Dr. Don Deems, the Dentist's Coach - Free Newsletter: The Gas Station Game

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The Gas Station Game
August 03, 2008

There's a "game" that many MBA students play during the education to simulate real-life business scenarios in hopes that they will learn from these and not make the blunders that non-educated people make.

One of those games is called "The Gas Station Game".

In this "game", teams are paired against each other. The scenario is this: Both "stations" are in the same town, work across the street from each other, have been in business a long time, sell gas only, have different gas suppliers, and make the same profit if they both sell gas at the same price. If one station discounts their price, that station makes a large profit, and the other station loses substantial profit. If both stations discount their price, both teams make less profit. If both stations keep their prices the same, they both make good profit. The "game" is played by each station choosing whether to keep their price the same or discounting it without talking to their opponent about their decision to "stay" or "cut".

What do you think happens round after round when each team has to decide what they will do next?

You might not be surprised to know that few very teams don't give in to the temptation to discount their prices and make a large profit in the early rounds. Distrust sets in rapidly, and teams generally take a long time (many rounds and eventual discussion between teams) to "get their act together" by trusting each other and in turn, not discount their prices. Very few pairs of teams ever make the most profit they could have made by choosing to keep their prices the same.

How does this play out in your practice?

In short, discounting your services ultimately hurts your practice. Initially, you'll see a larger profit, but in the long run, you'll lose clients/patients and your practice will suffer financially.

Most importantly, you'll breed mistrust among the fellow dentists in your community. Have you not seen that already? How do you feel about that dentist who advertises services for fees that you couldn't even make your overhead with doing at that fee?

On a larger scale, what happens when we give in to accepting discounted fee plans? It's really too bad that we dentists couldn't have gotten our act together to understand what happens when fees are discounted, and how it affects not only our profession but our individual practices.

What can you do?

As a leader, avoid the temptation to discount your fees in hopes that you will make a larger profit from increased volume. And when possible, avoid signing up for discounted dental plans.

When I first began practice, "dental HMOs" were just working their way into the marketplace. One "dental HMO" was lucky enough to get enough dentists signed up as providers for their plan, and thus, they were able to sell plans to local businesses. The dentists that signed up for the plan soon learned that there was no incentive to provide quality care or to even see the patient. [In a HMO, you are paid a certain amount per month per patient regardless of what care you provide them or even if you see them.] Fortunately, enough dentists eventually dropped out of the plan after taking big losses in their practices.

And can you guess what happened next?

Yes, the insurance company was no longer able to sell plans, so they left the area. Imagine that!

During tougher economic times, the temptation is great to discount fees, sign up for discounted insurance plans, and the like. Avoid the temptation, and focus elsewhere in your practice, such as the condition of your office and staff training, such as phone skills and listening skills. Look for ways to reduce overhead without sacrificing quality and service. Focus on increasing efficiency in the same way.

Times are not that bad, no matter what you read. Pay attention to what's going on in your practice, in your community, and be a great leader. Focus on what YOU can do to become the leader your team needs you to be. Your practice will thrive no matter what when your focus is in the right place and you make good business decisions.

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