Turning the Tables
Value-add solutions to combat the race to the bottom
For the better part of a decade, at least, the average price of what is now the most universally fabricated type of crown-and-bridge restoration1 dropped steadily-from an average of $218 in 20102 to $180 in 20133 to $150 in 2017,4 with seemingly no end in sight. The downward pricing spiral was nowhere more evident than in the commoditization of full-contour zirconia, which accounted for more than one-third of all crown-and-bridge restorations fabricated in US laboratories last year.1 However, an interesting shift happened this year. Laboratories reported charging $1 more for zirconia-based crowns.5 Ceramics, too: The average price of a ceramic crown, which had dropped from $186 in 2010 to $165 in 2017, rose to $166 in 2018.2 Might this be a sign that the race to the bottom is over? Not so fast. Approximately 14% of laboratories still are selling zirconia-based crowns for an average of $99 or less,5 with some available for less than $50.5 Additionally, the percentage of laboratories selling zirconia-based crowns for $200 or more has continued to drop, falling from a high of 50% in 2010 to a mere 15.8% in 2018.2,4,5,6 The pricing wars may still be in play, but some laboratories are refusing to participate—and succeeding. With value propositions to appeal to dentists' needs beyond low prices, these laboratories have structured business models designed for sustainability and profitability.
"As in any industry, continued price pressure impacts our businesses. I do not think it is over," says Robert Savage, CFO of Drake Precision Dental Laboratories in Charlotte, North Carolina. "We will continue to see that. However, the value that some laboratories present to the market and to their customer bases is very relevant. Competitive prices need to be part of the equation, but ‘rock bottom' does not need to be."
One obvious differentiator is high-end quality, but other value propositions include serving as a knowledge resource; offering chairside and other services; facilitating case management and communication; and more. Some laboratories have been value-driven businesses from the start and persevered through the height of the price wars of the Great Recession, while others have recently adopted the value-driven model to become more viable moving forward.
"Laboratories can either choose the path of $90 crowns and try to do it for $88, and $60, and whoever wins loses, or they can pursue the opposite path and say, ‘I am not competing for that business,'" says Conrad Rensburg, Owner and Head of Dental Implants for Absolute Dental Services, which has four locations in North Carolina and South Carolina. "There is a significant market for what I call a ‘full-solutions' laboratory, but it is not easy to be that. You need to meet clinicians' various needs beyond price."
Be a Resource
Rensburg had lunch recently with a clinician who brought a stack of paperwork and opened the conversation by saying he wanted to discuss pricing. "Let me stop you right there," Rensburg told him. "When you have a question on a difficult case, am I the one you call?" The dentist put the papers away, and the conversation ended.
"If you can establish that you or someone at your laboratory does more than just stack single crowns on PFM copings, that you are their best resource, then you can prosper without having the lowest price," Rensburg says.
Sometimes being a resource involves advising the dentist on a case that might end up being sent to another laboratory. For example, Summit Dental Lab in Waco, Texas, is a fixed-only laboratory but consults with dentists on removables cases.
"We like to be that resource regarding proper diagnosis and treatment planning," says Jennifer Loomis, Office Manager and Customer Service Manager for Summit. "We may not get that case, but our goal is for our dentists to have predictability in everything they do. In the patient's eyes, they become the hero, and that leads to loyalty for us."
Becoming a knowledge resource for clients means investing in higher education, especially in specialty areas where dentists lack sufficient training and seek out advice and guidance.
"You need to get comfortable doing the hard things," says Kurtis Helm, Owner of Helm Dental Laboratory in Wylie, Texas. "We have developed a reputation for that. When there is a really difficult case and a restorative dentist perhaps does not know how to proceed, that dentist can call us, and we will have a solution."
Helm has found that attending clinical courses is a particularly effective way to not only acquire that knowledge but also gain recognition as a technical specialist.
"I want to go where the dentists are going, to learn what they are learning," Helm says. "I have frequently been the only laboratory technician in a room with 50 dentists. I meet the speaker and sit up front during the lecture, and when prosthetic questions are raised, the speaker asks me. I started to gain recognition among these dentists. If you are not teaching dentists and helping them, you likely will not be successful in this market."
Laboratory owners can also exercise their superior knowledge of restorative materials by creating specialized brands that clients view as value-based products. Killian Dental Laboratory has done just that with its CeraMax line of zirconia. CeraMax is Killian's rebranding of whichever zirconia he considers the best on the market at the time. The product is not as widely requested as some of the more popular nationwide brands, but it is more profitable.
"We continuously research the finest full-contour zirconia materials on the market, and we will pay any price and go to any length to get them, ensuring that the CeraMax brand is a premium-quality material for which we can charge a premium price," Killian says. "We are transparent about the original manufacturer, but if the dentist does not ask then they may not know until they see it on the invoice; they can place their complete trust in our judgment."
Similarly, Rensburg markets his laboratory as one that will always use state-of-the-art technology and materials, even if it means taking risks and absorbing occasional business losses.
"Being progressive sometimes requires being on the bleeding edge and taking the hit for your customer if necessary," Rensburg says. "In the past 8 months, I have had three product lines fail; I lost thousands of dollars on the resources, training, and products. I have done remakes for free on products that fail. But it is all part of the deal; I have become known as a trusted partner to my clinicians, and taking risks also has led to several new product lines that have worked and have become new revenue streams."
A laboratory's knowledge base for dentists can extend beyond clinical topics. Summit Dental Lab is a clinical resource for its clients but also offers practice management tips. For example, the laboratory gave cards to dentists to have patients answer the question, "What makes you smile?" The laboratory collected those cards and produced a book for its dentists to keep in their waiting rooms, with images of smiles to inspire the patients to communicate how they want their smiles to look.
"One of the issues our clients deal with is how to offer more to their patients so they really stand out," Loomis says. "We help with ideas to get their patients more involved with their practices."
Invest in Specialized Personnel
While it is useful for a laboratory owner and technicians to be able to serve as resources, they have other day-to-day responsibilities that occupy them, so some laboratories have invested in specialized personnel whose primary job is to provide value-added services.
Perry & Young Dental Lab has three "Valued Services" teams—customer service, hybrid bar conversions, and case planning—that are dedicated to working directly with dentists, often onsite.
"Approximately 15 years ago, when implantology was becoming more prominent in everyday treatment, we identified a need for more of a team approach with the surgeon, general practitioner, and laboratory," says Mac Perry, CDT, Co-Owner of Perry & Young. "We created a team specifically to address that need, and that opened the door for us to have more influence on the clinical side, which resulted in a better final product."
That first team expanded to three, and the case planning team now includes an on-staff dentist who is also a CDT and peri-implant specialist.
"Clients trust that he will help them understand how to achieve case success," Perry says. "The key to establishing that trust is having successful cases. When dentists see positive results, they are motivated to listen on future cases."
Drake employs an on-staff dentist along with a customer support team, custom shade takers, and a consultation specialist. While these employees usually do not generate revenue directly, they have proven to be a worthwhile investment.
"We add value by being a resource at every level, and those individuals combine to make up that whole ecosystem for us," Savage says. "Adding our dentist was a big decision, but it is important to have a broad view of the marketplace, and if your strategy is to be a resource for your clients, then you need the proper staff to do that."
Indeed, shifting from a manufacturing-only mindset to a value-based business can be expensive but pays an excellent return on investment if executed correctly.
"Shifting your mind from small-time thinking is a huge challenge," Rensburg says. "My soft costs have quadrupled over the last 10 years because of my value-added services. I pay a full-time employee in the field for guided surgery and pre-planning with my surgeons. Through that, however, she drives business back to our laboratory."
Create an Easy Workflow
In-person liaisons for every client is not tenable for every business model, so another tack is to facilitate communication and case management in other ways as much as possible.
Ray Alde worked for Northrop Grumman Space Technology, Apple, and Tesla prior to entering the dental laboratory profession to work with a church friend. While Alde has applied some of his engineering experience to Arklign, a technology compay and dental laboratory in San Jose, California, he also has implemented an overall attitude that he adopted directly from the Tesla workplace culture.
"During my time at Tesla, an executive directed us to reduce costs on the system I was working on. It was extremely challenging because the price of copper, a critical raw material, was beyond our control," Alde says. "He looked at me and said, ‘Well, did you consider creating a copper mine?' We realized that in order to take control, we had to develop our own solution. It hit me then that there is always a way and I changed my approach to problem solving. Now, at Arklign, instead of accepting what is lacking in this industry, we set out to build what we need to solve the issue."
Alde set out to identify all the "pain points" that exist between dentists and laboratories, and to develop technology to alleviate them. One of the primary points was communication.
"The relationships and conversations were very one-sided and disorganized," Alde says. "Every laboratory can make a great tooth, but can they make the tooth the dentist wants? Can the dentist communicate what they want? Can the laboratory track that at scale? Even if a smaller laboratory communicates well with its dentists, it will need to scale that if it wants to grow. We built a case relationship management platform to facilitate that communication."
The platform centralizes management of both digital and analog cases, organizes communication, and collects data for analysis with the goal of eventually predicting what each dentist wants. With the user experience as a primary goal, Alde beta tested it extensively and employed an integrated approach of continuously improving the software. "We monitor how users use the software, so we get constant data to utilize in improving it," he says.
Not every laboratory has the resources to create an advanced digital platform, but any laboratory can be creative with facilitating case management. Rensburg suggests using Skype, Cisco WebEx, and other digital communication tools to communicate with patients. Summit Dental Lab tells its dentists to call as soon as they have a case ready, and to provide their hours and whether they are closed for lunch.
"We make sure FedEx picks up their case that day and we get it the very next day, so the dentist can see there is no delay and we are on top of it," Loomis says. "This is important because there is always a laboratory right around the corner; the dentist can call and ask them to swing by. We need to provide that same value."
Appeal to the Bottom Line
As much value as a laboratory can add via its knowledge, specialists, case management facilitation, and other services, dentists always face temptation from laboratories offering lower fees. Sometimes it can help to spell out how the added value offsets those prices.
"Dentists are only saving a few dollars on those crowns," Alde says. "We have found it effective to tell dentists, ‘The price of the restoration is less important. You need to look at your workflow, because that is costing more money.' If a dentist's chair time is $400 per hour, losing 15 minutes on a case alert—a clarification or correction on a case submission—costs them $100, which often is more than they were saving on the cost of the crown. Similarly, remakes cost the dentist more than they cost the laboratory, because they need to reseat the case, blocking off an hour for the case. They immediately lose that $400, plus the opportunity of having a new patient in that time, which is worth $1,000."
Alde showed one large DSO that it was losing $500,000 over 8 months in 58 offices just on case alerts and remakes.
"There is no more discussion around the restoration cost," he says. "The discussion focuses on how we can help them improve their practice."
For some dentists, conversely, a less numbers-based appeal can be more effective.
"The value of chair time is a squishy number; it is real, but to some degree it is hard to quantify," Savage says. "Those conversations matter more to some than others. However, we always talk about things like remakes and the quality work that we produce to potentially help their practice. We talk to our clients as individuals and as business owners about what their goals are and whether our services can help them meet those goals."
To some dentists, a laboratory that provides more value but charges higher fees does not fit into their business model. For the laboratories that choose to work with them, the race to the bottom continues.
"We do hear that a large percentage of business is going overseas, and those dentists and those dental groups do not seem to care about quality as much as corporate dollars," Killian says. "Our laboratory does not deal in that marketplace. We are not interested. It does not affect us."
While many dentists do prioritize price, those laboratory owners who have successfully created value to justify their higher fees insist there is significant demand for the type of services they offer and that this business model presents tremendous growth opportunity.
"There are a lot of great laboratories in this country, and there is plenty of work to go around," Savage says.
The increased amount of work that general practitioners are keeping in-house rather than referring out has created specific demand for a laboratory that can add value to the relationship.
"Dentists today do not want to lose production, so they are handling cases that, 20 years ago, they might have referred to a prosthodontist," Helm says. "They are using techniques they have not been trained to use. We are a valuable asset when we can help."
The increasingly complex treatment plans that new technologies and materials make available also boost the value of the high-level services that laboratories can offer.
"The commoditized crown and the commodity approach to restorations are very utilitarian and are only meant to be used for functional, non-complex areas and needs," Perry says. "The $99 crown will only perform in certain areas of the mouth on certain fits. Clinicians are seeing that this restoration cannot be used for complex treatment plans. Others still expect that somehow laboratories and material companies can provide the best restorations with a commoditized approach, but most realize it is not possible. There is a shifting recognition that you still need different types of processes from the laboratory to achieve outcomes that patients and clinicians want. Sometimes it is just an educational process to convince them that, while they have enjoyed decreasing prices for quite some time, high-end complex restorations require higher fees."
Still, every practice has its own business model, so selling them on the value propositions of a particular laboratory is dependent on each unique relationship.
"The appreciation of what laboratories like ours do has never left the industry," Savage says. "We have seen changes in how dentists look at their businesses—regardless of whether they are large DSOs, group practices, or standalone practices. Insurance plans and other factors on the clinical side force them to make decisions that are best for their business. We do the same thing as laboratories; we prioritize ethics and the patient's well-being, but we are also running a business. It is beholden on us as laboratories to speak to the value that we bring to the table."
As technology continues to evolve, the human value propositions that a laboratory can offer will become even more important.
"If you set up your business today for 10, 15, 20 years of success, you need to realize that the only value propositions remaining 10 years from now are the things machines cannot ever replace: customer service, supporting your clinicians chairside, supporting surgeons with better ways to do conversions, surgeries, etc," Rensburg says. "The dental laboratory that positions itself well now will be leading the race for the next 20 years."
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4. Valmont Research. NADL 2017 Business Survey. Tallahassee, Florida: National Association of Dental Laboratories; 2017:4.
5. Valmont Research. NADL 2018 Business Survey. Tallahassee, Florida: National Association of Dental Laboratories; 2018:4.
6. Valmont Research. NADL 2016 Business Survey. Tallahassee, Florida: National Association of Dental Laboratories; 2016:3.