Marketing | August 2018 Hearing Review
Part 2: Three methods for developing a global and local strategic plan in our dynamic industry
Practice owners need effective methods that consider current and potential global market risks, while reviewing and analyzing the market within a specific locale. The three methods of analysis outlined here for developing a strategic plan for practice survival—the SWOT, Porter’s Five Forces, and the Three-Circle Analysis— allow owners and managers to determine their practice’s true position within the market, then systematically concentrate on strengths and weaknesses. Analysis of each competitor ultimately builds a strategy for becoming the most formidable practice in your market.
Part 1 of this 2-part series presented a perspective as to why, how, and when the competition became so formidable in hearing healthcare.1 It showed how, as with any industry, hearing healthcare has evolved through growth and consolidation. Complicating the competitive environment is an attempt by many to commoditize hearing healthcare offerings. The concept that “all products and services are the same, so just get the lowest price” is prevalent among many consumers, and it is up to professionals to differentiate themselves and demonstrate their value.
This article outlines three established methods for assessing global market risks and provides information about how you can review and analyze your specific market to develop a data-based competitive strategy.2 Essentially, this involves looking at indicators that provide market feedback, watching for alerts, and acting quickly upon them—a key business advantage of relatively small, independent practices! Once detailed market information is known, a sound competitive strategy can be implemented.
Studying the Market & Competitive Risk
Figure 1 presents a generalized outline for strategic development. It begins by generically studying the market. Studying the market is essential, as each practice within their respective communities have their own culture, business cosmetics, and positioning.
The development of an effective competitive strategy first requires a look at the overall hearing care community. Who is the competition? Is it an independent audiologist, a traditional dispenser, a franchise, a big-box store, or corporate sales operation? Take some time to conduct a detailed study of your marketplace within the community and “get to know” the competitors. The differences among these businesses and how they operate should be an integral component of your ultimate competitive strategy.
The prevailing risk factors in the overall hearing care market should also be taken into account. Considerations as to the current economic cycle, new government regulations, new products, the progress in otologic medicine, insurance aspects, and managed care should all be on this list. These change dramatically over the months and years, requiring the practice manager’s attention. A perspective of the general overall and local business environment ensures that a strategy is being developed with all the fundamental knowledge necessary for success.
THE SWOT ANALYSIS
A classic method of business analysis is the strengths (S), weaknesses (W), opportunities (O), and threats (T), or SWOT Analysis (Figure 2).3 SWOT analysis is a renowned tool for audit and analysis of the overall strategic position of a business within a market or community. Created in the 1960s, SWOT is a measure of a business’ internal potential and limitations, as well as the probable opportunities and threats from the external environment. SWOT is a strong—but highly subjective—tool that attempts to synchronize the practice with the marketplace. Many practice managers use the time-tested SWOT analysis to assist them in strategic planning because this process:
- Builds on the practice’s strengths;
- Addresses the practice’s weaknesses;
- Maximizes the practice’s response to opportunities within the market;
- Helps overcome threats to success;
- Identifies core competencies, and
- Assists in setting the objectives for strategic planning.
While a SWOT analysis is useful in the study of a community’s market and practice positioning, it does have some limitations:
- SWOT does not specify how the practice can identify these strengths, weaknesses, opportunities, and threats.
- SWOT may present an oversimplified, subjective view of the situation that either puts too much or too little emphasis on the competition.
- SWOT lacks objective measurement of strengths and weaknesses.
These limitations notwithstanding, the assessment of a practice’s strengths, weaknesses, market opportunities, and threats through a SWOT analysis is a relatively simple process that can offer powerful insight into the potential and critical issues affecting a business. It should not be taken as a prescription for success; instead, use it as a guideline for further analysis.
PORTER’S FIVE FORCES
Another classic method of studying markets was developed in the 1970s by Michael Porter,4-6 a Harvard business professor. In Porter’s analysis, an industry is defined as a group of firms producing products that are close substitutes for each other, such as independent audiology clinics versus other types of hearing aid sales operations within a specific community. Industries like hearing healthcare are not a closed system, because competitors may exit/enter the market continuously. Within all industries, suppliers and buyers exert substantial influence on profitability, as well as the overall competitive outlook. Recklis7 states that the basis of Porter’s classic analysis is that the strategy should reflect a thorough understanding of the opportunities and threats that can and will change over time.
Porter identifies five specific competitive forces that shape virtually every market, no matter how large or small. These forces determine the intensity of competition, and hence the profitability and attractiveness of a specific business opportunity. Porter assumes these five forces determine the competitive power within a specific industry and, from their review, a practice manager can derive a plan that influences or exploits the characteristics or situations within the market. The model, shown in Figure 3, presents the five forces:
1) Threat of new entrants;
2) Bargaining power of buyers;
3) Bargaining power of suppliers;
4) Threat of substitutes, and
5) Rivalry within the industry.
1) Threat of New Entrants
The threat of new entrants into the hearing healthcare community is always present and of concern. New entrants add capacity to the market. If the capacity is greater than the growth in demand for products and services, the profitability for all of those competing within that market is reduced.
New entrants can emerge at any time, changing the business climate in terms of market share, price, customer loyalty, and generally disrupting critical competitive balances. There is always a latent pressure for reaction and adjustment among the existing businesses, called incumbents. The threat of new entrants depends upon the existing barriers to market entry. Barriers to entry occur if:
- Significant capital is required to start a company.
- Access to resources, such as trained professionals, products, and expertise is limited.
- Access to distribution channels is limited.
- The consumer believes that switching to another practice/clinic would not be cost-effective.
- There is government intervention within the industry.
2) Buyer Power
The bargaining power of buyers—in our case, hearing healthcare consumers—determines how they can impose pressure on product or service price margins and sales’ volumes. When buyer power is high, consumers of a particular product or service will shop around for the best deal, causing downward pressure on prices. This is especially true if the community’s suppliers are perceived by consumers as essentially the same. Buyer bargaining power is likely to be high when:
- Switching to another practice means lower costs.
- There are buyers that control large volumes (eg, third-party payers, corporate contracts/discounts, etc).
- The hearing healthcare community is comprised of many small operators.
- The supplying practices/clinics operate with high fixed costs.
- The product (eg, hearing care services, hearing aids, accessories, etc) is undifferentiated and can be easily replaced by substitutes.
- Switching to an alternative product is relatively simple, making price a minor issue.
- When buyers are price-sensitive.
Essentially, the concern with buyer power is the ease with which buyers (our patients) can drive prices down. The degree that the consumer has power to control costs is determined by the number of clinics in the marketplace, the number of buyers, and their frequency of purchase. Additionally, if the buyer is the referral source (eg, insurance companies), they have greater aggregate power to dictate detailed purchase terms, driving prices down.
3) Supplier Power
Hearing healthcare businesses must also appreciate the bargaining power of suppliers to compete in today’s economy. The term “suppliers” comprises all the competitive hearing healthcare clinics that appear to consumers for the provision of like goods and services. When supplier power is high, buyers of a particular product or service will not readily shop around for the best deal, resulting in less downward pressure on prices.
Supplier bargaining power is likely to be high when:
- The market is dominated by only a few suppliers;
- There are no substitutes for certain products or services;
- Consumers are fragmented, so their bargaining power is low, and
- Switching suppliers is costly.
In hearing healthcare, supplier power is largely determined by how easy it is for clinics to drive up prices, reduce managed care opportunities for patients, and reduce warranties and other benefits.
4) Threat of Substitutes
A threat of substitutes exists if there are alternative evaluations/services or products available for the same purpose with lower prices and similar or better performance parameters than existing products. These new evaluations or products could potentially attract a significant proportion of market volume and, hence, reduce demand.
Current examples of the threat of substitutes in the hearing healthcare market might be automated audiometry and the erosion of the hearing aid market by cochlear and middle-ear implants, personal sound amplification products (PSAPs), hearables, and over-the-counter (OTC) hearing aids. The threat of substitutes is determined by factors such as:
- Current hearing evaluation and hearing healthcare product/distribution trends;
- Brand and product loyalty of consumers;
- Patient-provider relationships;
- The relative price for performance benefit (ie, value) of the substitutes, and
- Modification of government regulations that change the rules of hearing healthcare practice.
The threat of substitution is dynamic and ever-changing in today’s technological world. There are new inventions every day that may significantly threaten a standard of the industry—and even replace them. In a high-technology field, such as hearing healthcare, there is a continuous threat of substitutions. Therefore, fervent monitoring of changes is required.
5) Rivalry Among the Incumbents
Rivalry among the existing firms, or the incumbents, refers to the intensity of competition among existing players within a particular hearing healthcare community. Rivalry is fueled by issues such as the diversity of competitors, market growth, and a general overcapacity of providers.
A highly competitive business climate, often the result of high buyer power, presents severe pressure on prices, margins, and, therefore, profitability. Rivalry among incumbent competitors is likely to be high when:
- There are many incumbents and they are similar in size.
- The incumbent companies have similar marketing strategies.
- There is not much differentiation among incumbents and/or their products.
- The growth of one practice is only possible at the expense of a competitor.
Napoleon Bonaparte once said, “War is 90% information.” Figure 4 presents the next component of competitive strategic development known as competitive intelligence.
The term competitive intelligence was coined by Gilad,8 an ex-Israeli intelligence officer turned Harvard MBA businessman, who, in the 1990s, used war-like methods to gain information on the competition. According to Gilad, competitive intelligence may be obtained ethically and is 95% available using public documents.
In hearing care, competitive intelligence involves the continuous monitoring of local offerings within your community. As in war, this information is used to develop tactical methods to engage and actively seek out information from competitors and respond to their offensive and defensive moves.
The challenge is to build a network for gathering this information. Tyson9 indicates that competitive intelligence transforms random bits of data into strategic knowledge about:
- The current competitive position of the practice within the healthcare community, and the probable future of new and incumbent competitors;
- The driving forces within the community’s hearing healthcare marketplace;
- Specific competitive services, products, and technologies offered, and
- The economic, political, and demographic influences.
Tyson further describes competitive intelligence as gaining an understanding of the strategies and mindsets of key competitors by developing a sense for their probable reactions to market developments or a marketing initiative within a specific practice. Competitive intelligence has been thought of as a technique for big business to compete against other large corporations, but it can be extremely useful to a small practice in today’s highly competitive hearing care markets.
Identification of Specific Competitors and The Three Circle Analysis
Within any community there are specific competitors that cause the most concern—usually those with the largest market share. The value offered by the competition to their consumers is usually unknown until the competitive intelligence operations have been completed. Once the information is in hand, Urbany and Davis10offer a method of using these data to comparatively analyze specific competitors relative to your practice. Their premise is that the business that develops the best understanding of the value sought by consumers has the competitive advantage. Their model uses a Venn diagram-based analysis that facilitates a rapid grasp of the practice’s competitive situation against a specific competitor (Figure 5).
The Three-Circle Analysis systematically considers four key drivers by:
1) Defining, building, and defending the unique value proposition of the practice.
2) Reviewing, revealing, and correcting those values that are required by the market but lacking within the practice.
3) Pointing out and potentially neutralizing any unique market value created by the competition.
4) Exploring and exploiting possible growth opportunities through an in-depth understanding of where the competitor fails to serve the patients’ needs.
The Three-Circle Analysis begins with consideration of three important factors represented by the intersection of the circles:
- The practice’s offerings.
- Patient needs and/or expectations from the practice.
- The competitor’s offerings.
Each area defined by the resulting Venn diagram is assigned a letter A-G. Area letters represent the following issues about the practice, the patients, and the competitor:
- Area A: The practice’s points of difference from the competitor.
- Area B: The points of parity between the practice and the competitor.
- Area C: The points of difference between the competitor and the practice.
- Area D: Patient unappreciated differences for both the practice and the competitor.
- Area E: Patient unappreciated differences for the practice.
- Area F: Patient unappreciated differences for the competitor.
- Area G: Unmet patient needs by both the practice and the competitor.
Figure 6 is an example of what a Three-Circle Analysis might look like for the author’s practice compared to Costco.
This article outlines three effective methods that consider current and possible risks, as well as reviews and analyzes the market within a particular community. Procedures presented here allow managers to determine the practice’s true position within the market, capitalizing on their strengths and shoring up their weaknesses. Analysis of each competitor ultimately builds a strategy to become the most formidable practice in your market.
This article was adapted with permission for HR from Chapter 3 of Dr Traynor and Robert G. Glaser’s new book, Strategic Practice Management: Business Considerations for Audiologists and Other Healthcare Professionals, Third Edition(Plural Publishing, 2018).2
Correspondence can be addressed to Dr Traynor at: [email protected]
Citation for this article: Traynor RM. Survival strategies in a competitive hearing healthcare market. Hearing Review. 2018;25(8):14-18.
Traynor RM. Survival strategies in a competitive hearing healthcare market. Hearing Review. 2018;25(6):14-19. Available at: http://www.hearingreview.com/2018/05/survival-strategies-competitive-hearing-healthcare-market
Traynor RM. Competition in the audiology practice. In: Glaser RG, Traynor RM, eds. Strategic Practice Management:Business Considerations for Audiologists and Other Healthcare Professionals. 3rd ed. San Diego,Calif: Plural Publishing;2018.
Mindtools. SWOT analysis: Discover new opportunities, manage and eliminate threats. Available at: https://www.mindtools.com/pages/article/newTMC_05.htm
Porter ME. Competitive Strategy:Techniques for Analyzing Industries and Competitors. New York, New York: Free Press;1980.
Porter ME. Competitive Strategy:Techniques for Analyzing Industries and Competitors. 2nd Edition. New York, New York. Free Press;1998.
Porter ME. Five competitive forces that shape strategy. In: Porter ME, ed. On Competition. Brighton, Mass: Harvard Business Review Press;2008:9.
Recklies D. Porter’s five forces. MBA Tools. 2001. Available at: http://www.mbatools.co.uk/Articles/p5f.pdf
Gilad B. Early Warning:Using Competitive Intelligence to Anticipate Market Shifts, Control Risk, and Create Powerful Strategies. New York, New York: AMACOM;2003.
Tyson K. The Complete Guide to Competitive Intelligence. 5th Edition. Chicago, Ill: Leading Edge Publications;2010.
Urbany J, Davis J. Grow by focusing on what matters. In Carpenter M, ed. An Executive’s Primer on the Strategy of Social Networks (Strategic Management Collection). New York, New York: Business Expert Press;2009.