Lessons from Smile Direct Club’s Chapter 11 Filing: A Perspective for Orthodontic Practices

The recent news of SmileDirectClub’s voluntary Chapter 11 bankruptcy filing has sent shockwaves through the orthodontic industry. As professional trainers in the orthodontic industry, it’s crucial to dissect the lessons that can be learned from this development. Hindsight may be 20/20, but there are valuable takeaways from this situation.

Disrupting Through Price: The D2C Model on Trial

One of the most significant theories put to the test here is the Direct-to-Consumer (D2C) model’s ability to disrupt the orthodontic industry through competitive pricing. SmileDirectClub (SDC) initially gained attention for its lower-cost alternative to traditional orthodontic treatment. However, their recent financial struggles raise questions about the sustainability of this approach. While price disruption can attract a broader customer base, it may not always result in long-term success. Orthodontic practices should carefully consider the balance between offering competitive pricing and maintaining profitability to ensure their sustainability.

Targeting the Right Demographic

SDC’s experience also highlights the importance of targeting the right demographic. They may have inadvertently painted themselves into a corner by initially focusing on a demographic seeking cost-effective treatment. This left them vulnerable when this target market became more sensitive to economic uncertainty. Orthodontic practices should thoroughly research their target market and adapt their services accordingly. Perhaps SDC could have targeted affluent consumers looking for minor touch-up re-treatment in their early 30s. Understanding your audience’s needs and preferences is key to success.

Lifetime Customer Value and Acquisition Costs

One crucial metric to consider in the orthodontic industry is the lifetime customer value (LCV) and acquisition costs. SDC’s Chapter 11 filing suggests that their LCV may not have matched their initial expectations. Orthodontic practices should carefully evaluate their customer acquisition costs and calculate the potential LCV for their patients. Building strong relationships with patients and ensuring their satisfaction can lead to repeat business and referrals, ultimately increasing LCV.

Access to Care: A Universal Goal

Despite its challenges, SmileDirectClub’s mission to democratize access to premium oral care remains commendable. As professionals in the orthodontic field, we should always seek ways to increase access to care, especially for underserved populations. Watching SDC’s latest efforts to collaborate with general practice offices can provide insights into innovative ways to expand access while maintaining financial stability.

The news of SmileDirectClub’s Chapter 11 bankruptcy filing serves as a reminder that success in the orthodontic industry requires a delicate balance between pricing, target demographics, and financial sustainability. It also underscores the importance of customer relationships, lifetime value, and the universal goal of increasing access to care. As orthodontic professionals, let’s learn from this experience, adapt our strategies, and continue to provide high-quality care to our patients while keeping a close eye on industry trends and developments. In the end, our commitment to quality outcomes, patient satisfaction and access to care will be our greatest assets.

Additional Reading:

For those with business partners or investors who need some encouragement to help align pricing with outcomes, operational efficiency and profit margin, here are some other examples from outside our industry which might help:

Toys “R” Us, a prominent toy retailer, filed for Chapter 11 bankruptcy protection in 2017. The company struggled to compete with online retailers and discount stores. Their inability to maintain competitive prices while covering operational costs contributed to their financial downfall.

Sears Holdings, a retail giant that included Sears and Kmart, filed for Chapter 11 bankruptcy in 2018. The company faced fierce competition from e-commerce and failed to adapt to changing consumer preferences. Pricing strategies that didn’t resonate with consumers further exacerbated their financial difficulties.

Hertz Global Holdings, a leading car rental company, filed for Chapter 11 bankruptcy in 2020. The rental car industry faced significant challenges due to the COVID-19 pandemic, and Hertz struggled with excessive debt burdens and operational costs that couldn’t be sustained with their pricing models.

J.Crew Group, a popular clothing retailer, filed for Chapter 11 bankruptcy in 2020. The company faced declining sales and an inability to keep up with fast fashion competitors. Their pricing strategy wasn’t aligned with consumer expectations, impacting their ability to remain financially viable.