by Marc Guyot
, 15.06.15
Do you feel you’re paying too much for your eyewear? In France, popular opinion tends to suggest that the optical industry is overpriced, and a few suggest the government should intervene to regulate prices. But before we try and fix something that isn’t broken, let’s go over the myths versus the realities of the optical industry.
In this country the optical industry is characterized by intense competition at all levels of the value chain, from the lenses and frames to insurance coverage. Rivalry between competing firms produces what one might expect in this kind of market structure: high levels of product innovation, product differentiation, and price competition for lens and frame manufacturers, and a wide variety insurance coverage options.
As a consequence, the French have come to expect innovation: French consumers are far more likely to insist on progressive lenses compared to the rest of Europe and the Anglo-Saxon world, still dominated by bifocals. Furthermore, the French pay one of the lowest deductibles in Europe. For some, eyewear expenses are totally covered by their insurance provider. These points highlight the successes of the French optical industry, in terms of supply, demand and the optical health of the public.
Yet public opinion continues to focus on the negative, which is not surprising when one considers that the industry is under constant attack. On the one hand, it comes under attack from the outside – from policy analysts who (absurdly) argue that opticians sell their products at artificially high prices, and realize high profits, by taking advantage of generous insurance coverage, and excluding disadvantaged populations. On the other hand, the industry also comes under attack from the inside: it’s fair to say that much of the bad opinion that the French may have comes from the industry actors themselves.
Indeed, the strong horizontal and vertical rivalry between some actors is reflected also by extremely aggressive communication policies. For example, the marketing campaigns of low-cost and online opticians relay the message that products are being overpriced… by their competitors, or course. Similarly, insurance policies tend to focus on the latest innovations and highlight the highest price-points in order to differentiate themselves from their competitors.
But the problem isn’t just that this is a misunderstood industry. If the French government does intervene to ‘fix’ problems that don’t exist, the industry could be thrown out of balance, negatively impacting firms, professionals and the optical industry’s ability to care for patients - even as this negative vision of the optical industry is heavily influenced by four misconceptions:
- The first misconception is that the Essilor group has such a strong market power that it has the power to eliminate low cost distributors downstream. This assumption fails to realize the real market share of the Essilor brand and the large number of competitors it faces, ranging from German and Japanese multinationals, French SMEs, and the new Chinese and Indian imports.
- The second misconception is the ever increasing profits margins made by upscale frame distributors. This assumption does not hold since there are many lower cost options on the market, and the price of eyewear has increases less than inflation, and net income of opticians is between 5.9% and 6.4 % on average.
- The third misconception is that customers pay a high price because of the asymmetrical availability of information – that opticians take advantage to sell expensive and unnecessarily sophisticated products to their clients.
The French expect the best in terms of care and product. It’s for this simple reason that insurance providers compete by boasting the best customer service, why frame manufacturers compete to offer the best possible product, and lens manufacturers stay on top of the latest optic innovations. Whether one prefers progressives or bifocals isn’t a question of information asymmetry but of consumer preference. - The final misconception is that this competition between insurance providers to offer the best optical coverage is pushing frame prices up. In reality the majority of customers – those who have great optical coverage and those who have limited optical coverage alike – shop and compare before they buy a pair of frames. The basic fact is that many want a quality product – the frames that appeal to them and the latest lens technology – and are willing to pay a higher price for it.
Rather than disrupt the dynamics of a sector that works well overall, with regulation that is not only unnecessary but also poorly calibrated, the average French citizen’s insurance deductibles decrease. The government would do better to play its role and the fight against fraud that exists in the area by some unscrupulous opticians.
