The rise of Dental Support Organizations (DSOs) and large group practices has tilted the balance of power in the supplier/buyer relationship. What’s a dental manufacturer or distributor to do? Is the only answer to jump into a price war with competitors, a war in which the only winner is the customer? Fortunately, a lot has been written about strategies for suppliers to avoid price wars.
The first thing to do is to shift your focus. It should not be to offer the lowest price but to offer the greatest value to customers. “Yes,” you might say. “That sounds good, but my customers just want to talk price, price, price.” Hear me out. Let’s see if there might be some value in talking value.
In a 20-year-old article in the McKinsey Quarterly that’s still on McKinsey’s website (“Setting Value, Not Price,” February 1997), the authors argue, “Customers do not buy solely on low price. They buy according to customer value; that is, the difference between the benefits a company gives customers and the price it charges.”
The authors show a Value Map (pictured below), which has a Value Equivalence Line (VEL), along which all of the players in a static market with fixed market shares line up. To the right of this line are the share gainers that are able to offer more benefits at the same price as a competitor. In this example, high-benefit, moderately priced Product A would gain share at the expense of higher-priced B and lower-benefit C.
So, the million-dollar question for you is: How do I become A? The answer is to offer as many meaningful benefits as feasible.
In the April 2016 issue of Mentor, Lena Kauffman, author of the article “Run With the Big Dogs,” succinctly summarized what DSO’s are seeking: “One of the main things that DSOs deliver for their affiliated practices is a lower negotiated price on products and services. However, it is a mistake to think that DSOs are just about getting the lowest possible price. They say they are looking for sales professionals who understand that each DSO is unique and who strive to work as partners in that model.”
FOCUS ON YOUR CUSTOMERS’ STAKEHOLDERS
What is a partner? A partner is somebody who thinks not only about his or her own goals but about the customer’s goals, as well. Taking that one step further, a partner also works to help the customer achieve these goals. So the first step in being an effective partner of a DSO or emerging group practice is to identify their goals. One way to do this is to look at what your customers are trying to accomplish with each of their stakeholders:
- The patients — How does a DSO compete for patients with both independent practices and other DSOs? What does a DSO emphasize in its advertising to differentiate itself from its competitors? How can the products and services I offer support the DSO’s marketing efforts and patient experience?
- The payers — Familiarize yourself with the process by which DSOs negotiate fees with PPOs and other payers. Can you offer anything to support DSOs in these negotiations?
- The investors — What metrics do a private equity firm or other owner of a DSO, such as the Ontario Teachers’ Pension Plan in the case of Heartland Dental, use to evaluate their investments? How can purchasing my products contribute to reduced operating expenses, not only through good prices but also through improved inventory management? Can I quantify the savings? Can I put any rough numbers around the more intangible contributions to the top line from using my products as a result of higher patient and professional satisfaction?
- The dentists and other professionals — How does a DSO make itself attractive to practices that might be looking to affiliate with a DSO? How does a DSO minimize professional turnover after a practice affiliates? How does a DSO attract new employees? Visit DSOs’ websites and see what value propositions they’re putting out there to professionals. How can my company’s offerings reinforce my customers’ value props to professionals?
FEEL YOUR CUSTOMERS’ PAIN
It is pretty much a cliché at this point that it’s important to step into your customers’ shoes and to determine their pain points. That doesn’t mean, however, that practicing empathy for your customers is bad advice. As you get caught up in your own day-to-day tasks and goals, though, you can quickly forget about your customers’ issues. Blogger Lena Shaw (LeadGenius blog, October 21, 2014, “Get Your B2B Customers to Reveal Their Pain Points”) recommends asking your customers the following questions to uncover their pain points:
- “What are your [sales/marketing/etc] priorities for the next six months and one year?”
- “What are some possible hurdles preventing you from meeting those goals?”
- “What’s your business’ biggest pain point today?”
- “What is and isn’t working with the solutions you’ve used to try to solve that pain point?”
- “What would you consider a successful solution?”
I particularly like the last question because it’s aspirational. You’re saying to your customer, “We’ve talked about your pain. Now, let’s get beyond it and begin to envision a successful solution together.” And when you do that, you start to transform your business into the powerful “value delivery system” former McKinsey-ites Michael J. Lanning and Edward G. Michaels first de – scribed almost 20 years ago.
From MENTOR. May 2017;8(5):8-9.