Make Way for the Subscription Economy
Every industry in 2019 is subject to disruption. Think coffee barista robots in San Francisco and salad robots in Boston, for example. The “old” way of operating is ending sooner than we think and “new,” previously inconceivable methods are being deemed cutting edge. Even getting paid by patients is due for massive disruption.
The Subscription Economy is a phrase coined by Zuora CEO Tien Tzuo to simplify describing the model inviting consumers to pay a recurring fee to access a product, service, or value that a business creates. It’s that simple. What makes the premise complex is the eventual desire for sellers and users (dental practices and their patients) to possess different membership levels, pricing and discount models, and other factors that can muddy the acceptance.
But offering a subscription-based model is not revolutionary for dental practices. One of our early adopter clients has offered their own in-house plan for over 15 years. That market segment of his practice is a relatively small percentage of total patients, but could be more if marketed consistently.
Most dental practices still offer the traditional fee-for-service insurance models like they did in years past. Relationships with current patient groups are transactional, infrequent, and based on acquiring more of the same patients.
But fast forward to 2019. According to The Economist’s Intelligence Unit, 80% of all customers surveyed are seeking new consumption models including subscribing, sharing, and leasing. Notice that I didn’t describe how people would acquire possession by using the word “buy.” And according to Credit Suisse, there was over $420 billion spent on subscription purchases in the United States in 2015—up from $215 billion in 2000. Tien Tzuo even developed a market index called the Subscription Economy Index (SEI), which tracks subscription-based SaaS, IoT, media, telecommunications, and corporate services provider sales in North America, Europe, and the Asia Pacific Rim. It benchmarks against the S&P 500 index and other world indexes. One shortcoming is that it doesn’t include healthcare industry data, but that appears to be a rational calculation, as historical data in subscription-based healthcare models is a statistically small percentage due to the limited use in limited practice types: concierge primary care medicine, veterinary hospitals and dental practices.
But that doesn’t mean the dental industry is destined to have a slower-than-molasses growth rate for dental membership plan adoption. Anne Janzer wrote the how-to book Subscription Marketing: Strategies for Nurturing Customers in a World of Churn to help marketers and all businesses deal with the subscription economy disrupting the status quo. So, there are tools out there for dental practice owners and their quasi marketing forces—practice managers, outside marketing agencies, and even hygiene and reception staff.
Outlining the Value
The overriding concern of every dental practice should be to meet the expectations of patients by providing not just the services to which you mutually agree they should subscribe, but also a mechanism to pay for those services besides accepting some form of restrictive dental insurance. And those initial services? They should evolve to satisfy patient demand for innovation and choice.
This initial negotiation about what patients are buying before they even sit in the dental chair in a subscription-based wellness plan informs the patient about the services they are being offered. The old-school method has the patient being asked to fill out a medical history form and presenting an insurance card, if insured. In most cases, the list of services and the “value received” by the patient are never outlined. It’s like going to a fine steak house, never seeing a menu or prices, and being served filet mignon cooked medium-well with asparagus, when you typically enjoy rare Porterhouse and a baked sweet potato with crumbled bacon and sour cream.
The initial meeting allows the dentist or trained “patient value consultant” to describe all “value” (not services) that they will receive under the annual subscription membership plan as an adult patient (example below):
1. 1 Dentist oral examination and review of health changes
2. 1 set of bite-wing x-rays
3. 2 biannual cleanings
4. 2 fluoride treatments
5. 2 sealant treatments
6. 2 oral cancer screenings
7. 2 oral hygiene instruction sessions and refresher
8. Nutrition discussion
Most medical professionals never outline the services and value for all treatments and procedures to be received during an annual period while a patient is standing up or sitting in a real chair besides a dental chair. This provides the perfect opportunity to discuss current plan value, the value to all family members if subscribing, and if there should be enhanced plan discussions (periodontal patient plan, whitening program benefits, additional treatment care plan initiation and related plan discounts, referral bonuses, etc.)
And I believe every practice should start now, so that they don’t get left behind. Anne Janzer is attributed the following phrase:
“In 5 years, you’ll have the option of subscribing to everything.”
Better to be ahead of the curve than being known as the late adopter among dental school classmates.
And what the marketing forces in a dental practice need to realize at the outset is the goal of the subscription-based model is maximum utilization. Think beyond the health club model where the salesperson signed you up for a monthly fee, bundling in a spouse or family plan. The goal for that old-school health club was that members paid the monthly fee and then didn’t even show up, so that the club did not appear too crowded to other club members. Fast forwarding again—the modern fitness “lifestyle center” wants you to attend frequent regular gym sessions accompanied by yoga, Pilates, boxing, sports massages, swimming, spin class, cross fit, sending kids to their summer camp, and eating breakfast and smoothies multiple times per week in the health club restaurant.
Organizations like Amazon Prime, Uber/Lyft, QuickBooks Online, Hulu, Spotify, HubSpot, Drop Box, and other familiar 21st century organizations are subscription-based, providing almost unlimited access for a price. How about these?
1. Porsche Passport vehicle subscription service provides a fleet of Porsche vehicles at your beck and call via a mobile app and concierge delivery service. Only $2,100-$3,100 per month plus tax. Includes unlimited vehicle changes and car washes. It’s offered in a limited number of U.S. cities, but expected to catch on, according to pundits, though I am sure is tied to positive stock market returns for the mass affluent, most of whom would never acquire a Porsche outright.
2. Schwab Intelligent Portfolios Premium Service designs an investment portfolio using artificial intelligence for a flat fee of $300 on at least $25,000 of investable assets, then charges $30 as a monthly subscription fee to continuously monitor and re-balance your portfolio(s). Subscribers also receive UNLIMITED access to a Certified Financial Planner ®. It’s been called the “Robo Advisor” model in the industry for the past 10 years, now enhanced with human advice. But after slow traction, it’s gaining more widespread acceptance and imitators.
There is even a Subscription Trade Association (SUBTA), whose membership of thought leaders guide businesses to appeal to a subscription-hungry psychographic. I previously used the word “demographic” in describing “millennials,” but recently read an interview with Ian Schrager of the 1970s Studio 54 fame, now into luxury hotels, that he tries to cater to the “psychographic” (i.e. lifestyle) of certain buyers, which is more general and has wider appeal to that mindset, than a demographic which has limited appeal since it doesn’t target all ages. A dental practice targeting a “psychographic” in their client base of those patients accepting of subscription-based dental membership plans, regardless of age, would undoubtedly generate more widespread appeal than just marketing to a finite patient base segment of Millennials, etc.
We really have not mentioned dental insurance except to note its limitations. One mechanism to manage risk of loss is to transfer the risk exposure to another party (the insurer) for a fee to accept that risk (the possibility of loss). That is the definition of insurance, so it’s not designed to cover every loss. Most automobile, homeowners, umbrella and property/casualty insurance policy holders know that submitting a claim for every loss, no matter how small, would burden the insurance companies with numerous claims, as well as losses, and substantially increase premium requirements so high that coverage would be unattainable or insured parties just dropped from coverage. Should the insurance company cover risks that are entirely scheduled (biannual hygiene appointments) when it is not an unforeseen event? No. Insurance was not designed for those scenarios. But it has morphed into that.
What are some other benefits that have not been espoused regarding subscription-based membership plans for dental practices? Below are a few important ones:
1. Subscription-based membership plans for dental practices may convert current patients to the plan, rather than just relying on new patients being sold on the benefits. Could this just cannibalize one source of revenue and substitute it for membership revenues? Yes, but it is then hoped that the other intangibles of the plan would attract members to keep booked all preventative care and then engage for more complex treatment plans.
2. One client whose practice engages patients with a membership plan just caught an aggressive form of oral cancer in the mouth of a long-time patient. If that patient was not diligent in their recall status and was waiting for their primary care physician to catch the cancer—if, indeed, it was caught during an annual physical exam rather than biannual hygiene appointment and oral cancer screening—who knows the result? That is why dentists need to be constantly promoting all they do for overall patient health. It could save a patient’s life. My 29-year-old sister-in-law’s life literally was saved by her dentist on early detection of an aggressive oral cancer. Her life and speech changed noticeably forever, but the alternative was much sadder. So, the value attributed to attending biannual or more appointments can be shown as real and potentially lifesaving.
3. Subscription models create predictable, budgeted revenue streams for dental practices, a facet of the idea that both CPAs and investors/lenders have an affinity for.
4. The goal of retaining subscribers to more than a 1-year contract is enhanced, assuming the value proposition is realized. If perceived value is less than that was sold at the initial value meeting, membership rolls may wane and drag program patients below goals.
5. Members are less likely to leave the dental practice to which they are bonded, not just in a financial sense—having a sense of community and belonging can be nurtured through continuous marketing. Loyalty to a practice can be a fleeting feeling, though less in a membership environment. Though payment frequency is not tied to patient visit frequency (biannual visits for hygiene and prospective quarterly appointments for periodontal program patients versus twelve monthly payments), communications around issues important to dental health can also ensure that patients are just not seeing your dental practice name when they review their credit card statement or bank activity. Canned or generic messages from dental practice social media platforms do not tend to endear patients to practices, but thoughtful and meaningful messages direct from staff and doctors tend to talk directly to patients and can enhance “stickiness”.
6. Discounts on future services (treatment plans over $4,000 for example receiving a 10% discount, and those over $10,000 receiving 20% discount) may promote adoption of more proposed treatment plans.
7. The school of thought amongst current online subscription plan company sites is that membership patients are less likely to cancel appointments, and more apt to refer other friends/family. This anecdotal evidence may be substantiated, but it does sound plausible that a sticky patient base would be more compliant than on-bonded patients.
Having attended professional pricing classes over the past 10 years has left me with more questions than answers, but has provided a different way of thinking about price, value, and cost. In the new models, cost is never mentioned as a factor in the provider pricing decisions. JetBlue pricing isn’t based on the costs, though they’re a factor. You see different prices online based on flight day, hour, and seat class. Every passenger gets from point A to point B, though some are paying more and some less than their seatmate.
For now, I would urge the dental practice owner to get patients from Point A (their home) to Point B (the practice’s value consultant) to begin the discussion of value and have them sign on to become lifetime subscription plan members before a neighboring dental practice disrupts your own patient base.
Mark J. McGaunn, CPA/PFS, CFP, is Managing Member of McGaunn & Schwadron, CPAs, LLC, Needham Heights, MA. With financial expertise and industry-specific focus for both veterinary and dental practices, McGaunn & Schwadron assures practices’ sustained growth and success in an ever-growing modern and competitive environment by providing clients with business strategy, comprehensive planning, and the information and tools to yield positive growth.