Unilateral Pricing Policy Sparks Debate on Future of Optical Goods Store Retailing
In 2014, major contact lens manufacturers announced the implementation of retail price floors for leading contact lens brands, including popular brands such as Acuvue 1-Day Moist, Acuvue Oasys, Dailies AquaComfort Plus, Dailies Total 1 and Ultra. The mandate is widely criticised by consumers as a move by contact lens manufacturers to protect sales margins.
Issues of consumer health and choice closely intertwined
The more vocal eye care practitioners (ECPs) and related trade associations have voiced their support for the UPP. Contact lens online retailers, on the other hand, are doing whatever they can to obtain an injunction. Here’s the long and short of the many arguments made for and against the UPP – ECPs see the UPP as a preventative measure against showrooming, arguing that shopping around (particularly on the internet) undermines consumer health as patients would bypass regular eye checks and optical fittings. On the other hand, online retailers fear losing their cost advantage, thus protesting against what they see as a restriction of consumers’ choice. Consumers have voiced their dismay, many of whom are less likely to replace their lenses as frequently as before due to price increases, which compromises the safety of contact lens use.
Optical goods stores still holding the fort
The UPP on contact lenses was driven by a widely-held belief that online retailers are rapidly encroaching on what has traditionally been medical territory. Euromonitor International’s retail distribution data show that, globally, the share of total contact lens value sales conducted through the internet grew at an impressive 10% CAGR from 2009 to 2014. However, the rise of online retailing has not taken away sales from. Optical goods stores still dominate contact lens sales globally, capturing 72%. The largest decline across all distribution channels for contact lenses was seen at other health and beauty specialist retailers, having collectively experienced a -15% CAGR from 2009 to 2014, which will be explained by some reasons laid out in the following sections.
Consumers see value in medical services
There are many factors underlying the strong and stable performance of optical goods stores, with the most fundamental reason being that online retailing cannot substitute the role of optical goods stores. Consumers who shop for contact lenses online are often entry-level market participants who are initially price-sensitive and looking only for functionality. However, these consumers usually realise that the quality of service (and even product) in optical goods stores is better, thus would switch over, even if it means forking out a higher price for better service and peace of mind. Thus, even if online retailing in contact lenses is witnessing strong growth, many such businesses cannot be sustained as they do not enjoy repeat business from their customers.
The value that consumers place on medical services can be seen from the types of services they expect ECPs in optical goods stores to provide. This could not be more clearly illustrated than by the shift in demand from big optical chains to independent optical goods stores. Take the example of Singapore, where consumers are increasingly shying away from big optical chains such as Spectacle Hut, Optical 88 and Nanyang Optical. Other than having opticians on standby to provide basic optical fittings, most of these stores do not have an in-house optometrist to keep track of and monitor a person’s eye health. These chains usually share an optometrist, who makes the rounds between stores, and, even with these optometrists, they may not necessarily have good qualifications as chain stores are more focussed on sales rather than long-term relationships with patients.
In contrast, independent optical stores with optometric and orthokeratology services are gaining popularity as consumers seek nothing but the best for their eyes.
Strict regulations fend off low-cost players
Another factor underlying the strong performance of optical goods stores is the fact that contact lenses are considered medical devices in many countries and thus face stricter regulations. Regulations include mandatory registering of online contact lens retailers and additional requirements imposed on online retailers to verify a prescription with the prescriber. That said, regulation of online contact lens sales is stricter only in a select few markets, such as the US, South Korea and Taiwan, the latter two having imposed a complete ban on such sales within the country.
Protectionist behaviour adopted against alternative retailers
In many markets across the world, the law does not explicitly require ECPs to release contact lens prescriptions to their patients. ECPs have prevented consumers from shopping online either by not releasing their contact lens prescriptions, or by making it extremely difficult to do so. In the US, Congress has considered several bills to impose a federal prescription release and prescription verification requirements for contact lenses, and eventually passed the Fairness to Contact Lens Consumers Act in November 2003. But such a ruling is not commonly seen across markets.
Another questionable issue is the extent to which ECPs push the boundaries in writing prescriptions for private label contact lenses. Often, such private label contact lenses are not available from other contact lens retailers, be it bricks-and-mortar or e-commerce businesses.
For bigger contact lens manufacturers, concerns of safety regarding the lack of eye checks have led to an organised effort to restrict sales of contact lenses to pharmacies, mail order, and other alternative sellers.
UPP not critical to the survival of optical goods stores
Regardless of the practices in place, ECPs in larger and more developed markets should not be overly worried that online retailers are encroaching on their space. Rather, the focus in these markets (and even for emerging markets), should be to educate consumers on the importance of eye health and safety – values that ECPs can bring to the table.
Instead of adopting a heavy-handed UPP policy, the eyewear industry is much better off self-regulating, as there needs to be a balance struck between protecting consumers’ health, promoting competition, and maximising consumer choice. This also means that optical trade associations in the respective markets have an important role to play in maintaining supervision of the eyewear industry.
To end off with something to chew over, should ECPs be allowed to sell what they prescribe? If not, should contact lens retailers be incentivised and better trained to support the services that ECPs provide? The UPP on contact lenses arose from the very fact that ECPs have the financial incentive to restrict competition in the contact lens market. Once the conflict of interest is removed, would the market become more dynamic and efficient? Looking towards other medical fields beyond eyewear, doctors in the US and Canada are generally not allowed to dispense medication, something which only pharmacies can do. Perhaps there is some wisdom in such a separation of roles.