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Annali di Stomatologia | 2024; 15(1): 39-41 ISSN 1971-1441 | DOI: 10.59987/ads/2024.1.39-41 ORIGINAL ARTICLE |
Analyzing the Dental Market Through Porter’s Five Forces Framework
Authors
Alessandro Quaranta - Clinical Professor, School of Dentistry. The University of Sydney. Scientific and Education Manager, Smile Specialists Suite, Newcastle-Neutral Bay, NSW. Australia; profalexquaranta@gmail.com
Wang Lai Hui - Director, Smile Specialists Suite, Newcastle-Neutral Bay, NSW. Australia; drlizzyhui@gmail.com
Abstract
This commentary explores the dental healthcare market through the lens of Porter’s Five Forces, a model for analyzing the competitive environment of a market. By applying this framework, it is possible to elucidate the market dynamics affecting dentists, dental specialists, and patients, providing insights into the consequences and challenges faced by each group within this unique and complex market.
Keywords: Dental, healthcare, market
Introduction
The dental healthcare market represents a unique sector within the broader healthcare industry, characterized by its imperfect, yet highly competitive nature. This commentary seeks to dissect these dynamics using Porter’s Five Forces – a business tool traditionally used to assess the competitiveness of a market. These forces include the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and competitive rivalry.
The dental market as a model of an imperfect highly competitive market
The dental market is characterized as an imperfect yet highly competitive market for several reasons:
- Imperfections Stemming from Entry Barriers: High costs for equipment and training, stringent regulations, and limited insurance network access create substantial barriers for new dental providers. These barriers result in fewer providers in certain areas, contributing to imperfect competition due to restricted market access.
- High Competition Driven by Price Sensitivity: Dental services, often seen as discretionary, evoke high price sensitivity among patients. This sensitivity leads patients to actively compare prices and care quality, intensifying competition among providers.
- Uneven Pricing Dynamics: The partial or non-coverage of dental services by insurance plans leads to price discrimination and variable pricing among providers. This variability in pricing further contributes to an uneven playing field in the market.
- Information Asymmetry: A notable power imbalance exists due to information asymmetry between patients and dental providers. Patients often lack the expertise to make fully informed decisions, relying heavily on provider trustworthiness. This reliance complicates their ability to effectively compare different providers, as noted in
- Concentration of Providers: The prohibitive costs associated with setting up a dental practice in many countries, as highlighted by Dunn [1] lead to a concentration of providers in certain regions, thus limiting competition.
- Price Discrimination and Decision Factors: Studies like those by Gray [2] reveal that cost was overwhelmingly chosen as the key factor likely to prevent a patient from seeking dental treatment. In several countries, It is also common for uninsured patients to shop around for dental care, with price being a significant decision-making factor. Providers often engage in price discrimination based on insurance coverage and patient’s willingness to pay.
In essence, the imperfect nature of the dental market stems from entry barriers and variable pricing, while its competitiveness is driven by patient price sensitivity and the need for providers to compete through price, quality, and service offerings.
Porter’s five forces of competition
The Five Forces of Porter is a widely recognized framework for analyzing the competitive environment of a market. Developed by Michael E. Porter of Harvard Business School [3], this model provides a comprehensive view of the competitive forces that shape industry attractiveness and profitability. It examines the interplay of five key forces: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute services, and the intensity or products of competitive rivalry. By evaluating these forces, businesses can develop strategies to improve their market position and competitive advantage.
- Threat of New Entrants: This force examines how easy or difficult it is for new competitors (dental providers) to enter in a market, thus affecting competition.
- Bargaining Power of Suppliers: This force looks at the power of suppliers to drive up the prices of business (dental providers) inputs. In the dental industry, suppliers of dental materials and equipment can have a significant influence, especially if there are few alternatives.
- Bargaining Power of Buyers: This refers to the power of the customers (dental patients) to negotiate lower prices or better services. In dentistry, patients often have a high degree of price sensitivity, especially for elective procedures not covered by insurance, giving them a certain level of bargaining power.
- Threat of Substitute Products or Services: This force is about the danger of customers (dental) patients choosing alternatives to traditional services.
- Competitive Rivalry: This is the degree of competition among existing players (incumbent dental providers) in the industry. In the dental market, the rivalry can be high due to a mix of local and larger group practices, the range of services offered, and the quality of care. This force is often the most powerful of the five, as it encompasses the direct competition the businesses (dental practices) face in the daily operations.
THE DENTAL MARKET AND THE FIVE FORCES OF COMPETITION
Threat of New Entrants
In most of the developed high-income countries, the dental market exhibits significant barriers to entry, primarily due to the high costs of dental education, practice set-up and equipment, and compliance with stringent regulations. The research by Dunne [1] highlights these barriers, emphasizing the financial and regulatory hurdles new dental providers must overcome. This high entry threshold limits the influx of new competitors, thereby shaping the market’s competitive landscape.
In markets where reduced competition from new entrants is experienced existing dental practices can benefit from a relatively stable market position.
The limited entry of new providers may result in fewer choices and potentially higher prices for buyers (patients). However, in the context of the EU and other countries (Latin America), the mutual recognition of professional qualifications facilitates the cross-border mobility of dental professionals, which introduces a nuanced dimension to the threat of new entrants. While traditional barriers such as the cost of education and practice setup remain, the ease of movement across borders provided by mutual recognition agreements can stimulate competition by reducing regulatory constraints. This can lead to increased market fluidity, offering patients more choices and potentially more competitive pricing structures. However, it also poses a challenge for existing practices that may face new competitors, capable of offering diverse and possibly more affordable dental services. The overall effect is a gradual shift towards a more dynamic and less predictable market landscape, where dental providers must adapt to the increased potential for new entrants within their local markets.
Bargaining Power of Suppliers
Suppliers of dental equipment and materials hold significant power due to the specialized nature of their products. The cost, the quality, and the timing of delivery of these supplies directly influence the operational efficiency and service quality of dental practices.
The businesses (dental providers) will depend on suppliers for quality materials, which can have an impact on profit margins and service pricing.
In the case of Dental Specialists, these practices may require more advanced equipment and may face higher operational costs, influencing service pricing. Efficient supply chain management and negotiations are therefore vital for maintaining a competitive edge in the dental market.
Bargaining Power of Buyers (Patients)
The leverage of patients and dental insurance in the dental market is magnified by their price elasticity and the discretionary nature of dental expenditures, The discretionary nature of many dental services, coupled with varied insurance coverage, enhances the bargaining power of patients and insurance [4,5].
Dentists will need to balance service quality with competitive pricing to attract and retain patients.
As for the buyers (dental patients), they will enjoy greater leverage in price negotiations, especially for uninsured patients who shop around for services.,
Threat of Substitute Products or Services
The dental market faces threats from alternative treatments and advancements in dental technology.
The proliferation of substitute products, such as direct-to-consumer dental aligners and home whitening kits, represents a burgeoning challenge for traditional dental practices. Dental professionals must respond by emphasizing the benefits of professional care and the potential risks associated with unguided treatments.
While the quality and safety of such substitutes can be variable, their accessibility and lower cost can attract a segment of cost-conscious patients. It is therefore essential for both dentists and specialists to stay updated with technological advancements and alternative treatment methods to remain competitive.
Existing Rivals
Intense competition exists among dental providers, driven by patient price sensitivity and variable pricing strategies. This is exacerbated by information asymmetry, as noted by Baldwin [4] and Sever [6] which can lead to quality of service and trust-based competition rather than just price or quality.
High competition necessitates differentiation through quality of service, pricing strategies, and building patient trust. The high competition is also a drive for an increased need to specialize and offer superior expertise to buyers. Patients can benefit from competitive pricing and a range of service quality options but may face challenges in assessing service quality due to information asymmetry.
Conclusion
An analysis of the dental healthcare market, through the focus lens of Porter’s Five Forces, reveals a complex interplay of factors affecting dentists, specialists, and patients. The market’s imperfect yet competitive nature demands strategic responses from providers while offering patients both challenges and opportunities in their healthcare choices. Future research should focus on evolving market trends, especially the impact of technological advancements and policy changes on these dynamics.
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References
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- 2. Gray L, McNeill L, Yi W, Zvonereva A, Brunton P, Mei L. The “business” of dentistry: Consumers’ (patients’) criteria in the selection and evaluation of dental services. PLoS ONE. 2021;16(8): e0253517. https://doi.org/10.1371/journal.pone.0253517.
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