer misinformation. LVI, for example, runs advertisements promising "LASIK for $299." On Lasik Vision Institute's Web site, the fine print states the offer is for surgery on one eye and applies only to those with no astigmatism and very low myopia; conditions that apply to a small portion of the LASIK patient base. Similar problems have occurred with print advertisements, leading at least two state attorney generals, in Illinois and Florida, to take action against LVI in 2005 (How Consumers Shop, July 18,2006, Congressional testimony, retrieved on December 5, 2006). Consumers can be misled on quality issues as well as by some advertisements. The 2003 Federal Trade Commission (FTC) consent decree against LVI cited the provider for making unsubstantiated claims that LASIK would eliminate the need for glasses and contact lenses for life. Another national provider, LasikPlus, also was cited for making this claim, as well as additional unfounded claims that the procedure posed less risk to patients' eyes health than wearing glasses or contacts and that the procedure carried no risk of side effects. In many cases questionable practices have persisted despite the settlements. Regulators note that for the FTC to take official enforcement action against a provider, a practice must be "egregious" and "widespread;" they concede that consumers can also be misled by many questionable practices that fall short of these criteria. For example, local LASIK providers engaging in some of the same advertising practices as LVI would not be targets of FTC action, since their practices are not national in scope. Policing such providers generally would be left to state and local regulators, which vary greatly in the extent to which they enforce consumer protection. Many industry observers express concern that LASIK is regarded as a commodity by some consumers—leading them to shop only on price—when provider quality, in their opinion, varies considerably. Quality differences may be obscured by the fact that LASIK is a relatively simple surgery with low complication rates, but for patients whose eyes have certain "problem" characteristics (e.g., abnormal topography, large pupils, thin corneas), quality differences may be critical. Screening is the first step where provider quality differences matter. Industry insiders note that some providers—especially high-volume discount providers-may not adequately screen out patients who are not good LASIK candidates. When such patients are accepted for surgery, whether through revenue pressures or less-experienced or skilled screening staff, they suffer serious complications at much higher rates than average. Investments in technology are another area where providers differ. The lower the price charged by providers, the less likely they are to use state-of-the-art technology that may provide better results. According to experts, the very low prices quoted by discount providers assume the use of older, less expensive laser technology that may produce an acceptable result (for example, 20/40 vision with visual aberrations) when a newer, more expensive technology might have produced a better outcome (better than 20/20 vision with no aberrations). Poor quality outcomes, including severe pain, loss of best-corrected vision, or persistent double vision have been well documented in media accounts, online health forums and other sources. Such outcomes can result not only from poor screening but also from inadequate skill or experience from the surgeon, providing further evidence that LASIK is not a commodity and that quality differences can be substantial across providers.
Other Self Pay Markets
Consumer-oriented approaches to health care often focus on price shopping, without giving adequate priority to comparing quality across providers. Yet, widespread reliance on word-of-mouth recommendation in self-pay markets suggests that many consumers place a high priority on quality but may be using referrals from physicians or previous patients as a proxy for quality, given the absence of, or shortcomings in concrete quality measures. Concerns about quality disparities across providers appear to be warranted: Even for the relatively simple LASIK procedure—sometimes considered a commodity—quality differences across providers can be marked and can prove critical, particularly for the significant minority of consumers who have "problem" characteristics that put them at greater risk for complications or unsatisfactory outcomes. Consumers who consider only price when shopping for LASIK may end up with providers they would not have chosen if they had been aware of quality disparity issues. These consumers may not receive the best value for their money, even if they obtained the lowest price. For consumers who do take quality into account when shopping, comparing quality across providers can be challenging.
Providing information such as what credentials to look for in providers, how to compare prices and quality across providers, and what misleading claims to look out for is essential if consumers are to act as their own agents in the marketplace. As the number and complexity of health care markets in which consumers are expected to shop on their own behalf expand, resources devoted to consumer protection will need to be increased substantially. If all the tools discussed here were implemented, many consumers would benefit from improved price and quality transparency, but the benefits would not accrue to all consumers equally. Previous research has found that consumers with more education are much more inclined to seek health information on their own behalf, so they are the most likely to benefit directly from any measures that improve price and quality transparency.In applying lessons learned from self-pay markets to services covered by health insurance, it should be noted that many covered services are more urgent and more complex than the procedures we have analyzed - factors that would greatly reduce consumer inclination and ability to comparison shop. In addition, the fact that insurance will cover part of the cost reduces the financial incentive for the consumer to shop vigorously. Given that consumer shopping is not prevalent or active in most self-pay markets we would expect the extent of shopping to be even more limited for many insured services.
General Environment
The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. We group these dimensions into six environmental segments: demographics, economic, political/legal, socio-cultural, technological, and global. Demographic trends can be a powerful underlying force in a market and can be predictable. Among the influential demographic variables are age, income, education, and geographical location (Aaker, D. 2001). In the case of LASIK surgery, the generation X, those born roughly between 1960 and 1965, represent a target market due to the perception that they are more concerned about their appearance, lead more dynamic life styles due to their current age, and are more atone with technology. The non-use of glasses or contact lenses could be appealing to these people. The average Lasik patient is about 39 years old with an income of about $88,000, said Dave Harmon, President of Market Scope, a company that tracks the industry. “Their education level is significantly higher than average,” Harmon said. “Very few people in their 20s have it done. Very few people in their 50s have it done.” (MSNBC, 2005, After a decade, lasik surgery is still a luxury, Retrieved November 19, 2006).
Targeting minority groups is another source of consideration in the global economy. The ethnic population is rising rapidly and support whole firms and industries. The Hispanic population, for example, is growing rapidly and they are gaining in income as well. The Hispanic population is up 79.7 % since 1970, in the Pacific Northwest according to 1980 Census data. (Eric ed. Gov site, Hispanics in the Pacific Northwest, Cook, A., 1983).
Cultural trends can present both threats and opportunities for a wide variety of firms (Aaker, D., 2001). For example the fact that in the case of LASIK surgery, U.S Patients choose their doctors by word of mouth, Harmon said. (MSNBC, 2005, After a decade, lasik surgery is still a luxury, Retrieved November 19, 2006).
In the case of LASIK surgery there are two new technologies. One allows the patients to heel faster and the other, results in better vision for some patients. One is called “blade-free” with the use of a laser named IntraLase, the other, is called wavefront-guided Lasik, and recently was approved by the Food and Drug Administration for both nearsightedness or astigmatism, expanding the number of people eligible for the surgery by about 1 million. It has also been approved for farsightedness (MSNBC, 2005, After a Decade, LASIK surgery is Still a Luxury, retrieved November 19, 2006).
Global trends consist of important political events, critical global markets, newly industrialized countries, and different cultural and institutional attributes. A global trend called medical tourism, once a fringe concept limited to niche specialties, is on the rise around the world. It is not just Americans going to Costa Rica for rhinoplasty or to Canada for LASIK. The cost of surgery in India, Bolivia, Thailand, or South Africa can be one-tenth of what it is in the United States or Western Europe, and sometimes even less. A heart-valve replacement that would cost $200,000 or more in the U.S., for example, goes for $10,000 in India—and that includes round-trip airfare and a brief vacation package. Similarly, a metal-free dental bridge worth $5,500 in the U.S. costs $500 in India, a knee replacement in Thailand with six days of physical therapy costs about one-fifth of what it would in the States, and LASIK eye surgery worth $3,700 in the U.S. is available in many other countries for only $730. Cosmetic surgery savings are even greater: A full facelift that would cost $20,000 in the U.S. runs about $1,250 in South Africa." (MSNBC, 2005, After a Decade, LASIK surgery is Still a Luxury, retrieved November 19, 2006).
Industry/Competitive Analysis
Forces driving the industry and competitive analysis for Pacific Cataract and Laser Institute: Competing in the LASIK Eye Surgery Market include:
- Competition from firms in Canada
- Surgery being offered at lower prices by competitors
- Various degrees of treatments among competitors
- Locations of eye surgery centers around the country
- Types of competitors – General ophthalmologists, surgery centers, and
specialized LASIK clinics
- Varying degrees of before and after surgery procedures
Threat of new entrants
PCLI (Pacific Cataract and Laser Institute), a firm who operated a total of eleven clinics throughout the northwestern Unites States, faced threats of new entrants into the laser eye surgery field from Canada and firms within the United States. The largest of these firms was TLC Laser Eye Centers, Inc., based in Mississauga, Ontario, who also had 56 clinics in the U.S. and 7 in Canada. New entrants also specialized solely in LASIK surgeries, and the largest of these firms was a Canadian competitor called LASIK Vision Corporation (LVC), based in Vancouver, British Colombia. LVC operated 15 clinics in Canada and 14 in the United States and was growing rapidly. (Hitt, M., Ireland, D. Hoskisson, R., 2005).
Bargaining Power of Suppliers
PCLI ‘s clinic provided medical and surgical eye treatments, including laser vision correction, and based the organization’s success on surgical excellence and compassioned concern for its patients and the doctors who referred them. Clinics in Canada, offering the same services as PCLI, were advertising laser eye surgery at a lower price and soon PCLI found themselves in competition. Since most medical insurance programs covered only a small portion of the cost of this procedure people were swayed by the low prices and would travel to Canada to have the procedure performed. Procedures for setting up the surgery date also differed from PCLI and in some cases a simple call to a toll-free number was needed to schedule a time to have the surgery performed. The patient was in and out of the clinic within three days, whereas, PCLI’s clinic would partner with the prospective patient’s doctor of Ophthalmology, who would provide information about LASIK and PCLI to the patient, the Ophthalmology doctor would perform a pre-exam to make sure the patient was a suitable candidate for the surgery, forward the exam to the doctor at PCLI, PCLI would then discuss payment options with the patient, have the risks of the surgery explained, and then the operation was performed.
While the recuperation and follow-up to surgery (24 hrs., one-week, one-month, three months, six-months and one-year for PCLI vs. 24 hrs., one-week, and three months in Canada) procedures were somewhat identical, the process in Canada was designed to accommodate the patient and differed significantly from PCLI’s services. PCLI did all the follow-up appointments for the patients and Canada was letting their patients see the Ophthalmology doctor for the follow-up visits.
Bargaining Powers of Buyers
The bargaining power of the buyers was that they could go to clinics in Canada, or their affiliates in the United States and have the LASIK eye surgery done for half the price of what PCLI was charging, or at the least, a significantly lower price. They were provided with information regarding these clinics through advertisements and even provided a toll-free number to call for information.
Threat of Substitute Products
Clinics in Canada, their affiliates in the United States, and other low-cost eye surgery clinics provided a threat to PCLI in terms of offering services at a lower price. This was accomplished by not having to pay a royalty to the manufacturers of the equipment, paying lower fees to the surgeons in Canada, the weak Canadian dollar vs. the U.S. dollar, and speculation among U.S. clinics that some low-priced Canadian clinics were making a variety of care-compromising quality tradeoffs, such as not performing equipment calibration and maintenance as often as recommended by the manufacturer, and reusing the blades used to make the initial incisions.
Rivalry Between Competing Firms
PCLI built its reputation by establishing eight core values that were based on the principles of practicing the art of healing through love, kindness and compassion and providing the best possible “co-managed” services to the profession of optometry.
Soon PCLI and other U.S. clinics found themselves in competition with firms who were compromising quality service and patient care for lower prices. To remain in competition and prevent the loss of customer’s subsidiaries, parent companies were created and offered lower prices for laser eye surgery. This was accomplished by employing their own surgeons or the parent companies providing only the facilities and equipment, and contracting out with independent surgeons to perform the procedures.
Internal Analysis
PCLI’s Tangible Assets consisted of:
1). A Staff of fully trained doctors
2). Eleven clinics strategically located in the Pacific Northwest
3). Aircraft to transport doctors between facilities
4). Resident optometric physicians
5). A caring and supportive staff for each clinic
6). Patient counselors
7). A financial team of experts
PCLI’s Intangible Assets
1). Their belief of practicing their art through Christian principles of love kindness &
compassion
2). Ability to provide a range of medical and surgical eye treatments including
laser vision correction
3). Organization success based on surgical excellence and compassioned
concern for its patients and the doctors who referred them.
4). The ability to operate eleven clinics in a very coordinated manner.
5). Successful co-management with patients optometrist or OD (doctor of
optometry)
6). The quality of service that patients remember—the excellent surgery,
exceptional patient care, and professional cooperation with their family eye
doctors (Pacific Cataract and Laser Institute, (2006), retrieved November
17, 2006).
As a result of the tangible and intangible assets the company possessed and integrated, these resources provided them the ability to:
Reach customers
PCLI reached its customer basis by working closely with a patient’s optometrist or Doctor of Optometry in co-managed eye care. When surgery was needed the family Ophthalmology doctor referred patients to ophthalmologists (e.g. PCLI’s eye surgeons). PCLI also operated eleven clinics throughout Washington Oregon, Idaho and Alaska, which added to the ability of reaching customers further across the Pacific Northwest.
Richness Dimension
The richness of PCLI revolved around the ability of the doctors and staff to provide the depth and detail of information to their customers on what they could expect regarding LASIK eye surgery. Through the operation of their eight core values and the compassion showed their customers the success of their co-managed business provided a relationship of mutual trust and respect built through shared learning, constant communication and commitment to providing quality patient care.
Affiliation
Through interactions with their customers PCLI was able to help their patients make informed decisions regarding LASIK eye surgery. Working with patients, developed through a network of family Optometry doctors, also provided insurance mutual values existed, between PCLI and the Optometry doctors in the regions where PCLI had clinics.
SWOT Analysis
At the time the article was written, PCLI had been operating for almost twenty years. For some companies this would be considered an advantage. One could say PCLI had passed their survival stage. However, between 1999 and 2002 the competition had become so fierce it threatened the continuation of service for PCLI. The following is a SWOT analysis to understand better the current situation of the company and conclude how PCLI’s competitors are taking a better advantage of the market, business strategies, and technology.
Strengths
- Outstanding business reputation for many years- Highly qualified team composed of seven surgeons that specialized in the various
forms of eye surgery- Company created value for customers through surgical excellence approach and consideration- Effective use of science, technology, and Christian principles- Constant communication with patients and the patient’s optometrist- Shared knowledge with patient’s optometrist for better results- Modern facilities located in a single region- Development of a network of 150 family Ophthalmology doctors in a region- Motivation through high compensation for surgeons- Ownership of two aircrafts used to fly the surgical team between the centers- Great finance team that help patients with medical insurance claims and financing arrangements- Enhanced software calibration unique to PCLI developed by one of its own surgeons- Development of a system to track eye movements by the founder of the company
Weaknesses
- Unsuccessful marketing strategies; inability to capture new segments of the population (did not advertise aggressively)- Extreme capital cost of the equipment to perform LASIK procedures- Less time in the market performing laser surgery- Only three of PCLI’s seven surgeons specialized in LASIK and related procedures- Infrastructures located only in the Northwestern United States.- High royalties paid for specialized equipment in the US only- Unable/unwilling to open more facilities closer and more convenient for other patients- Inability to provide for patients’ continuity of care at the same location by the same doctor- Unable to provide for patients’ basic eye care needs- Food and Drug Administration’s tight and adverse regulations that delayed the use of advanced technology- High salaries as opposed to their competitors- Inflexible marketing strategies: not allowing patients to see their own OD and be referred by them- Presentation of a whole package at high prices- Inability/unwilling to participate in discount plans like other companies to attract more clients- Lack of communication to PCLI’s clients of the company’s innovative technology and achievements- Relied on referrals from independent optometrists (network only)- Inflation rate benefiting competitors from Canada
Opportunities
- Opportunity to capture a bigger share of the market if they “branched out”
- Expand company facilities in other states and increase revenues- Expand the types of services such as basic eye care needs, continuity of service pre- and post-operation, cataract surgery, etc.- Partner with small clinics in different regions (out of network)- Research and use of new methods to improve vision: Intraocular lenses- Partnership with employers to offer laser surgery benefits- Exploring services for additional members of the family i.e., surgery for pets in the future.
Threats
-Increasing competition and reduction in share of the market- Surgeons leaving the company and opening their private office and collaborating with competitors- Low employee morale- Reductions of salaries- Suits for mal practice- National competition- Loss of revenues due to excessive royalties
- People traveling to other countries for surgeries- Innovative equipment becoming less expensive- Laser surgery to correct other problems: e.g., cataracts- People caring more about pets’ health (pet surgery)
Major issues
Pacific Cataract and Laser Institute has several major issues that need to be addressed for their survival as a business. These include the need to address their high prices, limited number of doctors that can perform LASIK surgeries, some arrogance and pride, high transportation costs, and a better market strategy that can help them advertise their services better. The most pressing problem they face is the fact that they cannot compete with the prices their competitors are currently offering. They cannot compete with such low prices because they pay their doctors higher salaries and have to pay royalties for the use of LASIK equipment every time a surgery takes place. Arrogance and pride is another issue that is affecting them because they felt that their reputation and expertise will draw customers to them and have not look for alternatives to attract more patients. They felt like an upscale surgery center and for them to compete based on price is a humiliation. Another issue is the fact that they do not have enough doctors to cover a rather extensive area. This issue has forced them to have a very high transportation cost since they have to fly their doctors around eleven different locations. Pacific Cataract and LASIK Institution needs to focus on a new management strategy, capacity utilization, cost control and marketing approach.
Pricing
The pricing of the surgeries is a major issue that Pacific Cataract and Laser Institute competition has to deal with and it is not an easy situation because their competition is fierce and they are able to offer surgeries for one quarter of the price that PCLI. It is impossible for Pacific Cataract and Laser Institute to cut their prices as low as the competition because they have high expenses and the cost of their competitors in Canada would not even cover their variable cost. Companies in Canada have more advantages because they have been using their equipment for many years and might have already coved their initial equipment investment, they do not have to pay royalties, they pay lower salaries, and even the currency conversion plays in their favor. PCLI has the advantage of being in the US. People do not have to travel if they can convince their customers that they are better than Canada’s companies because they can offer the care needed pro and post surgery. PCLI should not cut their prices as low as the competition but can considered lowering the price a little bit if they can cut their cost on other areas like their transportation in a private jet. A restructuring of their price analysis and their expenses would provide an opportunity to line their surgery costs more closely with their competitions. It could also differentiate their surgeries from the competition by emphasizing in the safety issue and the pre-surgery and post-surgery care that they can offer their patients from qualified doctors that are well compensated for their services.
Arrogance and Pride
Arrogance and pride are also playing a part in the major issues that Pacific Cataract and Laser Institute because they view themselves as the best and are discarding the abilities in this area from their competition. It is true that they have doctors that have many abilities. Dr. Ford, for example, has developed a system to track eye movement using superimposed live and saved computer images of the eyes. He has also developed an enhanced software calibration system for PCLI’s laser that it is better than the one provided by the manufacturer. He has also performed sixteen thousand surgeries so he has a vast experience probably more than any other doctor does. This is an issue because they know they have this doctor’s expertise many of the patients do not even know what he has achieved. They are so confident that they are the best when it comes to LASIK surgery that have discounted the abilities of the competition which is little by little gaining and gaining more patients. PCLI needs to market the capabilities and the innovation their doctors have accomplished and they have to highlight to their customers what is it that they do better that the competition which is their care, their expertise, the safety, and the peace of mind they can provide to their patients because their doctors are experts in LASIK surgeries. Hire more doctors
Another major issue that Pacific Cataract and Lacer Institution have to address is the number of doctors in their staff that can perform the LASIK surgeries. Out of seven surgeons, they have only three that can perform the LASIK surgery. PCLI needs to restructure this part of their business because they can cut transportation cost if they have more surgeons in permanent locations and at the same time expand their business to cover more areas. If they have more doctors, they need to consider leaving a surgeon and its team in a specific area instead of flying them all over the place. These trips in jets have to inconvenient the surgeons and their people because they do not have a comfort zone and the closeness of their own families. These doctors would probably agree to a lower salary if they have a more stable business environment. This would probably helped the doctors be more in touch with the people in the communities they are serving PCLI needs to increase the number of doctors that can perform the surgeries because with seven surgeons it is impossible to cover a lot of more of what they are covering. The more use they give their equipment the cheaper the operations can be done for in the future allowing them to compete in the long run with lower prices. PCLI needs to train the other four doctors that they already have to do the LASIK surgeries too. If they have more doctors capable of performing more surgeries they can also look into expanding to other areas or just giving better service to the areas that they are already covering.
Transportation Cost
Pacific Cataract and laser Institute also needs to evaluate their transportation cost. PCLI flies their doctors and their staff in private jets to go from one city to the other at a very high price. It is an expensive transportation cost because they have invested large sums of money in two jets that they owe in addition to paying for large amounts of expensive fuel and a pilot that needs to be in stand by in a daily basis. This seems as a luxury that would be unnecessary if they plan their strategy better. The transportation cost for flying a doctor back and forth is very high. PCLI can easily save this money by hiring more surgeons and they could save this money and use it for other issues like hiring more doctors or giving them more training.
Marketing Strategy
Their marketing strategy is also an issue that needs to be addressed as soon as possible because they do not have a market strategy. The advertising is inadequate because it does not even print the prices and it does not tell us why they are better than the competition. The advertising is very vague and does not give us any information on who they are, what their values are, or what are their achievements. Their ad in the newspaper is only making people think about having a LASIK surgery but it is not inviting the reader to seek them for their expertise. The market strategy has to present the Pacific Cataract and LASIK Institute as the crème of the crème for LASIK surgery. Prices are not as low as the competition because they will not compromise any safety issues and because they make sure their patients are treated with care respect and as kings and queens pro and post surgery. LASIK surgeries are not difficult but if a bad outcome happens a person can be scarf for life and that is why it is important the market strategic takes this into consideration. Another Niche for the strategic market is to advertise the knowledgeable Dr. Ford has. He has performed over 16,000 surgeries and has been the innovator and many of the procedures in the LASIK field and also in the equipment used. Many refractive surgery centers are advertising in newspapers, on the radio, and on TV. And Pacific Cataract and Laser Institution has to also advertise if these mediums of information. The market strategy has to realize that their ads have to have a good amount of information and even to include the price because the price gives people the idea of how much it will cost and it they can afford to have it done. Emphasizes has to be made on the differentiation of their product. PCLI should also do some of the things that the competition is doing such as collaborating with insurance companies like Vision Service Plan or just making employers realize how important it can be for workers to have this surgery done and not have to use glasses anymore. PCLI has to convince their customers that they are a better option for people because their doctors are very knowledgeable like Dr. Ford and because they are a team of doctors that care about their patients and will do everything in their power to do the best job possible. The price can be the starting point for people considering a LASIK surgery, but it should not be the criteria for choosing a doctor.
The major issues that are affecting PCLI can be turned around if PCLI can vision and recognizes that they are failing to market their services in a better way. By choosing to operate only in the Pacific Northwest they limited themselves in capturing the market share of business and the possibility to expand globally. They also chose not to participate in discounts offered by managed care vision plans such as Vision Service Plans (VSP). This gave their competitors an advantage because patients, who knew they could possibly get discounts through the managed care plans, would choose to go to clinics or surgery centers who offered this opportunity. PCLI limited them and as a result found they losing to other companies. The major issues for PCLI need a better strategy such as more doctors that can perform surgeries and that can be spread to other areas to avoid transportation cost in addition to helping PCLI expand and grow more and to even considering expanding and doing more. There are many things working for PCLI such as their doctor’s expertise, their excellent customer care, surgeons that are passionate about their work and truly care for their patients, their innovations in regards to LASIK surgeries and equipment. PCLI has many positive aspects that if supported by a better advertising campaign, some cuts on costs like transportation, increase the number of doctors, more customers through offering discounts and a less arrogant view of themselves they can achieve a better business strategy for their future. PCLI displayed a certain amount of arrogance in the way they conducted business.
Conclusions
PCLI is a company that has demonstrated it has capabilities for success. Even today, we can access their website and discover that their presence has not vanished after twenty years of market competition. The company has developed into a modern center with great facilities and cutting-edge technology. However, PCLI with its prestige and capabilities remains in the same regional location. In twenty years, PCLI has not been able to enter new markets in different regions of the United States. After a careful revision and analysis, our team concludes that PCLI was facing great challenges back in 2002. The adverse situation was created in part by the company’s response to core values and in part due to a lack of understanding of the external environment in a highly competitive market. The SWOT analysis on PCLI revealed the factors that played an important role in the company’s business strategies, inadequate marketing strategies, lack of corporate level vision of the future, inappropriate use of corporate capital and human capital, inability to differentiate themselves from competitors, and inability to understand client’s demands. In 2002, Pacific Cataract Laser Institute had the capacity to do more vision correction than they were actually doing (Lawrence & Morris, 2002). The institute had all the resources, tangible and intangible, to exploit at maximum level and achieve strategic competitiveness, but chose not to do it because it was against the company’s core values. PCLI could not treat eye surgery as a commodity and advertised it based solely on price. The management team did not understand that advertisement was a key strategy to make the company visible in the market. The company had excellent surgeons and their quality of service was the best they could offer. This concept matched the company’s core values. The human capital that the company possessed had in fact accomplished outstanding goals. For example, one of the surgeons even researched and developed a machine that was not equal to the others being used in the market. These achievements were never advertised, so the human capital did not get the recognition they deserved. In addition, PCLI had seven surgeons that specialized in various forms of eye surgery. Out of those seven doctors, only three were trained to perform laser surgery. In our opinion, this was a mistake because the company had to fly those three surgeons and their assistants from location to location in order to attend their limited number of patients. The company allowed high compensation for this human capital and did not train the rest to do the same type of surgery. Due to the number of providers performing laser surgery being limited to three, the company had to spend their corporate capital flying two private aircrafts. The company’s intention was good; they wanted to give their clients the possibility to be seen by their best team. However, we believe that by constantly flying their surgeons from one area to another, helped increase the cost of laser surgery for the patients. PCLI did not develop a plan to have surgeons in each location to develop an opportunity for future growth. In 2002, the company had been in the business of laser surgery for three years, while their competitors had the advantage of being in the market for almost a decade. Other companies had a competitive advantage because of the number of procedures performed for a long time. Competitors charged less because they were able to save on royalties and transportation expenses. They opened multiple locations, trained different doctors, and collaborated with various surgeons. The competitors saw the opportunity to expand their company through these strategies. PCLI did not understand the external environment at that time. Patients wanted the procedure but they were limited by their economies. The simplicity of the procedure (5 to 15 minutes) also played an important role. These patients did not want to pay excessive amounts of money for a procedure that did not take a prolonged time even if the surgery was performed by the best surgeon. PCLI’s marketing department did not find the way to differentiate its services from the competitors’ in order to justify the high amounts of money it charged. The institution did not realize that its capabilities were substitutable. PCLI’s management team did not consider advertising aggressively to attract more prospective clients because it was too attached to its core principles. In our opinion, the corporate had a business-level strategy that was non reactive to market trends. They only focused in one type of service and one region of the United States when the competitors were finding opportunities in different locations. While the competitors were moving to small towns to allow more people to enjoy the wonders of technology, PCLI spent all their capital in providing outstanding customer service in fixed locations. PCLI’s doctors were focusing only in the quality of their services, meanwhile the company failed to recognize customers’ various demands. Patients in the states were not only looking for corrective vision surgery, but also other types of services such as evaluations, follow up visits, corneal care, etc. PCLI did not provide these kinds of services, and by doing so, inadvertently reduced the number of prospective clients. PCLI’s management wanted the company to be recognized as one of the best technological centers, with innovative equipment, and excellent surgeons so they chose to specialize in one type of surgery. Besides fierce competition and the company’s own strategies, there were other factors from the external environment that affected PCLI’s business. PCLI had to pay royalties to providers of the equipment ($250 per surgery), which was reflected in the final cost to their patients. While the competitors were using new technology, PCLI had to use old equipment until the FDA tested and approved the new technology. PCLI could not afford to cut their doctors salary because that was already part of their culture. Had the company been able to cut on salaries, transportation expenses, and had FDA’s regulations been in their favor, it could have been able to save substantial amounts of money and apply those savings to their customers. We believe that PCLI did not see the possibilities of expanding their clientele; the company did not seek to grow beyond the Pacific Northwestern region. To prove this concept, we only need to check the current company’s website. The advertisement still focuses on this region only. On the positive side, we can name some things that PCLI changed and seem beneficial. For example, the company not only expanded the number of services offered but also increased the number of doctors performing these services. Today, the Institute provides high caliber medical care in the areas of: · Cataract surgery · LASIK surgery—treatment of nearsightedness, farsightedness, and astigmatism · Glaucoma care · Corneal care· Eyelid surgery· Retinal care(Source: Pacific Cataract and Laser Institute [PCLI], 2006, 1)Currently PCLI offers its prospective patients education through a free book on Cataract surgery, free LASIK DVD on video, and free Infant Eye Assessment.
PCLI has taken steps to position themselves to be more in line with their competitors and in doing so are able to offer consumers quality doctors, service and quality information on LASIK surgery. If they chose to expand beyond the Pacific Northwest we believe their marketing power would be greatly enhance.
Reference:
Aaker, D. (2001). Developing Business Strategies, Sixth ed., New York: John Wiley & Sons, Inc.
Cook, A. (1983), Hispanics in the Pacific Northwest, retrieved from Eric ed. Gov site on November,20,2006 from http://eric.,d.gov/ERICWebPortal/Home.portal?_nfpb=true&_pageLabel=RecordDetails&ERICExtSearch_SearchValue_0=ED237305&ERICExtSearch_SearchType_0=eric_accno&objectId=0900000b80104a81
How Consumers Shop, (2006). Congressional testimony, retrieved on December 5, 2006 from http://www.hschange.com/CONTENT/862/?PRINT=1
Hitt, M., Ireland, D. Hoskisson, R. (2005). Strategic Management:Competitiveness and Globalization: Concepts and Cases. 6th edition,Ohio: Thompson South- Western.
MSNBC, (2005), After a Decade, LASIK surgery is Still a Luxury, retrieved November 19, 2006 from
http://www.msnbc.msn.com/id/10380838/page/2/
Pacific Cataract and Laser Institute (2006). Company index. Retrieved from www.pcli.com/company/index.html accessed December 3, 2006,
Subject Index
A
advertisements · 6, 8, 11, 19
C
competition · 3, 5, 18, 20, 22, 25
E
environmental · 15
I
industry · 3, 5, 6, 9, 10, 12, 15, 17
L
LASIK · 1, 4, 5, 6, 7, 9, 10, 11, 14, 15, 16, 17, 18, 19, 21, 22, 23, 25, 37
M
marketing · 7, 9, 23, 26
P
PCLI · 3, 4, 18, 19, 20, 21, 22, 23
procedures · 5, 6, 7, 9, 15, 18, 19, 20, 23
Q
quality · 5, 9, 10, 11, 13, 14, 19, 20, 21, 22, 32
S
services · 4, 8, 10, 15, 18, 19, 20, 24, 27
strategies · 3, 22, 23, 31
posted by Lasik Eye at 7:32 PM
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