Demographics
Key Factors in Determining a Dental Practice Site
Scott McDonald
Copyright 2001 Journal of the California Dental Association.
Mr. McDonald will present "Demographic Edge: Tools for Finding and Marketing a Practice Site" at CDA’s Spring Scientific Session in Anaheim, Calif. The presentation will be from 2 to 4:30 p.m. on Thursday, April 19, in Room 207 C/D of the Anaheim Convention Center. He will also present "Mind Games -- How Patients Really Make Decisions" from 9:30 a.m. to noon on Thursday, April 19, also in Room 207 C/D.
 |
There is no single "right" place to place a dental practice. Personal preferences, family, friends, church, and recreation all have a hand in determining a dentist’s likelihood of happiness with a particular location. Still, the science of demographics and psychographics (who people are and what they do) can provide a dentist with necessary insights into knowing the potential of a location. This article discusses important demographic and psychographic information that should be considered when determining a dental practice site.
|
As the practice of dentistry has developed over the past 100 years, rules for finding the most favorable sites to situate a practice have changed. From town centers to strip malls, there are rights and wrongs for practice site selection. Naturally, there will be exceptions to those rules because there are often mitigating circumstances that supercede generalities. Nevertheless, the rules should be ignored only after considerable thought has been given as to the reason. This article discusses important factors in determining a dental practice site. These factors are listed here in order of priority, although it is possible that certain secondary or tertiary aspects may be strong enough to overcome those usually of higher priority.
These factors are the result of observations made after analyzing the locations of 200 general dental practices throughout California between 1995 and 2000. The site-specific information was judged against the dentist’s perceived happiness at the practice location. No attempt was made to evaluated practice productivity, profitability, or other objective criteria. Although general practices were studied, the underlying logic regarding these factors should be applicable to specialists as well.
Population and Households
It is vital to any practice to have sufficient numbers of people to treat. Without patients, there can be no practice. But the simple population statistic can be deceptive. For example, the population of an area should not be considered in terms of night-time, or resident, population alone. In many cases, the daytime population of an area may be far more important. This is especially true of areas dominated by large employers in office buildings surrounding a practice site. The resident population may be poor, while the daytime population may be quite desirable.
In addition, with regard to the raw numbers of people in a given geography, a dynamic population is preferable to a static one. Many areas have a large but stable population. Often homeowners don’t move for decades. Generally speaking, this type of population tends to be tied to their current dental practices. If, on the other hand, there are many new residents either because of immigrants to the local area or a net increase in the number of housing units, the number of available patients will be higher. For this reason, an area with little growth or an aging population will not be as desirable as one that is growing or at least changing.
Determining the critical mass of population necessary to justify the establishment a dental practice is not a simple matter. It is tempting to provide an optimum population-to-dentist ratio to evaluate the value of a site. But not everyone within a population seeks dental treatment. Women seeking treatment usually outnumber men by 10 percent.1 Blue-collar workers seek treatment less often than white-collar workers.1 Older patients are more faithful referrers than young ones.1 For this reason, demographic statistics beyond just overall population numbers are required to evaluate a potential site.
Assuming the other statistics show a population that is affluent, fairly well educated, and motivated to seek treatment, the population-to-dentist ratio can be as low as 1,100-to-1. On the other hand, practices can suffer for want of available patients in areas with 5,000-to-1 ratios. In short, the character of the population, more than its size alone in numbers, is a crucial statistic. To substantiate this, from 1995 to 1999, 25 practices were requested to provide a survey regarding the income levels of patients. Production levels were applied to people in each income category. Not surprisingly, patients who earned more also spent more disposable income on dentistry.
Convenient Isochrones
An "isochrone" is a distance measured in time.2 Due to the advent of the automobile, most people determine distance by how long it takes to get from one spot to another. A receptionist in a dental practice may say, "It takes 15 minutes to get to our office." There is a limit to how far a particular demographic group will travel to a dental office. As a general rule, the more densely populated an area is, the less time people are willing to spend on traveling to offices for professional services.
The science of isochrone analysis for retail business is well-documented. In retail demographics, the term retail trading zone equates to a geographic patient base. But the rules for determining a geographic patient base are somewhat different. For the sake of this article, it will be said that a geographic patient base can be determined in isochrones.
The difference between a practice area in North Hollywood and one in Palmdale is primarily that the commute times in the Palmdale area are much longer than in most parts of North Hollywood. Palmdale will tend to draw from a much more scattered population. For this reason, a map showing the relative practice area of a rural or isolated suburban population will show more square miles than one in an urban area. This is important because even though there may be relatively few people living and working around a particular practice site, the practice map will take in more area. When considering the ideal population-to-dentist ratio, it is necessary to accept that a set radius will not provide sufficient information. A four-mile radius in Merced is not the same as a four-mile radius in Sacramento.
Isochrones are also important because they relate to the distance between a practice and large transportation arteries with high speeds. Close access to an interstate or expressway off-ramp means that people are often willing to travel from a greater distance because the time it takes to get to the office is shorter. An isochrone map will show that the potential reach of a practice is longer along highways than along unpaved streets.
Age
Age is the third most important population factor for determining the value of a given practice site. This is due to the simple fact that age so often predicts dental need. For example, pediatric dentists will want an area with a lot of children age 3 to 10 and orthodontists will want an area with a lot of youths age 10 to 18. Most dentists already understand the relationship of age to given dental procedures. They know that 18- to 25-year-olds do not often seek treatment of any kind (with the exception, perhaps, of third molar extractions) because their physical condition is as good as it will be in their lives and because they don’t have adequate money or insurance to pay for care. Conversely, people 45 to 60 years of age often have significant dental need and financial resources. Insurance actuaries have long understood this relationship between age and health care need and therefore tend to increase insurance premiums with age.
Age can be analyzed in three ways:3
1. Absolute numbers of population broken out by age;
2. Relative distribution of ages; and
3. Median age.
The first figure shows how many people of a specific age are in a given geographic area. This will help provide an idea of how many age-related dental procedures will be necessary for a base population..
The second measurement takes the entire population and breaks it out into age groups by percentage of the total population. This is particularly useful in comparing one area of similar size to another. It tends to show the "character" of a population.
The third measurement, median age, is figured by taking the ages of everyone in the community, plotting them on a graph, and finding the age that falls in the middle of the bell curve. This statistic is good for comparing one area to another but is also helpful to use as a marketing demographic for direct mail. Typically, if one were ordering a mailing list, one would choose heads-of-household who fall near the median age. Median age also figures prominently in determining a psychographic profile (which is discussed later).
It is extremely useful to compare the median age of a practice area to the median age and age distribution of a practice. This exercise will indicate how closely the practice’s patient population matches the community profile. Based upon the author’s internal polling of dentists in transition (selling their practices or taking on a new partner), most dentists who have worked in a practice for five years or more will have a median age for their practices within five years of their own age, either younger or older. It is crucial, therefore, for a purchasing dentist to consider whether the practice is being sold by a much older, retiring doctor. A patient base that is much older than the prospective buyer could have less loyalty and require additional marketing efforts to replace patients who move on. This case has not been proven statistically, however.
Local Economics
Just as an investor may make a fortune off a single stock while the rest of the stock market is down, local economies can differ from state or national economies. Each practice area has a different economic potential from the larger geographic setting.
The local economic outlook is determined by several factors, such as household income, consumption potential, and employment.
Household Income
Similarly to age, household income can be looked at in three ways:
1. Absolute income earned;
2. Relative distribution of incomes; and
3. Median income.
It is possible to find out how much money is being produced or earned in a given geography. Perhaps the easiest geography to comprehend is the zip code. Its boundaries are well-defined, and it is useful as a marketing area.
It is also possible to determine the relative categories of income that are being earned per household. For example, it is useful to know how many people per zip code earn:
* Less than $15,000;
* $15,000 to $25,000;
* $25,000 to $50,000;
* $50,000 to $100,000;
* $100,000 to $150,000; and
* 150,000 or more.
These are the standard categories used by the U.S. Census Bureau. From these categories, one can extrapolate the percentage of people earning each of these incomes for use in comparing one geographic area to another.
Median household income is useful in the same was as median age to determine a character of the population as well as for making marketing decisions.
Consumption Potential
People spend money on different things. Demographers have long tracked the various things that people buy to determine the nature of the population’s choices. For example, if people in a given area spend a great deal of money on investments, they most likely have investment income. Therefore, this population is meeting its other financial obligations to the point that they have disposable income. There are many categories of consumption potential4 that can be measured. A few examples include:
* Insurance;
* Home repair;
* Pet supplies;
* Health insurance;
* Movie rentals; and
* New car loans.
Most of the time, consumption potential is expressed as an index. This index has a baseline of "100" which represents the national norm. Any score above or below this line indicates there is more or less spending than the national average in that category for that geographical site.
Employment
Some areas have a single large industry as their chief economic base. For decades Monterey, for example, depended upon fishing as the main base of its economy. When demand, technology, and foreign competition threatened that industry, a financial crisis ensued. This is also the case in many "rust belt" communities that depended upon a single large factory or plant for most employment.
Diversity in the economic base is much more common than ever before. Nevertheless, many communities continue to be dependent upon one or two industries for support. At first glance, it appears that some of those industries are immune to market forces. Such was the thinking of several communities in California, such as Sacramento, that had military installations. When the federal government decided to close four military bases in the Sacramento area, however, dental practices had to scramble to reconsider the economic base of their patients. Property values shifted as did insurance plans, population growth and character, and transportation patterns.
Those parts of California that depend mainly upon government granted funding (including colleges and universities), tourism, and the military may look secure but are not always.
Many sites depend upon the economies of surrounding communities. This is certainly true of suburbs. Residents earn their money elsewhere and return home with it, sometimes crossing state lines in doing so. In fact, these communities tend to have more inherent stability because they draw from several diverse sources for their ultimate economic base.
Another type of economic base is the "retirement community." In this case, people have earned their money elsewhere (often in a different state) and are spending their savings and retirement income to live. For that reason, retirement communities are often the communities with the most stable economic outlook.
It is useful to consider the ratio of employers to employees per geographic area (such as a zip code) as it will reveal the impact of a specific business or industry upon the practice base.
Psychographics (Lifestyles)
While it is very useful to determine the individual characteristics of a population, demographers have created a kind of short-hand to look at groups of people. They classify them according to the characteristics they have in common. Using algorithms of available data, they have divided the U.S. populations into several lifestyle "clusters."5 The various vendors of this information differ in the number of categories (from nine to 50), with each company using its own algorithms to determine the differences between them.
As an example, Claritas owns a market research company called National Decisions Systems. Their MicroVision profiles contain 50 lifestyles clusters. These clusters carry names that are somewhat descriptive. Two groups found in large numbers in California are "Good Family Life" and "Urban Up and Comers."
Good Family Life
People in this cluster are typically high income, married couples with children. They live in owner-occupied single family detached units in rural areas. They have a high level of education and work in white collar occupations.
Good Family Life adults are more likely than average to be in the age ranges between 40 and 54 years and are more than 10 percent more likely than average to have children ages 10 to 17. Their median household income is 66 percent above average, ranking them eighth overall, and they have the highest concentration of white households (96 percent). These adults are the third most likely to be married (19 percent above average) and third most likely to live in owner-occupied and single-family detached housing. More than 80 percent of these households live in rural areas, which is more than three times the national average. They are found in particularly high concentrations in the rural parts of New England, the Midwest, and the West. Although they are primarily located in rural areas, their property value is more than 50 percent higher than the national average. They rank second in having an associate degree and are about 40 percent more likely than average to have a bachelor’s or postgraduate degree. They are 15 percent more likely to have a white collar job, ranking highest in technical support occupations (11th) and executive and managerial occupations (12th). They are the fourth most likely to drive alone to work and have an above-average commute time.
This segment is very likely to own a variety of sports equipment and to participate in various sports including skiing, racquetball, boating, hiking, and golf. They are the most likely segment to own a gas grill and are more likely than average to drink Coors Light beer.6
Urban Up And Comers
This population cluster consists of singles, primarily living alone, in rental property. They live in urban areas, have a high level of education, have medium-high income, and work in white collar occupations.
Adults in this segment are more likely than average to be between 18 and 39 years old. In fact, they have the highest share in the 30- to 34-year range. More than 58 percent of these households contain one person (ranking second overall) and they contain primarily singles living in nonfamily households (ranking first). While more than 70 percent of these households are white, they have the fourth-highest share of Asian households (more than three times the national average). The median household income is 8 percent below the national norm, but the per capita income is 48 percent above average. This is an almost entirely urban segment with 93 percent of these households living in cities. They score highest in the cities of Washington, D.C.; Chicago; Boston; and San Francisco. Educational attainment is well more than average. This segment has two and three times the average percentage with bachelor’s and postgraduate degrees, respectively. More than 78 percent work in white collar occupations, particularly in technical support, a professional specialty, and executive and managerial positions. Also indicative of their urban concentration, they are much more likely than average to rent (83 percent are renters), they rank third in living in structures with 10 to 49 units and fourth for structures with 50 or more units. They rank third in taking public transportation to work, and they rank fifth for having no vehicles in the household.
Urban Up and Comers are the most likely to do their banking with an ATM card, subscribe to voice mail, and to use a PC for a variety of online and Internet functions. They are also very likely to have an educational loan; drink imported beer and wine; and have dental, renter’s, and accidental death and dismemberment insurance.6
Obviously, these two lifestyles are quite different. The relevance to dentistry is most clear when one considers that each group will have its own particular wants and needs for dental care. As a rule, single populations are more mobile. They represent most of the new patients found in any given geography. They are also less stable and more difficult to establish a relationship with.
Knowing lifestyles or psychographics is important because it can provide valuable insights into:
1. The nature of the wants and needs of a population for a particular treatment, location, method of practice, or payment model;
2. The media and messages used to market to them so they can be done most cost-effectively;
3. Inappropriate or undesirable lifestyles that can be avoided as the targets for marketing; and
4. How a practice’s patient base can be analyzed to determine how alike or dissimilar it is from the general population.
This information on psychographics is invaluable, therefore, in evaluating a practice site and practice database. It is also very useful as a tool on which to base future internal and external marketing activities by providing a rational target market that will be the kind of patients the practice most desires. While this information is very useful, it can become a quixotic search to find the "ideal" psychographic group or segment. Some dentists are lured into seeking a population that fits a particular lifestyle they would like to serve rather than looking at the populations near their current practice that they might serve well. For example, some dentists’ searches for desirable demographics might lead them to areas dominated by affluence, such as San Francisco, Sunnyvale, and Beverly Hills. Unfortunately, competition and high overhead often accompany these locations.
It is better to find the best patients within a particular market than to find a market with a particular kind of patient.
Summary
This article has discussed those factors that a dentist should consider in determining a dental practice site. This information is available through private data vendors, marketing firms, and government agencies. Beyond the simple facts about what people are (demographics), knowing what people do (psychographics) can provide the dentist with necessary insights into knowing the potential of a location and how to market to the "ideal" target markets within the area effectively.
The famous Temple of the Oracle at Delphi has engraved above it, "Know Thyself." Using modern demographic and psychographic research, it is both possible and practical to "know thy practice site" so that these important and risk-filled decisions can be made rationally. There is no single "right" place to place a practice. Personal preferences, family, friends, church, and recreation all have a hand in determining a dentist’s likelihood of happiness with a particular location. Still, to the degree that objective criteria can be known and evaluated, the science of demographics can be a valuable tool.
Author
Scott McDonald is president and owner of Scott McDonald & Associates in Sacramento. He provides demographic and psychographic research and analysis; mailing lists; and programs on site analysis, marketing, and customer motivation for dental practices and other small businesses.
References
1. Unpublished analysis by Scott McDonald & Associates of patient profile analysis forms run in 100 California general dental practices between 1997 and 2000.
2. Salvaneshi L, Location, Location, Location. Oasis Press, Grants Pass, Ore, 1996, p 59-77.
3. Hinde A, Demographic Methods. Oxford University Press, Inc, 1999
4. CACI Acorn Report, 1998.
5. Piirto R, Beyond Mind Games. American Demographics, Ithaca, NY, 1991, pp 18-26.
6. Copyright 1999, National Decision Systems, San Diego, Calif.
To request a printed copy of this article, please contact/ Scott McDonald & Associates, 5013 Harebell Court, Sacramento, CA 95842 or at demographics@cs.com.
