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Years ago, when I was trying to turn around a struggling treatment provider (first of many), I stumbled across a book called The Discipline of Market Leaders. The authors set forth a model that I’ve since adapted and used repeatedly, in a variety of diverse settings. The book’s examples are now firmly out of date (happens a lot with business books), but the lessons should serve you as well as they served me. So I’ll pass them on in a few quick snapshots.
Let’s say we’re operating a treatment provider that has to compete with others in the area. We have three main options for marketplace success.
- We can provide our services at the lowest cost.
- We can offer new, innovative, or highly desirable products that our competition doesn’t.
- We can provide a markedly superior level of customer service, individualized to customer need.
So in most cases, we’ve got not one but three paths to business success, representing three segments of the marketplace. We’ll call them price shoppers, innovation shoppers, and relationship shoppers. But there’s a caveat: meeting the needs of one segment can make it difficult or impossible to meet the needs of the others.
If we’re focused on low cost, for instance, it’s going to be a challenge to provide super-duper cutting-edge products or meet the needs of highly specialized customers. We won’t be able to afford it. We’ll have to direct our efforts to serving those customers to whom price is paramount.
Likewise, in most cases the only practical way to offer a lot of personalized service is add staff and charge more for it. That eliminates price shoppers. And so forth.
The differences don’t stop there. Charging less than our competition implies a smaller net margin per transaction (a transaction might be a patient day or an outpatient visit). So how do we grow our income? Through volume. Translation: we’ll need a lot of patients, along with tight expense controls, to reach a respectable net income. Once we achieve a certain size, however, we might do really well, income-wise.
If we’re lucky enough to possess a cutting-edge product that excites the customer’s imagination – let’s say a new and better medication – we might be able to charge whatever the market will bear, and customers who want it will simply have to pay. But over time, our competitors tend to catch up. Maybe they obtain a comparable product and start a mini-‘price war’. Once the market price for our product decreases, of course, our margins decrease with it (see: the personal computer industry.)
And we’ll be forced to adjust. That is, if our business is to survive.
Survival is about successful adjustment to changing market conditions. There you go: sounds simple, doesn’t it? It ain’t.
I’ve worked with some providers – not most, fortunately, but some – whose goal isn’t long-term sustainability, but quick, short-term profits. When I realize that’s the case (they’re not always upfront about it), I begin trying to extricate myself.
Addiction treatment is never just a business. It’s a public trust. Our goal must be to fulfill that trust by providing the very best service we can to the people who need it. That doesn’t mean we can’t do very well from a business perspective. But it does mean that should never, ever, be our only objective.
In the following snapshots, we’ll begin a look at how to succeed in each of the three market segments. And to adjust to the changes that inevitably occur in the life of any behavioral health provider.