Cost Transparency: How E-commerce Will Dramatically Effect the Future of Dentistry
E-commerce has changed the relationship
between dentist and suppliers

Howard Farran

Howard Farran DDS, MBA, MAGD has been in practice since 1987. He has spent the last 11 years studying, writing and lecturing on the business of dentistry.He is publisher of DentalTown Magazine, and founder of www.DentalTown.com, "where the dental community lives". He continues to practice full time at his Today's Dental family practice in Phoenix, AZ.He can be contacted at (480) 598-0001 or emailed hfarran
@todaysdental.com

Electronic commerce, or e-commerce, has changed the way business is conducted. Both business-to-consumer and business-to-business commerce have been revolutionized by the power and reach of the Internet. But e-commerce is not a new concept. For years, the upper echelon of the Fortune 500 have hammered down costs and controlled inventory by sharing critical business information over value added networks. That sharing, known as electronic data interchange (EDI), was complicated and expensive. In the beginning, small businesses had a tough enough time when their large customers pressed them into electronic relationships; initiating them was out of the question. However, with the advent of new software and technological advances, e-commerce is a viable option for all industries.

Current Dental Purchasing Methods

Today, dentists purchase dental supplies in a transaction-intensive environment. The vast majority purchase their supplies from a dental supply representative who comes by the office once a week. The rep cannot possibly remember detailed information on 10,000 or so various products that the supplier inventories. Therefore, cost and product comparisons are placed largely in the hands of the already stressed and overworked dentists.

The product knowledge of professionals like dentists, physicians and chiropractors is usually based on information obtained during professional schooling, 10 to 15 hours of yearly continuing education, tradeshows, or monthly trade journals. A contributing factor to the dramatic increase in the overall cost of healthcare is that dentists and other healthcare professionals are using these limited resources and information in their purchasing decisions.

How Dental E-Commerce
Has Revolutionized the Industry

Remember commerce on Main Street in the 1950s, malls in the 1970s, and superstores in the 1990s? Since World War II, each passing generation has seen a fundamental shift in the retail paradigm. Now they are in the midst of another, the value-added revolution. It is worth noting that each time the business model changed, a new group of leaders emerged. Woolworth's never really escaped Main Street and Sears, for the most part, remains stuck in the mall. Again and again, incumbents missed the early warning signs because they were easy to ignore. Who was really paying attention when Sam and Helen Walton opened their first Wal-Mart Discount City in 1962? Who really understood the impact that superstores and category killers would ultimately have on the supply/distribution chain?

The real power of a successful e-commerce Web site is information. Dentists have begun to insist on fast, accurate and helpful information about products. The real threat to manufacturers' profit margins is cost transparency - a situation where the abundance of free, easily obtained information makes a dental manufacturer's costs more transparent to buyers. In other words, it allows dentists to see through those costs and determine whether or not they are in line with the prices ultimately being charged. Once this cycle begins, manufacturers' prices adjust accordingly.

To understand how this process will work, consider a non-Internet example. Not long ago, private labels began to eat into the market shares of national brands. The improved quality of store brands was key, as customers quickly discovered they could buy products equal to national brands for much less. Private labels gave shoppers important information about the "real cost" of producing goods. As a result, higher priced brand name products lowered their costs to remain competitive.

Currently, dental products purchased through major distributors are bundled with service agreements and easy-to-follow presentations on how to use the new products. This role will increase in the future as dental distribution representatives become more involved with education and customer service. Online dental shopping that cuts costs by selling direct presents dentists who want to keep their costs to an absolute minimum, a very viable and efficient option. Market segmentation and differentiation could dominate the dental industry providing cost effective alternatives for all dental professionals.

With seven to eleven years of college education, the majority of dentists use a computer, the Internet, fax and a wireless phone. Most dentists have a personal computer at work and at home, allowing them constant access to e-mail and the World Wide Web. The trend is painstakingly clear: in the sovereign profession of dentistry, this is not a rising tide, it's a tidal wave! The Internet challenges businesses with the unique opportunity to reinvent themselves as virtual organizations capable of achieving levels of business performance never before possible.

E-commerce has changed the relationship between the estimated 150,000 actively licensed, practicing dentists and dental supply manufacturers/distributors in profound ways. How will traditional dental supply distributors compete with these new expectations? By expanding their existing capabilities and achieving high visibility within the world of the Internet.

The new reality is consumer control, and the Internet represents the ultimate triumph of consumerism. Microsoft founder Bill Gates said in his 1999 book, Business @ the Speed of Thought, that Internet technology is about empowering individuals. "You can give people responsibility and authority, but without information they are helpless."

As the importance of physical boundaries diminishes, a new dawning of competitiveness enters the dental community. The smallest dental merchant in the industry is now able to enter the marketplace of the worldwide dental community. The possibilities are virtually limitless.