To Overcome Grim Economic Challenges, Laboratory Breathes Life Into Service Effort
Posted Mar 12, 2012 in Management
Growth was easy for Jesse and Frichtel Dental Labs in Pittsburgh up until 2008. "Our biggest problem was managing the workflow," says Mark Frichtel, President. "Then, to say the least, things got difficult."
Like many laboratories, Jesse and Frichtel began feeling the repercussions of the country's financial crisis in 2008. Workloads were diminishing and rising alloy costs were cutting into margins.
But when the laboratory started passing on just a portion of the higher alloy charges, the clients balked; some even jumped ship for lower-cost laboratories. "The only thing they saw was that they were paying more--not that palladium or gold were skyrocketing," says Frichtel. "In talking with them, we realized their view was that we were making a bigger profit when, in fact, we were making less."
On top of that, its biggest client--a chain of dental clinics--had amassed a balance of $225,000. "They let us know the chain was in the process of being sold to a venture capital group and even provided us with documents to verify the pending sale. They requested to temporarily withhold payment until the sale was finalized, at which point we would receive a lump sum," says Frichtel. "Because they had never missed a payment in five years--and we wanted to continue working with the new company--we agreed."
To avoid a cash flow crunch, the laboratory borrowed from their line of credit, planning to pay it off as soon as the buyout was completed. But on New Year's Day of 2011, Frichtel got devastating news: the deal had fallen through and the clinics had simply closed their doors.
Not only did Frichtel know he would never collect the unpaid balance, the laboratory was losing its largest account--almost 9% of its business.
Fortunately, throughout these rocky years, Frichtel and his partner, Sven Jesse, had been taking steps to evaluate the laboratory's strengths and weaknesses and to retool their business. The changes they implemented undoubtedly cushioned the blow of losing their biggest client and saved them from having to reduce staff or cut salaries.
A look back: 2009
At the end of 2009, after almost two years of dealing with the economic turmoil, Frichtel knew something had to change. He brought in a consultant, and together they reached a determination: the economics of the business had shifted. "Given the rising costs, we had to focus less on increasing the profit margin on each case and more on increasing the volume of work to increase gross profit dollars," says Frichtel.
To pinpoint how current and former clients perceived the laboratory and what issues they were having, the consultant started a full-on effort to communicate with every one of them--at one point making as many as 120 calls a week. "Because she's a professional consultant who doesn't work for the lab, she was able to establish a rapport then extract what was important to each customer," says Frichtel. "Based on that feedback, we developed a plan to become the easiest lab to work with in the dentist's eyes; we felt that was the key to getting more work in the door."
That plan was conceived after re-thinking every interaction the customer had with the laboratory. For example, Frichtel heard loud and clear that his customers needed more guidance on challenging cases, especially implants.
As a result, the laboratory enhanced its continuing education offerings, holding eight seminars last year that each attracted anywhere from 40 to 150 doctors. Typically, the speaker is brought in by a manufacturer and the laboratory markets and runs the course. "From a sales perspective, holding courses has been one of the most effective ways to get new customers to try us because they valued the program itself," says Frichtel.
To further support customers on complex cases, the laboratory provides more comprehensive treatment options and pricing in writing. "Although we always provided proposals, we now present three or four options along with estimated fees in a more detailed and clearly organized format. It makes it easier for clients to discuss treatment with their patients and price it accordingly," says Frichtel. "They realize we see more of these complex cases than they do and they can depend on us to work through it with them."
Integral to the success of this enhanced customer service effort was the buy-in of the laboratory staff. "We've had to change the culture, to constantly talk to them about how difficult it is to get clients and how hard we have to work to keep them," says Frichtel.
One strategy that has worked well is to empower front-line employees to turn around a disgruntled customer. "Everybody who is on the phone with customers can automatically fix a problem if the solution is less than $100," he says. "If it's more than that, then we discuss it, but if it's a small issue and we can make them happy immediately, why not just do it?"
Those front-line employees are also more methodically following procedures for tracking all complaints. Previously, it was done intermittently and some complaints fell through the cracks. Now, any client concern is entered into an internal electronic bulletin board system called Jira. Frichtel checks the system several times a day, identifies who he wants to address any issue, and ensures the client receives a follow-up call to confirm it was resolved to his satisfaction.
In a similar vein, technicians are now more stringent about following technical preferences. Previously, when a doctor's preferences were unclear, technicians sometimes made choices based on their training and expertise rather than determining exactly what the doctor expected and that could lead to inconsistencies.
"We knew we had to take a more comprehensive, proactive approach and now a master technician goes over a whole host of preferences with customers before their first cases even come in the door," says Frichtel. Those preferences are entered into the computer system and are printed on every lab slip so that technicians know exactly what the doctor is expecting and the quality control department can evaluate each case using tangible, objective guidelines.
In terms of marketing and sales efforts, customer feedback also made it clear that many clients didn't realize the scope of services the laboratory offered--everything from an outsourced product all the way up to complex full mouth reconstructions. "Even though we were doing statement stuffers and direct mail to cross-sell our services, we discovered most clients just continued to use us for whatever they had initially come to us for," says Frichtel. "Now, in addition to those methods, we've had customer service representatives expand their message, talk to dentists about all of our products and, if possible, find out why they're not using other services." In addition, the laboratory extends targeted introductory offers to encourage customers to try other types of cases.
Poised for growth
This renewed customer focus and the concrete changes the owners made set the laboratory on a new course during 2011. In fact, the laboratory's overall sales were up a few percentage points from 2010, and the removable department alone grew by 22%.
And those customers who had left the laboratory looking for a lower-priced solution? Many have come back; in fact, 25% of the laboratory's volume this past January is attributed to clients who have returned to the laboratory.
"The fact that we experienced any growth at all in 2011 is remarkable given that the year started out with us losing our biggest clients," says Frichtel. "Sven and I had faith in our staff and in ourselves--and also the courage to go on. I know that someday, when I look back on my career, this is the accomplishment that will make me the most proud."
'Something Good Had to Come from this Mess'
When Jesse and Frichtel's largest client--a chain of dental clinics--closed its doors with no warning, it not only left an unpaid balance of over $200,000, but 150 cases at the laboratory. "They took down their website and put up a message saying patients would be getting information about their cases soon. That page didn't change for over a month," says Mark Frichtel.
In the meantime, Frichtel knew that many patients--who had likely paid upfront--were in pain or couldn't eat properly. "I knew we could make a difference. Something good had to come from this mess," he says.
The laboratory started contacting dental offices in the area of the closed clinics, telling them it had the cases and making this arrangement: If a new patient came into one of those offices saying he had been waiting for a case before the clinic closed, the laboratory was contacted after HIPPA agreements were signed and the case was sent to that dentist free of charge. Frichtel was also interviewed on local news stations.
Through those channels, Frichtel found more than half of the patients whose cases he had. "I'm proud that we gave over 75 cases out at no charge," he says. "It was a chance to show doctors who we are at our core." And if you think this effort meant good karma, you're right: 20 of these dentists are now clients of the laboratory.
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