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Health Care Marketing

Presented to: Leading in Health Care The Cleveland Clinic
December 2011

Eric N. Berkowitz, Ph.D. The University of Massachusetts at Amherst

Learning Objectives
• Understand the need for a differential advantage • Differentiate between the perspective of a market  based & non‐market planning approach • Recognize the importance of the buyer’s metric in  delivering a service and in the successful  implementation of a business plan  • Understand the strategic implications of market  segmentation • Apply the four P’s of marketing strategy to health  care and in a business planning context

pims

Competing in a commodity world
• Only high value added to the customer can  command high margins • all products and services become commodities  as the market matures • services are reaching an “equality of quality” • provider’s value extends beyond the clinical  service • unquantified value is unmarketable value

Requirements for a differential  advantage

• • • •

Important to the buyer Perceived by the buyer Unique from other providers sustainable

Two Key Initial Considerations
• Who is the target Market? (and who isn’t) • What is the differential advantage?

Target Market Determination

Drives the setting of Marketing Plans & strategy

To attract that Target market Want a differential advantage Relative to competing offerings

A Differential Advantage & a target market

“Competitive strategy is about being different, it means deliberately choosing a different set of activities to deliver a unique mix of value.”

Mchael Porter cited in Vincent P Barabba, Meetings of the Minds (Boston: Harvard Business School Press, 1995, p.2)

The Target market
• A target market is the group you want to go  after and achieve that may well be different than the client base that you are presently  serving. 

American College of  Physician Executives

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Who don’t you want? Consider Develop a market responsive  planning approach .

PLANNING THE NON‐MARKET BASED APPROACH MISSION AND GOALS STRATEGY IMPLEMENTATION MARKET PLANNING A MARKET BASED APPROACH MISSION/GOALS ASSESS NEED STRATEGY IMPLEMENT MARKET PRE-TEST IDENTIFY DIFFERENTIAL ADVANTAGE .

THE NON-MARKET BASED APPROACH MISSION AND GOALS A MARKET BASED APPROACH MISSION/GOALS ASSESS NEED STRATEGY IMPLEMENTATION MARKET STRATEGY IMPLEMENT MARKET IDENTIFY DIFFERENTIAL ADVANTAGE PRE-TEST THE ESSENCE OF MARKETING A DEFINITION FIND OUT WHAT CONSUMERS WANT PLAN AND DEVELOP A PRODUCT OR SERVICE THAT WILL MEET THOSE NEEDS DETERMINE THE BEST WAY TO PRICE. PROMOTE & DISTRIBUTE THE SERVICE .

The Market Driven Process • Outside to inside to outside flow • Market research at two points—service  development & pre‐testing • Customer driven differential advantage Sources of a differential advantage • Cost based • Product based • Market  based .

Cost based advantage • • • • No frills product Experience curve Expense control Government subsidy Product based • • • • Name/quality image Quality Innovation Distribution services .

Market Based • targeted market segment  • geographic focus The Goal is to deliver value to the  customer from the customer’s perspective .

 ego building and a chance to meet people Customer Value Equation: Clinical Results Produced for Customer Service Process Quality Out of Pocket Price to Customer Effort Expended Price Value to Customer 22 .Marketing Myopia Union Pacific We run a railroad We are a transportation and  materials handling company We are a communication and information transmission  AT&T business Revlon We are a telephone company In the factory we  make cosmetics We make skis In the retail store we sell hope Head skis We market exercise.

Service Process Quality Providing customers with a reliable  product or service experience at  competitive price and a minimum of  difficulty   Dimensions of Service Process Quality • Dependability--provider do what was promised? • Responsiveness -service provided in a timely manner? • Authority .was evidence left that service American College of was performed? Physician Executives .provider able to take customer’s point of view? • Tangible evidence .provider elicit a feeling of confidence during delivery process? • Empathy .

Effort Expended Price • System dislocation costs:  How much does the  individual have to disrupt their patterns of  behavior or lifestyle to deal with your  organization? • Set‐up costs:  How much do they have to change  their lifestyle to integrate into your systems? • Monitoring costs:  Does the individual have to  monitor the performance of your system. or do  you provide on‐going reports as to how well you  are doing in meeting their health status needs? 25 Three Factors then are really in these four variables Price Clinical Quality Customer Service .

The challenge of integrating a  marketing orientation into a  professional service orientation The case of The Architect’s  Collaborative Buying a Car from the Buyer’s  Perspective Generic Product status performance Primary Product -------------------- safety reliability .

Health Care from the Buyer’s  Perspective Generic product spatial aspects facility ambiance Primary Product Technology & ----------patient procedures interpersonal relations The Referral Physician Market Generic Component access satisfied patient Primary product technology & -------feedback get patient back .

What is the buyer’s metric for your  business plan proposal? Recognize the Challenge of a WEB 2.0  world .

Communication between health professional or organization to the Patient was a one way flow of information Historically information (when and if) was sent to the patient vehicles yellow pages newspapers magazines Health care organization television P H Y S I C I A N S P A T I E N T S Communication now is… Getting the marketing message into the constellation…… Web 2.0 .

Methods: Sociodemographic Usage .35 Market Segmentation definition: identification of subgroups in the population with similar wants and needs. Tailor the marketing mix to meet those subgroups needs.

The Law of the Heavy Half Consumer 80/20 rule a small percentage of consumers tend to account for a disproportionate share of a product’s sales The Heavy Half Consumer Colas H=22% B=0% Beers H=67% B=0% Canned Hash H=68% B=0% American College of Physician Executives H=39% B=10% H=39% B=90% H=16% B=12% H=17% B=88% H=16% B=14% H=16% B=86% 38 .

Loyal customers have an  important asset They provide a zone of tolerance for  service delivery failures based on multiple  data points Customer Loyalty Customer Retention Total Share of Customer .

 repeat purchases Purchases across service lines Refers others Demonstrates an immunity to the pull of  competition • Can tolerate an occasional lapse in  company support without defecting Source: Strum & Thiry.2001 Strategic considerations over the life  cycle of your services .91. 4.What is a Loyal Customer? • • • • Makes regular. Josey Bass. Training & Development Journal. pp. Griffin & Lowenstein. Customer Win Back. 34-5.

Development of Program/ Service  Strategy is the Product Life Cycle • Strategy changes over the course of the PLC • Metrics shift over the PLC • Organizational challenges and issues shift  through each stage of the PLC The Generalized Product Life Cycle Sales/ revenue I n t r o G r o w t h M a t u r I t y D e c l I n e time .

“ Department of Health and Human Services Series 13. Number 153 (November 2002).” National Health Statistics Report. No. 7 . 7. 29 (October 26.The PLC for VCRs Discharge rates in Nonfederal Short‐stay Hospitals 1970‐2007 Source: data from “National Hospital Discharge Survey: 2000 Annual Summary With Detailed Diagnosis and Procedure Data. 2010). p.”National Hospital Discharge Survey: 2007 Summary. p.

Externalities Affect Your Life  Cycle & Straetgy .

3 Vytorin Zetia 3 2. Vol.09 Sales (in billions) 0. Small heart study makes a big impact.7 05 06 Year 07 08 09 9. 2009  50 .Deficit Reduction act pass First year Fee cuts occur Source: Bruce J. 2231-2236.5 2 1. 29 . pp. Health Affairs. Hillman and Jeff Goldsmith. No.5 0. 12(2010).7 06 Year 07 08 09 Vytorin Zetia Source: IMS Health. The Effect of Externalities on the Product Life Cycle Prescription (in millions) 25 Number in millions 20 Sales (in billions) 15 10 5 0 04 0. “ Imaging : The Self referral Boom and the On-going Search for Policies To Contain It. USA today.77 0.5 0 04 05 0.5 6 5. Nov 17.89 1 0.

Before you start the curve: some considerations What affects adoption? • perceived relative advantage • compatibility -degree to which the service is compatible with existing values and experiences • complexity .degree to which the service is easy to use or understand benefits • divisibility .degree to which a service can be tried on a limited basis • communicability -degree to which results are observable or can be communicated .

“About your Brand”. some  under another firm’s name • Co‐Branding‐ market your name along side  someone else’s Kevin Keller et al. Harvard Business Review.. October 2002 Marketing Considerations in a new service roll-out market related criteria relative size of market (secondary data/quantitative surveys) competitive structure (secondary data/focus groups) position in life cycle (secondary data) barriers to entry (qualitative/quantitative studies) organization related criteria market presence (focus groups/quantitative surveys) synergistic effect on share management/clinical expertise .Branding the ignored marketing decision seal of approval • Multiproduct‐ same brand across entire line • Multibrand‐different brand for each  product in line • Reseller‐sell product under someone else’s  name • Mixed‐ some under your name.

market perceives as average 1 .growth 2 . small competitors 3 -many.t. 50% 4 -few.less than target ROI .New Service Opportunity Check-List Criteria relative size of market Scale 4 -required share l.average 1 .related experience 3 .g.t.fewer barriers than opportunities 2 .decline competitive structure position in life cycle Checklist (continued) Criteria barriers to entry Scale 3 . or = to 10% ROI 3 -g. 10% to 30% 2 -g. hospital target 2 .t.greater number of barriers 3 .maturity 1 .t.market perceives as strongest provider 2 .many competitors dominated by one/two strong providers 4 . 30% to 50% 1 -g.market perceives as below average market presence synergistic effect 3 -improves position of other businesses 2 -does not improve 1 .= to hospital target 1 .few competitors. small competitors 2 . dominated by one/two large competitors 1 .negatively affects management experience 3 -significant experience in identical service 2 -limited experience 1 .introduction 3 .t.

new market/new service Consider your cost structure: It suggests your management  challenge .Checklist (continued) criteria risk/return scale 4 .existing market/existing service 3 -new market/existing service 2 -existing market/new service 1 .

Cost structure Fixed cost versus variable cost? High Fixed cost to variable cost = volume sensitive High  Variable cost to fixed cost = Margin sensitive .

The Introduction Stage Challenge Gaining innovator acceptance! Barriers to Entry      Economies‐of‐scale Product differentiation Capital requirements Switching costs Access to distribution channels .

Barriers to Entry   Advertising Cost disadvantages: ‐technology ‐location ‐government ‐learning curve Barriers to Exit    High fixed cost/low variable cost Psychological. social commitment Internal systems .

Adopter Categorization of the Basis of Relative Time of Adoption of Innovations 34% Early majority 2 1/2% Innovators 13 1/2% Early adopters 34% Late majority 16% Laggards Time of adoption innovations Introduction Stage getting the first buyers • • • • • innovators early adopters early majority late majority laggards .

Introduction Stage getting the first buyers Innovators Venturesome. use multiple information sources Leaders in social setting Mavens (accumulate Knowledge) Early adopters Early Deliberate. neighbors and close friends primary source of information Connectors (know lots of people) salespeople The Tipping Point Key Issue: Product or Service Quality . below average social status Laggards Fear of debt. many informal Majority social contacts Late majority Skeptical. higher educated.

The Formula for Break even Price – Variable Cost Break even = Fixed Cost Note: price minus variable cost is called the contribution margin .The Financial Challenge in the New Service Break-even = a financial concern regarding the amount needed to cover costs Break-even = a marketing figure indicating the amount of market share which must be achieved.

100 100 100 40 50 200 40% 50% 200% .Never Calculate a Point Estimate Break Even 40 50 200 Fixed Cost 200 200 200 Price $10 8 5 Variable Cost 5 4 4 Break Even is Financial/ Share is Competitive Total Market Size Break Even Share to B.E.

cfm or http://www.A useful break even calculator http://www.bplans.dinkytown.mit.ml.html Internal rate of return (for a project or investment) http://office.com/enus/templates/TC012342021033.net/java/BreakEven.tutor2u.microsoft.com/ipo/resources/pdf/howtoreadfinreport.net/business/presentations/accounts/ contributions/default.pdf .html Sensitivity analysis in excel --msl1.aspx?CategoryID=CT101444811033&A xInstalled=1&c=0 A useful handout on reading Financial statements is http://philanthropy.pdf A great tutorial on contribution – https://www.edu/rdn/d_table.com/common/calculators/breakeven.

Growth stage How do you know you hit it? The Generalized Product Life Cycle Sales/ Revenue growth introduction maturity decline Time .

Intuitive Surgical’s Product Life Cycle DaVinci Surgical Robot unit sales 1800 1600 1400 1200 Number of units 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year DaVinci surgical robot units sold Source: Intuitive Surgicals’ Press Releases.zhtml?c=122359&p=irol‐newsArchive  Growth stage Shift measures to assess success &  prepare for competition .intuitivesurgical. http://investor.com/phoenix.

establish differential advantage challenge--second entrant to market Controlling the channel push vs. In health care--the path a patient takes as he or she moves to the appropriate level of care. pull Defining the channel In traditional industries-the path a product takes as it moves from producer to end user. .Growth Stage Strategies improve services add extensions enter new distribution channels shift advertising to differentiation lower price to broaden market goal .

pull Defining the channel In traditional industries-the path a product takes as it moves from producer to end user.Controlling the channel push vs. The traditional channel The Healthcare channel patient Manufacturer managed care primary MD Wholesaler specialist MD Retailer Consumer acute care hospital tertiary center . In health care--the path a patient takes as he or she moves to the appropriate level of care.

sales flatten due to market saturation. laggards enter market • stable maturity .absolute level of sales decline. lower price Getting a Strategic Advantage the follower Mature Stage 3 phases • growth maturity . sales governed by population growth& replacement • decaying maturity . customers switch to other service providers .sales growth rate starts to decline.• • • • • • Avoid being first Let first entrant open new market Learn from first entrant’s mistakes Be a fast imitator Offer an improved version If not “better product/service.

absolute level of sales decline. customers switch to other service providers Early Maturity • Reduce price in real terms to attract price  sensitive buyers • Improve/ re‐launch products • Make additions to product line • Motivate channel to maximize volume • Focus advertising on loyalty .sales growth rate starts to decline.sales flatten due to market saturation. sales governed by population growth& replacement • decaying maturity .Mature Stage 3 phases • growth maturity . laggards enter market • stable maturity .

Late Maturity/Decline • Offer value for money through cost reductions • Advertising on reminder • Rationalize range and variety Mature Stage Questions ???????????? Product/service --is there an opportunity to improve? Market --is the largest competitor failing to serve some segment? Distribution --can the service be delivered more efficiently? Advertising --can a superior campaign be mounted? Legal --fight! .

then high .Decline Stage Consider exit barriers low exit barriers increase investment to dominate maintain investment until shake-out High exit barriers decrease investment selectively divest/drop The Marketing Mix Over the PLC Stage Introduction Growth Characteristic Product Shallow Deeper (segment) Selective Maturity Decline Deepest Shallow Place Exclusive Intensive Selective Promotion Primary Selective Selective Primary Price Highest Declining Stable Decline. then stable.