THE DENTAL TEAM
External factors create opportunities, threats Review of direct competitors, ease of entry into field, bargaining power, services substitutes
PRACTICE PEARLS by Glenn Pace, SPHR
In the last issue, we discussed the complexities of the external environment when managing the dental practice: the general external fac- tors of demographics, socio-cultural issues and the political-legal sector. In this writing, we will discuss the specific external factors of di- rect competitors, ease of entry into the dental field, bargaining power of buyers and suppliers, and substitutes for our services. Because these factors create both opportunities and threats for the organization, they should be studied as we craft strategies for the business.
RULES & REGULATIONS
The first specific issue is direct competition. In considering competition from other dental practices, we need to consider switching costs. Does it cost our customers anything to switch to another dentist? Because the answer is probably “no”, we need to practice good customer relations in order to acquire, and retain, the volume of people necessary to sup- port the practice. An example of the effect of no switching costs is the loss of business from Starbucks to McDonald’s the past two years. When quality was perceived as equal, custom- ers left Starbucks for cheaper prices.
Ease of entry into the dental field is the second issue. This is partially controlled by the number of graduates from dental schools versus the number retiring, but it also ensures compe- tition. Practice owners need a strategy to differentiate themselves from the competition, or to achieve recognition within a community. Assuming greater competition in the future, ask two questions: 1) How do I ensure potential customers know of the practice; and 2) How do I maintain an image of reliable, quality service? A long-term, quality-based strategy needs to be in place and working to achieve future success.
Bargaining power of buyers and suppliers covers several areas. A dental practice is both a buyer and supplier. As a buyer, you may not have enough purchasing power to influence the firms you buy from—hence, little power. But as a supplier, you may have significant
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power because there are a limited number of dental providers. And while you may not nego- tiate prices with customers, you probably have a scale of prices that you control. So power as a supplier is high. Conversely, customer power (as a buyer) is somewhat low. But with no switching costs facing the customer, they can always leave you if your prices are believed excessive in the market area.
Substitutes are very few in the dental field. Unfortunately, many people practice dental avoidance instead of dental care and treat dentistry as an emergency situation. A strategy designed to reach children and parents at a very early age is conducive to overcoming the avoidance substitute, and involvement in youth sports programs might be a good idea. Visibility is the key to success in this area.
This external look at activities that influence your business has been designed to help you find opportunities and threats to your practice. Next time, we will look internally at strengths and weaknesses, as we continue our discussion of the “business” side of your business.
Note: Michael Porter has written extensively on these topics, and his books would be a resource for anyone desiring additional infor- mation on the external environment.
Glenn is acting director of the Management Development Institute at Missouri State University and instructs classes for its College of Business Administration. He teaches Human Resources, Labor Relations and Operations and Strategic Man-
agement. Contact him at
gpace@missouristate.edu.
FOCUS | ISSUE 3 | 2010
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