Frenette.info: The Post-conformist ideas of a guy, written in a structured conventional way
1-877-FRENETTE   

The decline of the goods financed service industry

There are two main industries: the goods and the service industries.

Both types of industries compete on different grounds: the service industries usually focuses on personalization of the service experience while the goods industry often focuses on the pricing and uniformity of the quality.

Sure, it’s not that simple as many companies are in both industries. Car dealerships for example, sell cars but also offer maintenance service. More and more goods companies now try to focus on the personal experience of the customer.

My company, Cablan.net, is a service company which sells:

    • Web Development
    • Web Hosting
    • Voice over IP Telephony
    • Domain Name Registration
    • Content Translation
    • Search Engine Optimization

 

Which are all services, but at the same time, we also officially sell phones for our Voice over IP Telephony service.

And yet, most of our customers buy their phones elsewhere, why?

Because being a service focused company we can’t compete on pricing with Voice over IP Telephony clearing houses who are focused on selling goods

It’s simple really: when you are specialized in one area, you are able to offer a better value for your customer (either better service, better goods, better prices, or a combination of all of that).

The goods financed service industry

But there is one industry which is particular: the service industry which is financed by the sell of goods.

Let’s tackle two examples:

    • Optometrists
    • Book Stores

 

Both of these industries offer a service (Eye exams or book recommendation) which is partly or wholly subsidized by the sale of goods (Glasses or Books).

In both cases (in theory at least as not all librairians have training), the employees need specialized training and as such, usually expect to be paid higher wages than the minimum wage, but the price of the services they offer (in the case of librarians, that service is actually free), doesn’t make enough money to offset the salaries, rent and other operation cost of the company.

As a result, even thought they are service oriented companies, the majority of their actual profit contributing revenue comes from goods.

For decades, this was fine and optometrists and book stores in Canada at least flourished since they didn’t have goods oriented competitors (Glasses are made by a protected profession and Book selling is a little restricted in Canada).

So why are they struggling now?

We all know the official answer. For book stores, the problem is Amazon. For optometrists, it’s Zenni Optical and other companies like that.

In both cases, these are goods companies who need to invest very little in services outside of regular customer service and as such, can focus on streamlining their goods selling operations and reduce both their costs and their profit margins to offer their goods at the lowest price possible without sacrificing their profit margin.

Being global, these companies are able to have a volume of transactions in a single day that surpass the transactions of a single optometrist or library in a year or even a decade!

With such a volume, they can really slash prices and you can really buy glasses for $6.95 from Zenni Optical which would cost over $100 at an Optometrist.

But the real reason Book Stores and Optometrists are struggling is that they decided, long ago, to finance their service operations by selling goods.

Every time you consult a librarian without buying a book, the book store “loses” a little money since time was spent by an employee which didn’t bring any revenues.

For every eye emergency an optometrist handles that is paid by the health-insurance card of Québec, the optometrist loses a little profit since he is not available to offer eye exams (not that they are that profitable either) or to sell glasses, the real source of his profit.

In fact, when a person with a perfect 20/20 vision goes to an optometrist for an emergency, the optometrist is in a lose-lose situation: the $27 or so that he gets from the treatment is often nothing compared to the time spent on the treatment and he has no chances to convert that patient into a client.

As result, many independent optometrists have stopped handling emergencies and refer their own patients to another that does, therefore shifting the load over to one of their competitors who is rarely able to convert the patient to a client!

What is the solution?

I have no idea how book stores can really survive in the face of Amazon who is constantly working on reducing delivery time and easing the browsing of their site. Many have survived by offering other goods like toys, board games and even food but I am afraid this will only delay the inevitable.

For optometrists, the solution would be to make the service portion of their industry lucrative, but I am not sure most patients would be willing to pay an higher cost for their eye exams.

I have tried (and failed) to negotiate with my own optometrist a suitable arrangement.

I know he pays his frames a much higher price than for a full pair of glasses. I also know that many optometrists charge $25 for calculating the pupillary distance (PD) which is needed to an optimal glass fitting (mine doesn’t offer the PD at all).

Many optometrists also charge $5 for replacing nose pads on glasses, mine does it for free.

I offered to give him $30 for every pair of glasses I order, so that he would give me my PD every time (I don’t mind he if he reads it from my file) and change my pads, but so far, he has refused..

And yet, I feel like offering a glasses fitting service for glasses bought online, as well as lens verification service would allow optometrist to recoup part of the profit lost on online sales.

My optometrist explained that most clients do not care about the long-term survivability of his practice and wouldn’t pay for this.

I disagree…

I think most people are afraid of buying online but more and more try it anyway with no way to really measure quality. Many of these companies offer a limited return window (perhaps 10 days) which is too short to know if your glasses are really the right prescription.

If optometrists were to offered such a validation service, customers would be able to have the certainty of good fitting glasses while still saving money, while the optometrists would be able to recoup part of the profits lost to online sales.

But for as long as optometrists will see selling glasses as their main source of revenues, they will not be willing to comprise that part of their operation and I fear for them that the population will eventually start seeing optometrists only as eye exam administrators and expensive glass salesman instead of a whole eye specialist able to offer quality services about the vision.

We’ll see how things go in the long term, and I pray for them that I wrong and that optometrists will be able to properly survive.

Leave a Reply

Your email address will not be published. Required fields are marked *