HealthCareMarketing

Presented to: Leading in Health Care The Cleveland Clinic

December 2011

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

LearningObjectives
Understandtheneedforadifferentialadvantage Differentiatebetweentheperspectiveofamarket based&nonmarketplanningapproach Recognizetheimportanceofthebuyersmetricin deliveringaserviceandinthesuccessful implementationofabusinessplan Understandthestrategicimplicationsofmarket segmentation ApplythefourPsofmarketingstrategytohealth careandinabusinessplanningcontext

pims

Competinginacommodityworld
Onlyhighvalueaddedtothecustomercan commandhighmargins allproductsandservicesbecomecommodities asthemarketmatures servicesarereachinganequalityofquality providersvalueextendsbeyondtheclinical service unquantifiedvalueisunmarketablevalue

Requirementsforadifferential advantage

Importanttothebuyer Perceivedbythebuyer Uniquefromotherproviders sustainable

TwoKeyInitialConsiderations
WhoisthetargetMarket?(andwhoisnt) Whatisthedifferentialadvantage?

Target Market Determination

Drives the setting of Marketing Plans & strategy

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

A DifferentialAdvantage &atargetmarket

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)

TheTargetmarket
Atargetmarketisthegroupyouwanttogo afterandachievethatmaywellbedifferent thantheclientbasethatyouarepresently serving.

AmericanCollegeof PhysicianExecutives

Whodontyouwant? Consider

Developamarketresponsive planningapproach

PLANNING
THENONMARKETBASEDAPPROACH

MISSION AND GOALS STRATEGY IMPLEMENTATION MARKET

PLANNING
AMARKETBASEDAPPROACH
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

TheMarketDrivenProcess
Outsidetoinsidetooutsideflow Marketresearchattwopointsservice development&pretesting Customerdrivendifferentialadvantage

Sourcesofadifferentialadvantage
Costbased Productbased Marketbased

Costbasedadvantage
Nofrillsproduct Experiencecurve Expensecontrol Governmentsubsidy

Productbased
Name/qualityimage Quality Innovation Distributionservices

MarketBased
targetedmarketsegment geographicfocus

TheGoalistodelivervaluetothe customerfromthecustomersperspective

MarketingMyopia
UnionPacific Werunarailroad Weareatransportationand materialshandlingcompany Weareacommunicationand informationtransmission

AT&T business Revlon

Weareatelephone company

Inthefactorywe makecosmetics Wemakeskis

Intheretailstorewesellhope

Headskis

Wemarketexercise,egobuilding andachancetomeetpeople

CustomerValueEquation:
Clinical Results Produced for Customer

Service Process Quality

Out of Pocket Price to Customer

Effort Expended Price

Value to Customer

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Service Process Quality

Providingcustomerswithareliable productorserviceexperienceat competitivepriceandaminimumof difficulty

Dimensions of Service Process Quality

Dependability--provider do what was promised? Responsiveness -service provided in a timely manner? Authority - provider elicit a feeling of confidence during delivery process? Empathy - provider able to take customers point of view? Tangible evidence - was evidence left that service American College of was performed?
Physician Executives

EffortExpendedPrice
Systemdislocationcosts:Howmuchdoesthe individualhavetodisrupttheirpatternsof behaviororlifestyletodealwithyour organization? Setupcosts:Howmuchdotheyhavetochange theirlifestyletointegrateintoyoursystems? Monitoringcosts:Doestheindividualhaveto monitortheperformanceofyoursystem,ordo youprovideongoingreportsastohowwellyou aredoinginmeetingtheirhealthstatusneeds?

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ThreeFactorsthenarereally inthesefourvariables Price ClinicalQuality CustomerService

Thechallengeofintegratinga marketingorientationintoa professionalserviceorientation

ThecaseofTheArchitects Collaborative

BuyingaCarfromtheBuyers Perspective

Generic Product
status performance
Primary Product --------------------

safety

reliability

HealthCarefromtheBuyers 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

Whatisthebuyersmetricforyour businessplanproposal?

RecognizetheChallengeofaWEB2.0 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

Communicationnowis
Getting the marketing message into the constellation

Web 2.0

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

Methods: Sociodemographic Usage

The Law of the Heavy Half Consumer

80/20 rule

a small percentage of consumers tend to account for a disproportionate share of a products sales

TheHeavyHalfConsumer
Colas H=22% B=0% Beers H=67% B=0% Canned Hash H=68% B=0%
AmericanCollegeofPhysicianExecutives

H=39% B=10%

H=39% B=90%

H=16% B=12%

H=17% B=88%

H=16% B=14%

H=16% B=86%
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Loyalcustomershavean importantasset

Theyprovideazoneoftolerancefor servicedeliveryfailuresbasedonmultiple datapoints

Customer Loyalty

Customer Retention

Total Share of Customer

What is a Loyal Customer?

Makesregular,repeatpurchases Purchasesacrossservicelines Refersothers Demonstratesanimmunitytothepullof competition Cantolerateanoccasionallapsein companysupportwithoutdefecting

Source: Strum & Thiry, Training & Development Journal, 4.91, pp. 34-5; Griffin & Lowenstein, Customer Win Back, Josey Bass,2001

Strategicconsiderationsoverthelife cycleofyourservices

DevelopmentofProgram/Service StrategyistheProductLifeCycle
StrategychangesoverthecourseofthePLC MetricsshiftoverthePLC Organizationalchallengesandissuesshift througheachstageofthePLC

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

The PLC for VCRs

DischargeratesinNonfederalShortstayHospitals19702007

Source: data from National Hospital Discharge Survey: 2000 Annual Summary With Detailed Diagnosis and Procedure Data, Department of Health and Human Services Series 13, Number 153 (November 2002), p. 7;National Hospital Discharge Survey: 2007 Summary, National Health Statistics Report, No. 29 (October 26, 2010), p. 7

ExternalitiesAffectYourLife Cycle&Straetgy

Deficit Reduction act pass

First year Fee cuts occur

Source: Bruce J. Hillman and Jeff Goldsmith, Imaging : The Self referral Boom and the On-going Search for Policies To Contain It, Health Affairs, Vol, 29 , No. 12(2010), pp. 2231-2236.

TheEffectofExternalitiesontheProductLifeCycle

Prescription(inmillions)
25 Numberinmillions 20 Sales(inbillions) 15 10 5 0 04 0.7 05 06 Year 07 08 09 9.5 6 5.3 Vytorin Zetia 3 2.5 2 1.5 0.89 1 0.5 0 04 05 0.09

Sales(inbillions)

0.77 0.7 06 Year 07 08 09

Vytorin Zetia

Source:IMSHealth,Smallheartstudymakesabigimpact,USAtoday,Nov17,2009

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Beforeyoustartthecurve: someconsiderations

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

Branding theignoredmarketingdecision

seal of approval

Multiproduct samebrandacrossentireline Multibranddifferentbrandforeach productinline Resellersellproductundersomeoneelses name Mixed someunderyourname,some underanotherfirmsname CoBranding marketyournamealongside someoneelses
Kevin Keller et al., About your Brand, 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

New Service Opportunity Check-List

Criteria relative size of market Scale 4 -required share l.t. or = to 10% ROI 3 -g.t. 10% to 30% 2 -g.t. 30% to 50% 1 -g.t. 50% 4 -few, small competitors 3 -many, small competitors 2 - few competitors, dominated by one/two large competitors 1 - many competitors dominated by one/two strong providers 4 - introduction 3 - growth 2 - maturity 1 - decline

competitive structure

position in life cycle

Checklist (continued)
Criteria barriers to entry Scale 3 - fewer barriers than opportunities 2 - average 1 - greater number of barriers 3 - market perceives as strongest provider 2 - market perceives as average 1 - market perceives as below average

market presence

synergistic effect

3 -improves position of other businesses 2 -does not improve 1 - negatively affects management experience 3 -significant experience in identical service 2 -limited experience 1 - related experience 3 - g.t. hospital target 2 - = to hospital target 1 - less than target

ROI

Checklist (continued)
criteria risk/return scale 4 - existing market/existing service 3 -new market/existing service 2 -existing market/new service 1 - new market/new service

Consideryourcoststructure: Itsuggestsyourmanagement challenge

Coststructure
Fixedcostversusvariablecost?

HighFixedcosttovariablecost= volumesensitive
HighVariablecosttofixedcost= Marginsensitive

TheIntroductionStageChallenge
Gaininginnovatoracceptance!

BarrierstoEntry

Economiesofscale Productdifferentiation Capitalrequirements Switchingcosts Accesstodistributionchannels

BarrierstoEntry

Advertising Costdisadvantages:

technology
location government learningcurve

BarrierstoExit

Highfixedcost/lowvariablecost Psychological,socialcommitment Internalsystems

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, higher educated, use multiple information sources Leaders in social setting
Mavens (accumulate Knowledge)

Early adopters Early Deliberate, many informal Majority social contacts Late majority Skeptical, below average social status Laggards Fear of debt, neighbors and close friends primary source of information

Connectors (know lots of people)

salespeople

The Tipping Point

KeyIssue: Product or Service Quality

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.

TheFormulaforBreakeven

Price Variable Cost Breakeven=FixedCost

Note: price minus variable cost is called the contribution margin

NeverCalculateaPointEstimate

Break Even 40 50 200

Fixed Cost 200 200 200

Price $10 8 5

Variable Cost 5 4 4

BreakEvenisFinancial/ ShareisCompetitive
Total Market Size Break Even Share to B.E.

100 100 100

40 50 200

40% 50% 200%

A useful break even calculator

http://www.bplans.com/common/calculators/breakeven.cfm

or
http://www.dinkytown.net/java/BreakEven.html

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

Growthstage
Howdoyouknowyouhitit?

The Generalized Product Life Cycle

Sales/ Revenue

growth introduction

maturity

decline

Time

IntuitiveSurgicalsProductLifeCycle

DaVinciSurgicalRobotunitsales
1800 1600 1400 1200 Numberofunits 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year DaVincisurgicalrobotunits sold

Source:IntuitiveSurgicalsPressReleases,http://investor.intuitivesurgical.com/phoenix.zhtml?c=122359&p=irolnewsArchive

Growthstage
Shiftmeasurestoassesssuccess& prepareforcompetition

Growth Stage Strategies

improve services add extensions enter new distribution channels shift advertising to differentiation lower price to broaden market

goal - establish differential advantage challenge--second entrant to market

Controlling the channel

push vs. pull Defining the channel
In traditional industries-the path a product takes as it moves from producer to end user. In health care--the path a patient takes as he or she moves to the appropriate level of care.

Controlling the channel

push vs. pull Defining the channel
In traditional industries-the path a product takes as it moves from producer to end user. In health care--the path a patient takes as he or she moves to the appropriate level of care.

The traditional channel

The Healthcare channel

patient Manufacturer managed care primary MD Wholesaler specialist MD Retailer Consumer acute care hospital tertiary center

Avoidbeingfirst Letfirstentrantopennewmarket Learnfromfirstentrantsmistakes Beafastimitator Offeranimprovedversion Ifnotbetterproduct/service,lowerprice

GettingaStrategicAdvantage thefollower

Mature Stage 3 phases

growth maturity - sales growth rate starts to decline, laggards enter market stable maturity - sales flatten due to market saturation, sales governed by population growth& replacement decaying maturity - absolute level of sales decline, customers switch to other service providers

Mature Stage 3 phases

growth maturity - sales growth rate starts to decline, laggards enter market stable maturity - sales flatten due to market saturation, sales governed by population growth& replacement decaying maturity - absolute level of sales decline, customers switch to other service providers

EarlyMaturity
Reducepriceinrealtermstoattractprice sensitivebuyers Improve/relaunchproducts Makeadditionstoproductline Motivatechanneltomaximizevolume Focusadvertisingonloyalty

LateMaturity/Decline
Offervalueformoneythroughcostreductions Advertisingonreminder Rationalizerangeandvariety

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!

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

TheMarketingMixOverthePLC
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, then high