After the bust, is dentistry about to boom?
There is a growing view that things are getting better. But the end of a recession is the most dangerous time. If it’s true that recovery has started, this will be the time when more businesses than ever go bankrupt. It will also be the time when businesses invest too early and the economy dips again, or invest too late and fail to be capitalise on customers out there spending money. So, for anyone running a dental business what should you do? How do you ride this part of the rollercoaster?
This recession has been truly dreadful. Only the fact that we have achieved such a high standard of living has meant that we haven’t witnessed queues outside soup kitchens. We have said for a long time that we believe it will be a long grind and that will continue through into the recovery phase. It could have been even worse with a full-scale depression. At least that looks to have been avoided. So, is there going to be sustained economic growth in the UK? At this point the simple answer is nobody knows. It is dependent on too many factors. Our view is that there is going to be some growth, but it is likely to be patchy favouring some sectors. Hopefully, it will gain momentum.
At this point in an economic cycle anyone running a business needs to be monitoring what could derail growth or bring any recovery to a shuddering halt. The UK has amassed a massive debt recently that needs to be funded. We can’t just keep on spending. There are two obvious ways of doing this. Spend less by cutting government programmes and/or raise taxes. These options could prompt a further recessionary dip, which is why politicians are being so cagey (a looming election doesn’t help either). Linked to this is the fact that interest rates will have to go up, 1.5% by the end of 2010 is an average prediction and 3% by the end of 2011. They could rise much faster if inflation takes off or it becomes difficult to attract global funds to fund the debt. If they do, we could be back in a recessionary spiral.
In the future, demonstrating value is going to be even more important. Customer focused, brand driven organisations are going to be more successful than the introverted and product driven. Fluff and puff without substance is going to receive short shrift
An enormous financial impetus has been pumped into the UK economy. It appears likely that to a great extent it has not had much effect so far. When a government does something like this there is a big time-lag. It’s like driving a super tanker. It takes ages to increase speed and as importantly it takes a long time to slow down. This investment in the economy may be too much and could provoke an inflationary spurt that then has to be damped down.
Finally, just in case you are feeling too euphoric at this point, when looking to the future there is another concern that needs to be borne in mind. The global interlinking of economies and the management of investments on formulaic criteria is making many fearful that far from being banished, ‘boom and bust’ could become a much more common part of our economy and the global economy.
Is there a future?
Yes there is. For those who are smart, energetic and focused on delivering value and service to their customers there is always a future and it could be quite rosy. After all you’ve survived the recession haven’t you? Perhaps one of the best ways of understanding the future is to look at those businesses that aren’t going to be sharing in that future with us. The dental market has had a tough time. From what we can see major surgical procedures and more general check ups are down, while lower priced, less invasive cosmetic procedures have remained popular and uptake may have increased. People have become more discretionary, making visits to the dentist more infrequently with the attitude ‘you can defer it can’t you?’ This would suggest there is a role for a big campaign by the industry to demonstrate how important going to the dentist is.
Quite a few businesses have left the market. In our view they went for a whole myriad of reasons that are often interconnected; they didn’t have a real point of difference, they weren’t delivering value that customers could see clearly, they weren’t very committed and lost the will to keep going, they had spent too much money and were over indebted and they were late entrants to the market, intent on riding the crest of a perceived wave. Perhaps all obvious risks, but that is what recessions do. They weed out the weak from the determined. This has been going on in lots of markets. Businesses that don’t really know why they are there and had little momentum in good times have been found out. Woolworths, Zavvi and Borders are obvious examples. Christian Lacroix recently went bankrupt. One of the most extraordinary fashion designers who is revered by many, his business had never made money in any of the 22 years of its existence. When the financial backers went so did the business. It’s an extreme example, but it does illustrate what is happening.
There have been winners, too
Dominos Pizza, Primark and Premier Inns have all done well out of this recession as have insolvency practitioners. For the latter group, they are likely to be doing even better over the coming months. As I referred to at the beginning, more businesses go bust as a recession is coming to an end. They have hung on and find they finally have to give up as people start to spend again – galling for those who have struggled to survive to see the Promised Land and as it appears they can’t be part of it.
Winning in a recession can also mean higher margins and profits. Majestic Wine for example realised that because people were eating in more they might be prepared to pay more for a bottle of wine. They have been pushing their premium ranges and introduced a minimum six bottle purchase rather than 12. In the last six months its sales are up 13% and profits 9%. They thought about their customer and won. They are also likely to have won a new generation of loyal customers because people who make a positive decision to buy from you in a recession are more loyal in the longer term – they made a positive, considered choice.
You wouldn’t want to be in packaged goods
In the packaged goods market times have been tough. Sara Lee, Colgate Palmolive and Kimberly-Clark have all reported revenues down. Unilever saw its profits fall 17% in its second quarter and Procter & Gamble produced an 18% fall in profits in its most recent three month reporting cycle. That’s a fall in profits of $2.5 billion in a single quarter. In the midst of all this red one company, Reckitt Benckiser, has been doing rather well. In the last quarter its sales were up 8% and profits 14%.
Unlike its competitors, Reckitt Benckiser has a very shallow hierarchy. It aims to have a new product on the shelf in nine months, three months quicker than its main competitors. It increased expenditure on marketing by 25% as the recession took hold and maintained it. While taking pains to cater to all budgets it has been busy introducing premium products and increasing prices, while its competitors have been doing the opposite. Not only is Reckitt Benckiser having a good recession, it is going to be in a very good place in the market and with its customers when the recovery finally comes.
How’s the customer?
Well, they’ve changed and they haven’t. They still believe they will return to the standard of living and level of relaxed expenditure they were enjoying before they had to put their hair shirts on. They still like brands, celebrity and glamour and they still want to be made to feel special. It’s going to be with a bit more reality, though.
For everyone, this recession has been shocking and made people re-evaluate what is important to them and their families. It has changed the way we buy things forever. Perhaps most obviously, access to credit is going to be more limited and more expensive and many more people will be positively avoiding debt.
In the future, demonstrating value is going to be even more important. Customer focused, brand driven organisations are going to be more successful than the introverted and product driven. Fluff and puff without substance is going to receive short shrift. Increasing cynicism means personal recommendation is taking precedence over anything a company might promote. Companies are going to have to combat this with greater attention to corporate citizenship – it will motivate customers the team and suppliers.
The internet is hugely powerful and has proven its worth in this recession. People rely on it more than ever to find the value they want. Over the last 18 months we have all been doing a lot more experimenting and found different ways to run our lives from the middle class family found in Aldi to the phenomenon of eBay.
What to do after a recession
We believe anyone running a business today should take all of the factors we have described into account and at the same time make sure you do the basics. These management rules will never go out of fashion, in a recession or out:
You can make profit on paper, but if you have no cash in the business then it means nothing.
This is the grind. You have to go through the detail, looking at all costs, and you have to do it regularly.
When times are tough you need as many friends as you can get. They can range from your bitterest competitor to local leaders of any type, suppliers and, most importantly, the team around you.
Understand your customer
Find out what they are doing and how you fit into their lives. Look at both current and potential customers – they can be very different. Judge what they want and then ask them if you are right, either directly or via research.
Define what you stand for
What is it about your business that is different? That difference can become a brand if it’s aspirational, motivating, competitive and defensible. And what is so good when you have built a brand is that it conveys trust and reassurance, gives a business focus and personality, delivers security in bad times, makes price less important and businesses more saleable.
Expanding what you offer gives you flexibility and makes you more interesting to your customer.
Invest in sales and marketing
Survival is about share of mind – you have to get more than your fair share. Familiarity breeds reassurance. It nurtures current customers. It creates urgency and conveys dynamism both to the team and external audiences. Done well, it delivers handsome rewards in the long term.
Enhance value for money
Value for money conveys reassurance and encourages people to come back and refer. In essence, what it means is quality and service.
As we have said before, in business it’s about remembering and applying simple principles. Anything too clever is normally too clever. People are the same in a recession, only more so. They want good value, presented well from someone they believe they can trust. Your job is to stay in business to deliver that to them now and long into the future.
For more information, visit www.claritysmc.com.