Saturday, June 3, 2017

Rabies shots: The downside of collusion

I took two of the mutts in to get their rabies vaccinations today.

Background
Michigan requires that licensed veterinarians administer rabies vaccinations.

Presumably it is because citizens were either purchasing the vaccinations and not administering them or were administering them improperly.

The price of administering a rabies vaccination went from $2.60 per animal to $25 per animal.  That was not a huge deal as the first vaccine is a "primer".  Then there is a "booster".  Then the animal only needs to be revaccinated every three years.

The problem, for me, is that the veterinarians got greedy.  They colluded via their professional organizations.  "Best Practice" became a mandatory physical examination of the animal prior to administering the vaccine.  The mandatory exam more than doubled the price of each shot.  There was no way to avoid it....or so I thought.

God Bless Tractor Supply and VIP-Petcare mobile clinics

The problem with collusion, from a business standpoint, is that it your market becomes extremely vulnerable to disruption by outsiders.

Licensing taxicab drivers to restrict supply and provide "a living wage" makes the market vulnerable to Uber and ride-sharing.

Unionizing an industry makes that industry less competitive with foreign producers.

Larding medical services with non-valued added administrative burden will cause some patients to opt for a $10,000 knee replacement in India, Poland, Hungary or Mexico instead of the $40,000 domestic one.  When enough patients do that, the administrative (fixed) cost becomes stranded, just like a ship hung up on a reef as the tide goes out.

The same thing is happening with rabies vaccinations
Some people are simply doing without.

Meanwhile, the economy end of the market is being gobbled up by companies like petvet.vippetcare.com which offers 3 year rabies vaccinations for $19 an animal instead of $60 like the brick-and-mortar vets are charging.

The brick-and-mortar veterinarians not only lost the $57.40 per animal in profit ($60 fee -$2.60 cost), they lost the opportunity to up-sell.  The crew at VIP-Petcare went through the same up-sell patter.  They were very low pressure.  They did not need to up-sell every client.  They were processing 15 clients an hour.

"Does your dog have an RFID tag?  Do you want one?"
"Have you been treating your dog for heartworm?  Can we sell you some monthly tabs?"
"When was your dog last immunized for distemper, parvo.....?  Can we take care of that for you today?"

You know, I can understand why they charge $60.  They have almost a quarter million dollars of student debt.  They purchased lots of fancy (expensive) diagnostic equipment.  Many of their clients consider their pets to be children and think little of spending $4000 for orthodontia and cosmetic surgery.  They forget that folks like ERJ resent having to pay for those kinds of fixed costs.  The level of service that we require does not necessitate that level of fixed cost.

There is an old saying on Wall Street:  "Pigs get fat and hogs get slaughtered."  And I think the "veterinary" industry is over-capacity and is about to have their lunch eaten by companies like VIP-Petcare.

2 comments:

  1. That they will, and the market will 'self-adjust'... Again...

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