Date: January 25, 2016

Categories: Podcasts

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Session 46 – Competition Glut


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Transcript:


Hello.  This Scott McDonald and welcome to the Perfect Place to Put a Practice Podcast.

I have written about the issues of competition for quite some time.  During my more than 30 years of advising practices on where to go and how to evaluate locations, I have done some fundamental research to determine how many is too many (or enough) when it comes to practices.  I hear almost every day that this area or that area has too many professions, practices, and doctors.  “The area is full!”  Listen, I know that it may appear that way but I thought a quick review of the topic might put your mind at ease when it comes to the sensitive issue of competition.

The truth is, professional practice are not grocery stores.  When it comes to the issue of these stores, consumers will rarely pass one. They are considered a commodity service for the most part.  In short, if you need a loaf of bread or a gallon of milk, one store will be pretty much the same as another.  Oh, sure, you may prefer meats at one and the baked goods at yet another but when it comes to shopping for commodity goods, proximity to one’s home is the overriding imperative to going there.  That is not true with professional practice.  For one thing, issues of proximity are only relatively important rather than being absolutely important.  In other words, there may be several options on which dentist or general physician’s office you will choose.  The same is true with veterinary or vision care specialists.  Proximity will be less important that other issues such as an area of subspecialty (think a practice that specializes in dogs versus cats) or insurance plans accepted or not.  Therefore, proximity is not as vital as the perceived quality of care or range of services offered.

It is this reason that competition is not as simple in the location of a professional practice UNLESS you make the mistake of selling your services as one would sell a commodity.  Remember, commodities such as rice or wheat are sold on the basis of the price per unit rather than the quality of the items being sold.  The competition ratio is particularly significant when the difference between vendors is subtle.  Now, we know that the average number of general dentists in a three to five Zip Code area is 1 dentist per 1,200 people. That presumes that people are middle-class and living in suburbs.  Changes in population density, income, and education of potential patients changes the calculus of how many is too many.  That longer video we offer deals with that issue specifically and in more detail.

 

On the other hand, perhaps the greatest issue is not a simple calculation of ratio.  Rather it is a measure of the demographic character of the population.  People with money and education will take advantage of preventive care.  They can afford to consider descressionary treatments including those that are entirely cosmetic. Those who have little money and education will act differently and tend to be motivated by needs. BUT if an area is growing (meaning that it has new housing or new residents) it will matter far less how many professionals are working in an area. The dynamics of growth are in your favor. That is why when a doctor tells me that an area is too crowded my first question back is about the growth rate in the area.  In fact, recently I have a conversation with a doctor about a location I knew to have more than 3% growth per year.  He rejected the location out of hand because he knew that there were already competing practices in the neighborhood.  But with the rate of growth there would be a sufficient patient base for a new practice every six months or sooner.  Additionally, the area was increasingly affluent and stable with the construction of new single-family homes. 

 

The point is, looking for a place with growth is better than finding a location with few competitors.  Certainly, if an area is decreasing in size even moderately successful existing practices may be in danger.  And that is why I so strongly recommend periodic checks on your current demographic and competition situation.

This is Scott McDonald. Visit us on Facebook, Twitter, Linked-in, and our web site at DoctorDemographics.com.  And tanks so much for listening.

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