Veterinary Vertex
Veterinary Vertex is a weekly podcast that takes you behind the scenes of the clinical and research discoveries published in the Journal of the American Veterinary Medical Association (JAVMA) and the American Journal of Veterinary Research (AJVR). Tune in to learn about cutting-edge veterinary research and gain in-depth insights you won’t find anywhere else. Come away with knowledge you can put to use in your own practice – along with a healthy dose of inspiration to remind you what you love about veterinary medicine.
Veterinary Vertex
Exploring Equine Veterinary Economics: Price Elasticity of Demand and Strategic Pricing
Ever wondered how the financial landscape of equine veterinary services could impact your horse's healthcare? Join us as we explore the world of equine veterinary economics with our guests, Dr. Jill Stowe and Olivia Gibson. From the surprising results of a national survey to the revealing concept of price elasticity of demand, we unpack why horse owners' sensitivity to price might just reshape the future of veterinary care. Olivia sheds light on economic principles that highlight how strategic pricing could potentially enhance practice profitability, even when demand is elastic. This episode is a must for those interested in the intersection of economics and veterinary medicine, offering valuable insights into how pricing strategies can influence both revenue and client satisfaction.
We highlight the importance of preparing for unforeseen medical expenses and discuss why setting aside savings for your horse's healthcare is vital. Whether you're a seasoned veterinarian, an equine enthusiast, or just curious about the economics behind veterinary services, this episode promises to enlighten and engage.
JAVMA article: https://doi.org/10.2460/javma.24.09.0576
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You are listening to Veterinary Vertex, a podcast of the AVMA Journals. In this episode, we chat about how a national survey revealed elastic price sensitivity for select equine veterinary services with our guests Jill Stowe and Olivia Gibson.
Lisa Fortier:Welcome to Veterinary Vertex. I'm Editor-in-Chief Lisa Fortier, and I'm joined by Associate Editor Sarah Wright. Today we have Jill and Olivia joining us to talk about price elasticity, which I knew nothing about, and I'm looking very forward to learning more. So, Jill and Olivia, thank you so much for contributing this important article to JAVMA and for being here with us today.
Jill Stowe:Thanks for inviting us.
Olivia Gibson:Yeah, thanks for having us.
Sarah Wright:All right. Well, let's trot on over. So your JAVMA article discusses how a national survey revealed elastic price sensitivity for select equine veterinary services. Please share with our listeners the background on this article.
Jill Stowe:So this is kind of interesting. About three years ago it was when I became aware of the challenges facing the equine veterinary profession.
Jill Stowe:As a horse owner who has many friends in the profession. I certainly care about the issue on a personal level, but I started wondering how my field of economics might be able to help contribute to a solution to make the profession a more sustainable and healthy place for equine veterinarians to be. I had a brainstorming call with Dr. Amy Grice and after that conversation I decided that I wanted to pursue something related to pricing. I know that one of the many challenges facing the equine veterinary profession is that salaries historically have not been competitive compared to those of small animal vets. When you combine those lower salaries with higher debt loads and longer work hours, it was not difficult to see why some equine vets were choosing to leave practice. So, from the practice perspective, one immediate consideration might be to raise prices. We raise prices, we can generate more revenue. If we generate more revenue, we can boost salaries. But the success of that strategy really depends on how sensitive horse owners are to changes in those prices. How are they going to react?
Jill Stowe:There's a few ways that we can measure that price sensitivity. One way would be to collect longitudinal business data from veterinary practices all across the US. That didn't seem like it was going to be very feasible, and so we decided to conduct a national survey. There are certainly pros and cons to the approach that we used, but doing the survey approach also allowed us to collect lots of other information that will feed itself into other research projects that we might get to talk about later, you know, regarding horse owners and their use of equine veterinary services and their willingness to adapt to changes that might be coming down the pipeline. So to wrap this up about the time that I really became engaged in this topic and wanted to pursue it, I was very fortunate to meet my graduate student, Olivia Gibson. She was very interested in implementing this project to fulfill her master's degree in agricultural economics at the University of Kentucky, and she really embraced the project and took ownership of it, and I was really happy to be able to work with her on it.
Sarah Wright:Awesome. Well, it sounds like mentorship at its finest too. So, congratulations to you both.
Jill Stowe:Thanks.
Sarah Wright:So, Olivia. For those without a background in economics like myself, can you briefly explain what price elasticity of demand means?
Olivia Gibson:Yeah. So price elasticity of demand is the responsiveness of consumer demand to price changes. So it's determined by the percentage change in quantity demanded relative to the percentage change in prices. So when demand is inelastic, consumers are relatively insensitive to price fluctuations and an increase in price will lead to a small decrease in the quantity demanded. But when price is elastic, like we found in this manuscript, consumers are highly responsive to price changes. So an increase in those price changes result in a relatively large decrease in the quantity demanded.
Sarah Wright:Thank you. Let's take me back to my econ classes from undergrad. It's starting to sound familiar.
Olivia Gibson:Right?
Sarah Wright:So, Olivia, what are some of the important take-home messages from this JAVMA article?
Olivia Gibson:Yeah, so the biggest take-home from this article is going to be that all three of the services were found to be elastic, meaning that horse owners are relatively sensitive to changes in prices of the three veterinary services that we looked at, but from the practice perspective, this suggests that an increase in prices of these three services will decrease in revenue generated by each of them.
Jill Stowe:And if I can follow up on that just a little bit, you know, initially it doesn't sound like a good thing that increasing prices will decrease revenue. But if you think about it, if we know that prices are going to go up, quantity demanded will go down and so the practices will be providing fewer services and there's going to be some cost savings there right, and so, even though revenue might be declining, if costs are going to decline more, then the practices will still see an increase in profit. So, I think you know, related to the results that Olivia just mentioned, sort of the other main take-home is that practices are just going to need to be thoughtful and strategic with price changes and understand how revenues and costs will change to determine if that's going to be a beneficial approach for their practice.
Lisa Fortier:Yeah, that's a great way to put it. You know it's a nice little summary, take home like that. That's the fact. Here's the practical reality of that. Jill, you and I know like when writing manuscripts, you have these ideas and you think you know what's going to happen. And Olivia just laid out some of the most important findings, but we're always surprised by something that comes up. What were a couple of things that struck you as huh, I didn't think that would happen in this article.
Jill Stowe:Well, you know it's interesting because, to be honest, going into this we didn't really have any hypotheses regarding whether demand for these services would be elastic or inelastic. I can't really come up with a theoretical foundation that would help us sort of make an educated guess. But you know, I personally consider vaccinations as necessities when caring for horses, and typically demand for necessity goods are inelastic, and so I was surprised that we did not find that demand for vaccinations was inelastic, it was elastic. And not only was it not in elastic, but it wasn't even the least elastic in our services. So, the lameness exams were the ones where the horse owners were the least price sensitive and that surprised me as well. Those results held when we sort of sliced and diced the data by age, by income, by geographic region, by the value of the horse. Those results still held. So, I was pretty surprised by that.
Lisa Fortier:Why do you think that is? Do you think that's because of all the rehab and saddle fitters and other folks doing some lameness exams as well? Chiropractic?
Jill Stowe:That's a great question, and I don't know that I have a great answer for you. You know that price elasticity of demand depends on the nature of the good, whether it's a necessity or luxury. It depends on the time horizon under analysis, and it depends on the availability of substitutes. And you know, when you think about vaccinations, for examples, what substitutes are there? Well, you know, I can have my veterinarian come give the vaccinations. I can purchase the vaccinations from my veterinarian and administer myself. I can purchase them from a farm store and administer myself. I can choose to under-vaccinate or not vaccinate. Lameness exams don't really have any other substitutes to my knowledge, except for just waiting to see if the lameness resolves itself, and so maybe that's why consumers are a little less price sensitive to lameness exams. The results on colic surgeries didn't surprise us, just because it's a big-ticket item and it's such a much larger percentage of a consumer's disposable income that we would expect those types of services to be more elastic.
Lisa Fortier:Yeah, thank you for that insight, Olivia. It sounds like you have a little bit of time left in your master's project. What are the next steps in research in this topic area?
Olivia Gibson:Yeah, so we have two other studies that are in the works right now that are based on this same survey data. So, the first one provides more of an overall summary of how US horse owners are currently using equine veterinary services and how willing they may be to adapt to future changes in the delivery of these services. And then the other one is looking at the determinants of willingness to pay for the three for the same three equine veterinary services. So, basically, this just means that we're trying to estimate which demographic characteristics and also which horse ownership characteristics can predict differences in demand, which can ultimately help practices in making price decisions. And then, outside of these manuscripts, we think that the next step would be to consider a more comprehensive look at what practice's entire portfolio of services look like, rather than just the three specific services that this manuscript includes.
Lisa Fortier:Sure, that's fantastic. I was like, ooh, I hear more manuscripts coming to JAVMA, yeah, while I have you. Do you know? Do you and Jill know that we have student, intern and resident awards in JAVMA for manuscripts that are authored by student, intern or resident? We give out two in each of those categories and you get a cash prize and all kinds of social media. We can send you the link afterwards so Jill can nominate you or you can self-nominate, but they're really fun.
Jill Stowe:I would also nominate her. Yes, send us that information, please.
Lisa Fortier:Absolutely. Do either of you see a role for AI in this area of research?
Jill Stowe:You know, I thought this was a really interesting question and honestly it's one I had to contemplate a little and maybe do a little bit of research on in order to be able to provide an answer for you.
Jill Stowe:In business, and one of the things we do in economics is we create models that can predict price elasticities for individual consumers if we know their you know demographic characteristics, and so I know that some businesses are using AI to recommend customized pricing offers and discounts in a way that aims to maximize the firm's revenue while maintaining customer loyalty. So you know, one of the things Olivia just mentioned is that another one of the manuscripts that we're working on is looking at identifying how horse owner demographics like age or education level or income level, can impact their demand for services, or horse ownership characteristics, how many horses they have. You know what they use the horses for, what the value of the horses are. If those things can help predict demand. If you have some of those features, you can build these demand models and then AI can be used to generate sort of individualized pricing offers.
Jill Stowe:I have no idea if this is occurring in the veterinary profession currently, but you know, maybe that might happen in the future.
Sarah Wright:Very cool. I always like hearing everyone's response to that question, because there's so many different, I guess, approaches or uses for AI that never thought about before in veterinary medicine. So, yeah, very interesting. And for those of you just joining us, we're discussing how a national survey revealed elastic price sensitivity for select equine veterinary services, with our guests Jill Stowe and Olivia Gibson. So, Olivia, what skills did you need to develop to be able to undertake this research project?
Olivia Gibson:Yeah, so for me, I did not grow up in the equine sector, so it took a lot of learning and understanding as to what horse owners were looking for, as well as what veterinarians were looking for in terms of a well-written survey.
Olivia Gibson:So, the focus group that we held before the survey was released kind of taught me a lot about what the horse owners were looking for and kind of what they were thinking about and how to gear the questions to make them feel heard. And then with my master's program, I feel like it prepared me well to understand the economic foundations of the questions that we were asking and then also how to like, estimate and interpret the regression models that were used in this study. But it did take me a bit of time to learn and understand the data management and programming. That was definitely the heavy lifting that came at the beginning, but in the end, it's been an awesome learning experience and I'm so glad that I had the opportunity to work with Jill on this.
Sarah Wright:Well, that's great. Hopefully those skills are transferable to your future projects. Now this next set of questions is going to be very important for our listeners. The first one is what is one piece of information the veterinarian should know about price elasticity for equine veterinary services?
Jill Stowe:So, I think that veterinarians and veterinary practices need to be aware that their clients are going to react differently to price changes across different types of services. You know, in our paper we sort of we picked one each in the area of a routine service, an elective service and an urgent or emergency type of service. So, you know, I think it would really behoove these practices to dig deep into their business data and try to understand how their clients are responding to changes in prices and then also understand that if their clients are sensitive, pretty sensitive, to price increases, like we found in our paper, that they also need to be aware of the changes in costs of providing the services that they have, how those are going to change when price changes, and so, taking into account not only what's going to happen to revenue but also what's going to happen to costs, of course, it will help them understand better or predict better what's going to happen to the bottom line.
Lisa Fortier:I think that's so important Jill, you know it's so common for ooh across the board, we're going to have a 2% increase or a 1% increase. So, really to be more mindful about where and how those implications are going to be down the road.
Jill Stowe:Right, I think that's very well said. I think that and I would love to be able to talk with you, know more practice owners and to really think about how they view their services, and you know, do they define them on the categories that we define them, or is there a different way to group them? I think there are a lot of interesting things that we might be able to learn from that.
Sarah Wright:And then, on the other side of the relationship, Jill. What's one thing clients should consider regarding prices for equine veterinary services.
Jill Stowe:So, I think that in this statement that I'm going to make is sort of based on something that I'm becoming very passionate about, but I am really going to encourage horse owners to be proactive in establishing dedicated savings accounts for their horses' health care expenses. In our survey, Olivia and I found that I think it was less than 14% of our respondents had dedicated money set aside to take care of their horses, and we all know that if something goes wrong, those prices can skyrocket really quickly. So you know, we know that our economy has seen a general rise in prices since COVID and I am anticipating that that will become more apparent in the equine veterinary profession in the near future as well and if horse owners can prepare in advance, they will be able to continue providing the level of care for their horses that they desire to.
Lisa Fortier:Yeah, gosh. So if you do that, I mean immediately what you see, is the GoFundMe page right, Because the average horse owner is barely making board and lots of saddle pads and lessons.
Jill Stowe:Yeah, all the saddle pads. I love a beautiful saddle pad, but I think you're right and you know you may want to include this in the podcast and you may not. But, thinking more broadly, you know those of us that have horses we probably also have dogs and cats and you know if if God forbid an emergency happens to one of our horses and we are able to cover that, but then what happens if something happens to the dog? You know, like I, just I know that personally I feel underprepared to be able to care for our animals and you have to draw a line somewhere. But it's something that I'm becoming very passionate about and I think that some of my research is going to sort of head towards that direction as well.
Lisa Fortier:That's a great idea. Thank you both again. As we wind down a little bit, we like to ask a little bit more of a fun question. So, Olivia, we'll go back to you for a second. When you put together a puzzle, do you start with the exterior, the border pieces, or are you an interior sort of puzzle, doer puzzler?
Olivia Gibson:I always start with the border, so I'll start with the border first and then, once I'm done with the border, if it's like, for example, like animals, I'll put together like whole animals and then I'll add those into the border after that.
Lisa Fortier:Most cool me too, I put. I put out a puzzle of like all these castles, kind of a Halloween thing, on the table for my children and it's higgly-piggly on who does what, and it drives me crazy. I'm like finish the border.
Jill Stowe:You know it drives me crazier now that I have these borderless puzzles.
Lisa Fortier:Yes!
Jill Stowe:I can't handle that.
Lisa Fortier:That's not a puzzle. Jill for you. What would you consider is the oldest or the most interesting item on your desk or in your desk drawer?
Jill Stowe:OK, I'm going to show this to you. I know the podcast listeners won't be able to see it, but there might be See if I can get it from the camera. The video might be able to see to. Those who view the video might be able to see it later. This is a coffee mug.
Jill Stowe:I'm holding a small coffee mug with the logo of the Kentucky Horse Park on it and my name at the top, and in 1986, which was long before Olivia was born my parents and I were on our annual cross-country trek from New Mexico to North Carolina and we stopped at the Kentucky Horse Park. That was just a couple of months after Jimmy Wofford had won the Kentucky 3-Day event on a catch ride of the Optimist. But we visited the horse park and my parents bought me this mug as a souvenir. I lived in New Mexico, and so it's kind of a full circle moment. When I came back to the University of Kentucky and got to work here I still have my Kentucky Horse Park mug with my name on it. I haven't broken it and it's kind of special to have that sitting here because it's been around for a long time.
Sarah Wright:Actually, one of my favorite mugs is a mug I got from my research mentor at NC State. I went to Illinois for vet school but I actually did my first publication with NC State's team and after it was published they sent me a mug with a picture of the first page on it, which is really cool. So just like a hey, congratulations, you brought this project to fruition. It got published. So, yeah, very special mug.
Jill Stowe:I never thought I'd live in the horse capital of the world, but here I am.
Sarah Wright:Full circle.
Jill Stowe:For sure.
Sarah Wright:Thank you so much, Jill and Olivia. We really appreciate you being here today and for sharing your manuscript with JAVMA.
Jill Stowe:Thanks for having us. It's a great opportunity to share some of the research that we've been doing, and I was really thankful that you were willing to consider the article, because I know it's probably a little bit different from most of the types of articles that get submitted
Olivia Gibson:Oh yeah, no, thank you so much for having us.
Olivia Gibson:Um, it's super cool. To you know again, I never thought that I was going to be working specifically anywhere in the in the equine industry. Um, so it's just really cool to be able to, you know, complete my thesis over this and then also complete some manuscripts over here and to you know at least one that stuck, and to be able to sit down and talk about it. So it's just a really cool. Like I didn't expect this kind of moment. So, yeah, but thank you so much again for having us and it's been awesome.
Sarah Wright:To our listeners. You can read Jill and Olivia's article in JAVMA. I'm Sarah Wright with Lisa Fortier. Be on the lookout for next week's episode and don't forget to leave us a rating and review on Apple Podcasts or whatever platform you listen to.
