Economics and Audiology: Interview with Amyn M. Amlani, PhD
Douglas L. Beck, AuD, spoke with Dr. Amlani about economics, audiology, elastic and inelastic pricing, bundling and unbundling, and more.
Douglas L. Beck (DLB): Good morning, Amyn. It’s great to speak with you.
Amlani: Hi, Doug. Thanks for the kind invitation.
DLB: My pleasure. You’ve been at the University of Northern Texas for nine years, is that right?
Amlani: Yes, that’s correct. I’ve been here since 2005 and our AuD program gets better every year!
DLB: That is great news. I wanted to focus our discussion today on economics and pricing and your thoughts as to the ever-changing realities of the hearing aid marketplace. Let’s start with the concept of price elasticity and inelasticity? Please define those terms and if you don’t mind, can you offer up or discuss examples, too?
Amlani: Sure…I’ve been interested in the ability to quantify the consumers/patients desire to purchase our products and services. For marketing purposes, one way to go about this quantification would be through survey data and mechanisms. Another way is to consider a person’s willingness to pay as price varies, and to examine the number of units bought or sold as a result of the specific price. When we examine price versus number of units sold, we can establish an objective “demand function.”
DLB: And to be clear, the demand function occurs based on the thoughts and actions of the consumer/patient?
Amlani: Yes, that’s right. And so with higher prices we have lower quantities of units sold (like a Ferrari) and with low prices we’ll have higher quantities of units sold (like an entry-level Hyundai).
DLB: Sounds a lot like supply and demand?
Amlani: It is, in some respects. But what happens is when we run a non-linear regression analysis of the data (that is, price as a function of quantity), the analysis returns a coefficient which is typically negative, and if that number is less than the absolute value of one, it means the demand function is demonstrating price inelasticity, in which case price is not the primary component. In this case, if we raised the price or lowered the price, we probably wouldn’t lose or gain very much at all with regard to the quantity of products sold. Likewise, if the coefficient is higher than one, the price is elastic and as the price changes, the quantity of units will vary accordingly.
DLB: And what happens if the coefficient is exactly “1”?
Amlani: A coefficient value of 1 means you’ve achieved optimal pricing.
DLB: So then in the 1980s and perhaps into the early 1990s, it appeared our market was fairly inelastic, meaning price wasn’t the primary factor, is that correct?
Amlani: Correct. As the prices gradually increased, not much changed with regard to quantity of units sold.
DLB: And, of course, hearing aid prices have increased a little over time, but they have also remained somewhat stable. What is the current average retail selling price of a new hearing aid in the United States?
Amlani: According to the latest Hearing Review Dispenser Survey data I recall, I believe it’s about $1,660 per unit. Which indicates prices above $1,660 are elastic and prices below that are inelastic.
DLB: And what happens when the typical price of an Internet-acquired hearing aid is $300? What is the impact on elasticity and inelasticity?
Amlani: At very low prices (and recall the market at that low price is inelastic) the consumer views the product as being of low quality and of course, as the price rises, the consumer views the quality as increased.
DLB: Okay, so far so good. And what about the revenue side of the equation?
Amlani: From the revenue side, at the inelastic price point, we want to increase the price. And of course at the very high elastic price point, a revenue based orientation wants to lower the price, so from either perspective, we want to approach of “1” so as to achieve the maximal balance between price and quantity.
DLB: And what about “perceived value?” How does that impact the equation?
Amlani: There are two factors within perceived value, quality and price. Specifically, the question from the consumer’s perspective is what are they paying and what are they receiving. At the low price end of the equation, the consumer generally perceives the product as simply including the device itself, not including fitting, repairs, warrantees, instruction and so on, and so the perceived value is theoretically quite low. Of course, if they purchase a premium product with an extended warranty and multiple programming options and repairs included and more, the perceived value would be much higher.
DLB: Okay, and so to go from theoretical to practical…how do personal sound amplification products (PSAPs) and low priced Internet-based hearing aid acquisitions impact the market?
Amlani: They’re not likely to have a huge impact as the price point where they exist is essentially inelastic. That is, in that very low price range, price is not a major factor, particularly when people are looking for high quality and multiple benefits. That said, one thing which will impact the market is the way in which people are able to use their devices, as the baby boomers are a completely different animal that their parents.
DLB: I suspect you’re talking about smart phones interfacing with hearing aids?
Amlani: Yes. I think the additional functionality and synergies that occur when you add a smart phone and a hearing aid will be very desirable for the new boomers.
DLB: And we should note that in the United States, we have some 10,000 people turning 65 years of age daily!
Amlani: Right, and so the impact of these added values and added functionalities and the increased perceived values among those most likely to purchase these products could be very significant.
DLB: Sort of like adding a volume control (VC) to the hearing aid?
Amlani: Exactly. The boomers are generally well educated and they want to be in control of their lives and equipment. When some manufacturers added VCs to their products two or three or four years ago, their sales increased some 20 percent or so. Imagine what might happen when you allow the consumer to change the volume, the program, the noise reduction or directionality via their phone?
DLB: It could be huge. We need to fit hearing instruments to solve the problem the patient perceives, and to do it in a way that gives the patient control. And to be clear, it’s not “anything goes,” but it is allowing the patient to select their preferred sounds from a few different acceptable alternatives.
Amlani: Yes, that makes total sense. If you place the control in the hands of the end-user, rather than the instrument, you’ll find much happier consumers.
DLB: I agree…and again, before we get too many e-mails, just to clarify, we’re not advocating “whatever they want.” We are advocating giving the patient as much control as is possible (assuming the consumer is a competent person and he/she desires more control) and verifying and validating those fittings to assure ourselves (and the consumer) that what they’re listening to is beneficial. That is, we’re suggesting allowing patients to choose their preferred sound from acceptable alternatives, and again, verify and validate!
Amlani: Right. It’s really important to understand that it’s the end-user that drives the market, and importantly, people want control, high quality and they want choice.
DLB: Amyn, what can you tell me about bundling versus unbundling?
Amlani: Unbundling works very well if the goal is to offer a lesser price on the product itself and to increase transparency. That is, if the boomers want to shop and go online (and most of them do!) and if their goal is to achieve a higher perceived value, that would more likely occur in an unbundled model, as the service and the product become apparent and they can understand that the price of the product of and by itself is not the entire purchase—and indeed, the product without the acquisition of professional services is fraught with multiple and vast problems! In summary, expertise, service and a friendly and welcoming office will make all the difference.
DLB: I agree. Thanks very much, Amyn…it’s been very enlightening and I appreciate your expertise and knowledge!
Amlani: My pleasure, Doug. Thanks for your interest in my work.
Amyn M. Amlani, PhD, is an associate professor, in the Department of Speech and Hearing Sciences, University of North Texas.
Douglas L. Beck, AuD, Board Certified in Audiology, is the Web content editor for the American Academy of Audiology and the director of public relations with Oticon, Inc.