Stayin’ Alive: Drink More Champagne, Avoid Icebergs, Check the Crystal Ball

Q:  What were the last words of the Nobel Laureate economist, John Maynard Keynes?

A:  “I should have drunk more Champagne.”

Right! The next best thing to Champagne is writing these posts and getting readers’ comments.  Here’s a great one from a 1st generation private practice owner and worried mother.

Q: Do you think private practice can survive in this industry?  We have done pretty well and could sell, become a submarine, work for a couple more years and then figure out what we want to do with the rest of our productive lives, but………what about our daughter?  She’s a dispensing Audiologist and her husband is a dispenser. We have a really nice business at this point that they could work in and on……but with Amplifon, Costco, UHC, Sonova, Demant, Stanford boys etc…..I don’t worry so much about Audiologists working at the manufacturer level……but here on the street, I wonder………what’s your crystal ball say :)?

A:  Dear Mom – the crystal ball says to start by losing the smiley face.  Being nice isn’t going to help.  On the other hand, I don’t think it is all doom and gloom.  Some offices are going gangbusters and are likely to do so for a long time to come.  Almost inexplicably, other offices — some owned by the same people with the gangbuster offices, often in the same towns–are doing poorly and likely to continue their downward path.  Why’s that?  I used to think it was management and employee attitudes–and there is probably some of that in some situations–but I don’t think that explains the phenomenon of one office booked out 3 months in advance while the other office is begging people to come in for free screenings.

 I have pondered this question for an inordinate amount of time over the last 17 years and am now ready to reveal my long-awaited Unified Theory.  The hearing aid manufacturers and health insurance companies have the data to test my theory, but that data is closely held so my theory remains personal opinion.  My theory is “Location Location Location.” Before you get too excited at this ground breaking insight, let me specify that I am not talking about location in the store-front, corner-location sense.  See what you and your daughter think:

Locate in a clearly defined local community.  That doesn’t mean a town, it means a socially cohesive “group of interacting people, living in some proximity (i.e., in space, time, or relationship)… shar[ing] common values,” manifest by

• a “Commons” areas: shared private and public spaces such as parks, recreation centers, golf courses, local hospitals
• local communications, such as a weekly regional newspaper with local ads and features

Locate for convenience, remembering that “customer beliefs about convenience are apt to be highly subjective and related to a set of largely unidentified determinants” tied to

• travel
• parking
• ease of movement: going from store to store isn’t hard
• aggregate shopping:  one trip accomplishes multiple goals
• merchandise display:  easy to find what they want/need

Be the first one on the block.  Too many choices are hard on consumers, even if you’re in the right location.  Don’t locate in a highly saturated environment unless you have something to offer that is so obviously superior that you can quickly take over the market and buy up the competitors.  Maybe this seems obvious,  but consider how many practices are set up in well-established areas–many so well established that they are no longer growing and may be shrinking.  Just because somebody got there first and was successful is NOT an indicator that you will replicate their success, especially if they’re still there and prospering.

Know what block you’re on in consumers’ minds.  An old but interesting study{{1}}[[1]]Grossbart & Rammohan (1981). Cognitive maps and shopping convenience. In Monroe (Ed) Advances in Consumer Research, Vol 8, pp 128-133.  Ann Abor : Association for Consumer Research.[[1]] on cognitive mapping of downtown spaces analyzed how retailers defined downtown versus how consumers defined it.  Their results remain relevant to today’s discussion, highlighting the idea of “anchor locations” and small spaces: 

on the average, customers defined the downtown as covering 28%  of the area as defined by retailers and containing 16% of retailer-defined facilities while almost 2/3rds of customers regarded the center of the downtown as being somewhere other than that indicated by retailers.

Get Big Enough to Ride the Waves, Stay Small Enough to Avoid the Icebergs.  Offices need to have a certain heft — size-, media-, location- and cash flow-wise, in order to survive fluctuations and occasional big changes in consumer spending decisions.  There is such a thing as too small to survive: one hearing aid sale cannot be the difference in economic survival versus shutdown.  Conversely,  being hefty by any of several measures (e.g., many locations, employees, sales) can keep you from knowing what’s going on down in the engine room until it’s too late. For example, when one office is gangbusters and the other is going bust, poor performance at one location may be camouflaged by overall good cash flow and volume.  Focus on the good locations and eliminate bad ones because they’re probably not going to get any better.  

Unfortunately, all  the bright ideas of the Unified Location Theory require a crystal ball to read consumers’ minds.  Attempts to do so harken back to an early psychology approach called Cognitive Mapping, which began by examining relationships between geography, imaging and spatial behavior.  Research in recent decades seems to have moved along with the convergence of cognitive psychology and neurophysiology,  focused more on memory function and mind mapping (hippocampus is where it’s at) than retail decision making.  I first stumbled across the science in the early 1990s and wrote about it in my first book published in 1995.  I went back to what I wrote then to see 1) what I used to think and 2) the great strides my thinking has made in these 17 years of pondering.  Here’s what I wrote then — not much different from my “new” United Location Theory: 

Researchers in Behavioral Georgraphy have demonstrated… that consumers demonstrate “spatial choice behaviors” when selecting their destinations, and these choices are often based on subjective rather than physical realities{{2}}[[2]]Cadwallader (1981). Toward a cognitive gravity model: The case of consumer spatial behavior. Regional Studies, 15(4), 275-284.[[2]]….”cognitive mapping” is an important variable…in the selection process{{3}}[[3]]Parfit (1984, May). Mapmaker who charts our hidden mental demands. Smithsonian, pp 123-131.[[3]] because it addresses the “crystal ball” issues of image and desirability in the mind of the consumer.”

As an example, the selection of one shopping point over another equidistant one is not based simply on a time versus distance trade-off analysis{{4}}[[4]]Halperin et al (1983).Exploring entrepreneurial cognitions of retail environments. Economic Geography, 59(1), 3-15.[[4]], but more likely on a customer’s perceptual “anchor point.”  Site selection must include an analysis of anchor points in the cognitive mapping of consumers in the market area.{{5}}[[5]]Hosford et al (1995).  Location (Ch 7), pp 130-131.  In Audiology Business and Practice Management. San Diego:  Singular.[[5]]

Back to the original Question from Worried Mom:  Your practice seems to be in the right place, by all measures.  Sell it to your daughter quick and enjoy your retirement by drinking more Champagne.  Advise your daughter to consult the Unified Location Theory regularly and keep a bottle of Champagne in the fridge.  Thanks for asking me the Question.  It’s freed me up to follow Mr Keynes’s advice, now that I’ve discovered the sad fact that I don’t know anything more than I knew 17 years ago.  Cheers 🙂 !  

Photo courtesy of titanic champagne