Week 2 MHA626 Due 04/04/19 by Midnight. Eastern time

7 Managing Marketing Activities

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Marketing is too important to be left to the marketing department. —David Packard

Learning Objectives

After reading this chapter, you should be able to do the following:

• Define marketing and explain how the marketing concept is patient centered in HCOs.

• Discuss the relationship between organizational planning and marketing planning with regard to objectives and strategies throughout the planning levels.

• Name the three basic marketing strategies that can be used under the product/market approach to market- ing strategy development, identify two other approaches to marketing strategy development, and list four factors influencing the strategy selection.

• Discuss how the four strategic elements of the marketing mix become marketing tactics for implementing the selected marketing strategy.

• Identify two basic types of organizational structures for managing marketing activities.

• Explain how ethical issues in marketing relate to marketing decisions, and provide examples of ethical issues facing healthcare providers.

Section 7.1What Is Marketing?

Introduction This chapter provides an overview of marketing, the relationship between marketing plan- ning and overall organizational planning, basic marketing strategies, and approaches to orga- nizing marketing activities in an HCO. This chapter also includes a discussion of the ethical decision-making process in marketing and lays the groundwork for later chapters on the mar- keting process and its role in HCOs.

7.1 What Is Marketing? The marketing of HCOs is a relatively recent phenomenon. It was as late as 1977 that the American Hospital Association held its first convocation on marketing. Much of the early mar- keting efforts by hospitals were aimed toward the recruitment and retention of physicians. Many physicians remained skeptical of marketing to patients and believed it was unprofes- sional. However, as healthcare has become more complex and expensive, HCOs and individual healthcare providers have seen the need to better communicate to patients the value of their services (MacStravic, 1994).

Over the last two decades, the discussion of marketing in HCOs has evolved from whether it was even appropriate for HCOs to use marketing to give the organization a competitive advantage and “tell its story.” But what is meant by the term marketing?

Various definitions of marketing have evolved over the years, but one that appears to be fairly complete is as follows: Marketing directs those activities that involve the creation and distribu- tion of products and services to identified market segments. Several key words in this defini- tion need further explanation. First, what is meant by the words marketing directs. This is a managerial perspective rather than a residual perspective, which is concerned only with what has to be done to get goods and services to customers. A managerial perspective is one that is proactive, customer oriented, and aligned with the firm’s overall strategy. In contrast, a residual perspective is one that is reactive and only deals with needs as they arise. Thus, mar- keting is not just a group of activities but, more specifically, activities that are controlled in their execution to attain identifiable objectives. Second, marketing involves the performance of specific activities or functions. These functions constitute the work or substance of what marketing is all about. To be involved in marketing means to be involved in the planning, execution, and control of these activities.

Third, marketing involves both the creation and distribution of goods and services. Although the service is actually created by the operating function, marketing personnel are very much concerned not only about the way goods are created and services are performed but also the way customers utilize goods and services. Marketing needs to have a vital role in the creation as well as the distribution of goods and services. In fact, a well-conceived service or good makes the rest of the marketing tasks easier to perform.

Finally, marketing’s concern with customers, and meeting a need in the marketplace, is patient centered in an HCO. However, marketing is particularly concerned with customers preselected by management as the market segment(s) on which the organization will con- centrate. Thus, specific customers with their specific needs become the focal point of market- ing activities.

Section 7.2The Marketing Concept

7.2 The Marketing Concept The marketing concept is a business orientation that focuses on satisfying customers’ needs at acceptable levels of revenue and costs. In for-profit organizations, acceptable levels of rev- enue and costs are defined in terms of a target return on investment, while in not-for-profit organizations the focus is achieving a balance between revenues and costs.

Organizations that have a true marketing orientation focus on addressing the needs and wants of one or more targeted segments of the market. However, managers with marketing titles may apply other business philosophies that, in reality, do not reflect authentic market- ing thought. Table 7.1 shows three different business orientations that have been used as the operating philosophies behind management decision-making (Stevens, Loudon, Wrenn, & Mansfield, 2006). The term dominant in the table identifies the core objective, which gives the orientation its name. Present means that the orientation includes that objective, but does not use it as the centrally controlling goal in orienting the manager’s thoughts about his or her company, its services, or its customers. Not pertinent means that objective has no rel- evance, pertinence, or connection with the orientation described. This table makes it clear that the service and selling orientations are internally driven. Put simply, managers using these orientations determine what they want to dictate to the market. The last orientation— marketing—contains the elements of an outside-in, market-driven, or customer-oriented philosophy, which stresses discovery of market opportunities, marketplace input regarding the organization’s claim of a competitive advantage, and the integration of effort across all aspects of the organization to deliver quality and customer satisfaction.

Table 7.1: Possible organizational orientations

Service orientation

Selling orientation

Marketing orientation

Desire to capitalize on syner- gies and efficiencies in operating processes

Dominant Present Present

Attention to designing acceptable levels of quality services

Not Pertinent Present Present

Dedicated resources to stimulating interest and desire for increasing revenues

Not Pertinent Dominant Present

Focus on identifying and satisfying needs and wants of customers

Not Pertinent Not Pertinent Dominant

Considering the short- and long- term effects of actions on custom- ers and on society

Not Pertinent Not Pertinent Dominant

HCOs have been concerned with the delivery of a satisfactory level of patient services for decades. Most services, including healthcare services, are intangible. That is, they cannot be touched or held before being purchased. Additionally, the delivery of a service is dependent on the ability of the service provider. As service providers are human, the quality of service varies from patient to patient.

Section 7.2The Marketing Concept

Traditional strategies in healthcare for overcoming these limitations include improving the appearance of physical facilities, projecting competence, and employing empathetic per- sonnel (Stevens et al., 2006). However, these strategies have been shown to be inadequate, as healthcare has become more expensive and complex, from both the providers’ and the patients’ perspectives (Merlino & Raman, 2013).

According to Michael Porter and Thomas Lee, “the overarching goals for providers . . . must be improving value for patients, where value is defined as the health outcomes achieved that matter to patients relative to the cost of achieving those outcomes” (Porter & Lee, 2013, p. 52). The implied message for HCOs is not just to put together procedures to help patients navigate the system, but to fundamentally change the system.

The marketing orientation is particularly well suited to dealing with the internal and exter- nal environmental forces currently facing healthcare managers. Marketing includes all of the positive contributions of the service and selling philosophies, but it adds concern for the long- term effects of the organization’s actions and services on its customers, as well as the desire to consider the effects of the organization’s actions on society at large. Putting the marketing- orientation philosophy into practice requires a planning procedure that transforms the exter- nal consumer orientation into marketing activities.

Thus, the marketing orientation holds that the only social and economic justification for the existence of a business enterprise is this: the satisfaction of customer needs, either at a profit or at acceptable levels of revenues and costs, and with due diligence for the long-run wel- fare of the customer and society. A firm’s existence is justified socially in meeting customer needs—directly through the provision of goods and services, and indirectly through being a good citizen of its operating environment. In healthcare, meeting customer needs means being a patient-centered organization. Thus, everyone in an HCO is concerned with patient care, including nonmedical employees. In the U.S. economy, the marketing-orientation philos- ophy is exactly why organizations were given the right by society to own and use resources to produce goods and services. A firm finds economic justification by making a profit or generat- ing enough revenue to cover costs. Profit or breakeven for nonprofit organizations rewards the stakeholders’ investment in the organization and supports the continued availability of funds. Customer needs become the focus of firms that operate under the marketing-orienta- tion philosophy.

Traditionally, medical providers have seen their role as healers who provide a valuable social service. Costs have been secondary. The need for economic justification has created tension for many healthcare providers. However, providers cannot just continue to increase fee-for- service. Many physicians lose money on Medicare and Medicaid patients but have been able to make up the difference from the uninsured and commercial insurance patients. With more patients now covered by governmental programs and with commercial insurers’ and employ- ers’ emphasis on costs, those days are over (Porter & Lee, 2013).

Section 7.3The Organizational Planning and Marketing Planning Connection

Administrators and other healthcare providers who have adopted the marketing-orientation philosophy must continually survey the environment to detect changes in consumer needs, or other related variables, that warrant the altering of their marketing activities. Revenues, in effect, become votes to help management judge the effectiveness of its efforts in meeting market needs compared to those of competitors; and profits or breakeven serve to judge the efficiency of management in this attempt. Putting the marketing-orientation philosophy into practice requires effective management of the marketing process.

7.3 The Organizational Planning and Marketing Planning Connection

The strategic planning process described in the first six chapters of this textbook has con- centrated on the organization’s overall strategic plan. The development of that overarch- ing strategic plan precedes the development of the strategic marketing plan, as well as the annual or operating marketing plan. The strategic marketing plan contains the over- all approaches to marketing within an HCO, and the annual or operating marketing plan spells out the details of what is to be done on a day-to-day, week-to-week, and month-to- month basis to translate the major strategies into specific actions, responsibilities, and time schedules.

Both the strategic marketing and the annual operational marketing plans must be consistent with the organization’s overall strategic plan. Although marketing plans are more detailed and cover only the marketing functions, the marketing planning process involves steps similar to the strategic planning process at the organization level. These steps usually involve including a detailed analysis of the company’s situation, setting specific objectives, developing strategy, implementing strategy, and evaluating and controlling strategy. The details of the marketing planning process are discussed in Chapter 8.

The relationship between the organization’s strategic plan, strategic marketing plan, and annual operational marketing plan is shown in Figure 7.1 (Loudon, Stevens, & Wrenn, 2005). Note the connection of both objectives and strategies from the organization’s strategic plan to the organization’s strategic marketing plan and, finally, its annual or operating marketing plan. This approach to planning ensures that consistency is maintained between what is done on a weekly or monthly basis and the organization’s overall marketing strategy. The stra- tegic marketing plan is devised from and in turn supports the organization’s strategic plan.

Section 7.3The Organizational Planning and Marketing Planning Connection

Figure 7.1: Organizational and marketing plan relationships

Connecting an organization’s objectives and strategies ensures that the entire plan maintains consistency between current actions and the overall marketing strategy.

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Operating marketing plan strategy

Operating marketing plan objective—year 1

Overall Marketing strategies

Marketing objective—5 year

Organization strategy

Organization objective

Increase networking effort to increase referrals. Launch promotional campaign, showing expertise of staff and remodeled facilities.

Achieve a 2% reduction in operating costs.

Focus on increasing volume of existing services to reduce costs per unit and achieve economies of scale.

Increase usage rate among existing patients by 10% over the next 5 years.

Increase usage rate among existing patients by 5% by the end of the year.

Use market penetration strategies to achieve increased volume in years 1 and 2, and focus on market development in years 3–5.

Operating marketing plan

Strategic marketing plan

Organization- level plan

Source: Loudon, D., Stevens, R., & Wrenn, B. (2005). Marketing management: Text and cases. The Haworth Press, Inc., p. 126.

Figure 7.2 provides an industry-specific example of how objectives and strategy should be consistent throughout the planning levels (Stevens et al., 2006). Pharmaceutical firm Eli Lilly and Company chose the service leadership value discipline to provide strategic direction at the organization level. Servant leaders are those who want to lead because they want to serve first. The servant leader ensures that other people’s highest priority needs are being served (Greenleaf, 2002). The organization-level objective is general in nature and consistent with

Section 7.3The Organizational Planning and Marketing Planning Connection

the value discipline. At the strategic marketing level, this organization’s strategic direction is focused in one instance on objectives and strategies for its nonnarcotic analgesic line. The leading product in the line, Darvon, will be going off-patent during the year. The objective of maintaining a high market share in this market would be impossible, given the influx of new generic competitors for Darvon, unless new patent-protected products can be introduced and physician prescribing habits changed so that an increasing number of prescriptions will be written for the new drug. This new product-entry strategy is an embodiment of the service leadership organization value discipline.

Figure 7.2: Eli Lilly Pharmaceutical Company

In this industry-specific example, the objectives and the strategies are consistent throughout the different levels.

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Organization Level

Objective: Maintain product leadership in each market.

Strategy: Adopt a product leadership value approach.

Strategic Marketing Level

Objective: Maintain a market share of the nonnarcotic analgesic market of 80 percent over the next five years.

Strategy: Introduce new products to take place of products when they lose patent protection.

Operating Level

Objective: Call on physicians to detail our more advanced analgesic with more efficacy and fewer side effects; call on pharmacists to leave order blanks at sale prices.

Strategy: Product line extension and aggressive pricing.

Source: Stevens, R., Loudon, D., Wrenn, B., & Mansfield, P. (2006). The marketing planning guide. The Haworth Press, Inc., p. 248.

At the operating level, one of several objectives deals with tactical implementation of the product line extension and aggressive pricing strategy. The objective here is to get the word to the physicians that a new and improved product, Darvocet, is now available with advantages over Darvon, so they should change their prescribing to write for the new drug. Simultane- ously, tactics include making detail calls to pharmacists to let them know that Darvon is now discounted 30%. If successful, this sale should cause the pharmacists to stock up on Darvon, so that prescriptions written for it will be filled with the Lilly product and not some generic equivalent. While the pharmacists reduce their Darvon inventory, the objective effects a change: physicians prescribing to Darvocet. Hence, there is a consistency between objectives and strategies among the three levels, and within any particular level. It should also be noted that these objectives and strategies are only a sample of what would be set for sales volume,

Section 7.4Marketing Strategy

growth, share, percentage of prescriptions written for new versus old products, and so forth. Finally, it is important that objectives set in functional areas other than marketing (finance, R&D, and so forth) support the overall organization strategy to pursue service leadership.

7.4 Marketing Strategy Like management itself, marketing strategy development is both a science and an art, a prod- uct of both logic and creativity. The scientific aspect deals with assembling and allocating the resources necessary to achieve a company’s marketing objectives by emphasizing opportuni- ties, costs, and time. The art of strategy is mainly concerned with the use of resources, includ- ing motivation of the workforce, sensitivity to the environment, and ability to readjust to the counterstrategies of competitors.

Marketing strategies provide direction for marketing efforts. Alternate strategies are courses of action managers evaluate before committing to the specific course of action outlined in the marketing plan. Thus, strategy links objectives and results. Strategy is the answer to one of the basic questions posed in a marketing plan: How are we going to get there?

The development of a marketing strategy usually encompasses a two-step process: (a) identi- fication of the target market (discussed in detail in Chapter 8); and (b) creation of a market- ing mix aimed at satisfying the needs of that target market (discussed in detail in Chapters 9–11). The marketing strategy used by a company is the result of the blending together of various marketing elements. These elements, which are known as the four Ps of marketing, consist of (a) the product/service to be offered to buyers; (b) the distribution of products to various outlets, referred to as place; (c) the promotion or communications to prospective customers, using various promotional techniques; and (d) the price charged for the product or service. The term marketing mix describes these various elements. Therefore, marketing strategy development may be viewed as developing a marketing mix aimed at satisfying the needs of selected market segments and accomplishing specific marketing objectives.

As Figure 7.3 shows, marketing-mix decisions are made with a particular market segment in mind. Marketing effort is targeted at the selected segments through blending the elements of the marketing mix into a cohesive strategy aimed at satisfying those specific segments. An organization targeting several segments must develop an overall marketing program, which includes all of its marketing activities.

The development of alternate marketing strategies can be viewed in many ways, but three approaches will be discussed in this chapter. First, there is the overall way a firm approaches the markets it is attempting to serve. Second, there is one firm’s strategy in relation to com- petitive strategies. The third approach deals with the position of a product or firm in relation to competitive offerings.

Section 7.4Marketing Strategy

Figure 7.3: The marketing mix and target markets

Marketing activities, usually a blend of different elements, target the specific market identified by the organization.

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Selected Target

Markets

Product/Service: Features Quality Branding

Place: Location Satellite facilities Physical attributes

Promotion: Advertising Sales promotion Publicity Social media

Price: Fee structure Payment options Payment terms

Product/Market-Oriented Strategies The product/market approach to strategy development is illustrated in Table 7.2. Three approaches can be used under this strategy development concept. Undifferentiated strat- egy basically offers one product aimed at all market segments. Even if differences in market segments are recognized, these differences are not incorporated into the firm’s marketing activities. Ford Motor Company used such a strategy in its early days when its only model was the Model T. As Henry Ford might have said, “You can have any color you want, as long as it’s black.”

An undifferentiated strategy only works when there is little or no competition. New com- petitors that enter the market, using a differentiated strategy or a concentrated strategy, soon begin to erode the market share of an undifferentiated strategist. For example, a hospital with an undifferentiated strategy advertises its image, rather than specific services. The goal is to

Section 7.4Marketing Strategy

convince patients to use the hospital when they need care, even if it is just a one-time sale. As hospitals have become savvier in their marketing efforts, they have begun to develop dif- ferent service features, such as heart health, newborn care, and behavioral health. These new marketing approaches are effective against the one-size-fits-all message that many hospitals initially adopted.

Table 7.2a: Undifferentiated hospital marketing

Image Image Image

Image Image Image

Image Image Image

Table 7.2b: Segmentation, or differentiated, hospital marketing

Newborn care Cancer treatment Heart health

Sports medicine Digestive health Radiology

Neuroscience Rehabilitation Women’s health

Table 7.2c: Concentrated, or focused, hospital marketing

Behavioral health

A firm using a segmentation marketing strategy recognizes differences in the needs of each market segment and responds by developing a unique marketing mix for each segment pur- sued. Of course, not all segments have to be pursued, but at least two are required to use the term segmentation strategy. When a company develops mixes aimed at different segments, it can also be referred to as a market segmentation strategy. A firm using this approach usu- ally offers a wide variety of products to meet the needs of customers in many segments.

Focused marketing strategies pinpoint one segment of the market and concentrate all their efforts on that one segment. A financial firm specializing in mergers and acquisitions would use this strategy as would firms specializing in financing new ventures. Firms using this strategy option develop a distinctive competence for doing one thing well. Focused market- ing strategies are based on finding growth segments with unique requirements the firm can meet. The vision of Cancer Treatment Centers of America to be “the premier center for heal- ing and hope” for cancer patients is an example of a focused marketing strategy based on unique end-user needs.

The basic difference between the segmentation marketing strategy and the focused market- ing strategy is the number of segments the firm attempts to serve. Firms following a focused strategy target their efforts on one segment only. The factors that influence the choice of a particular marketing strategy will be discussed in another section of this chapter.

Baylor Medical Center at McKinney in McKinney, Texas is following a segmentation marketing strategy. This full-service hospital offers advanced treatment for many medical specialties, including cancer care, digestive diseases, emergency care, heart and vascular, imaging and

Section 7.4Marketing Strategy

radiology, neuroscience, orthopedics, rehabilitation and physical therapy, transplant services, and women’s health (Baylor Health Care System, 2013).

A focused marketing strategy concentrates on one segment of the market and directs all of its efforts to that one segment. For example, St. Jude Children’s Research Hospital in Memphis, Tennessee treats children with cancer and other catastrophic diseases and seeks to advance cures for pediatric catastrophic diseases through research (St. Jude Children’s Research Hos- pital, 2013). Brentwood Hospital in Shreveport, Louisiana is a psychiatric hospital that pro- vides treatment for chemical dependency and other behavioral health disorders (Brentwood Hospital, 2013). A psychologist who accepts only cash-paying clients is also adopting a focused marketing strategy. By refusing to take insurance benefits, the psychologist ensures that no record is kept by insurance companies to label the client or patient as mentally unstable.

Competitive Marketing Strategies Another approach to strategy development employs competitive marketing strategies cur- rently used in the market. Table 7.3 classifies the strategies that may be used by a company based on its market position. Market position is defined in terms of one firm’s share of the total market and its relation to competitors in the industry. Table 7.3 identifies four market positions and some possible strategies for each (Kotler, 1980).

Table 7.3: Competitive marketing strategies

Market position Possible strategies

Market leader Firm acknowledged as the leader, with the largest market share of the relevant market.

1.  Expand total market: Develop new uses, new users, or more usage by existing customers.

2.  Protect market share: Use innovative marketing tactics or retaliate against challengers.

Market challenger Second, third, or fourth firm in market share. May be quite large, though smaller in a relevant market than the market leader.

1.  Direct attack strategy: Meet leader head-on with aggres- sive promotion and/or prices.

2.  Backdoor strategy: Go around leader options through innovative strategy.

3.  Guppy strategy: Increase market share by going after smaller firms.

Market follower A firm that chooses not to challenge the leader and is content with market conditions.

1.  Copy leader: Match as closely as possible leader’s strategy without directly challenging.

2.  Coping strategy: Adjust to strategies of both leader and challenger without direct confrontation.

Market nicher A smaller firm that operates in a geo- graphic or client niche without directly clashing with competitors. Specialization is the key to its success.

1.  Geographic niche: Specialize by offering quick response to customers.

2.  Product niche: Offer products that are unique to the cus- tomers served.

Market leaders are the recognized leaders that have the largest market share of the relevant market. Although their position of dominance may be widely recognized, their success may be constantly challenged by other firms. The strategies that are used by market leaders focus on expanding their own control of the market while warding off or countering the activities of

Section 7.4Marketing Strategy

aggressive competitors. The market leader’s strategy becomes the pivot around which other competitors adjust their own strategies.

Market challengers are the firms that are constantly trying to increase their market share in head-on competition with the leader, attacking the leader at its weak points or merging with smaller competitors. Market challengers are usually large firms in terms of revenues and profits, and they may be even more profitable than the leader. The challenger usually tries to identify weaknesses in the market leader’s strategy and either confronts or goes around the leader, or concentrates its efforts on taking over smaller firms. Pepsi’s challenge of Coke’s leadership position clearly demonstrates how the challenger’s strategy can affect the strate- gies of other competitors. The New Coke, which was closer in taste to that of Pepsi than Clas- sic Coke, was clearly a competitive strategy response.

Market followers and nichers adjust to the strategies of the market leader and challenger without making challenges. Nichers usually try to specialize geographically or by products offered, and basically avoid direct confrontation with other competitors. The followers simply copy the leader’s strategy or adjust their strategy to cope with both the leader’s and the chal- lengers’ strategies, without calling attention to their own activities. For example, The Coo- per Institute in Dallas, Texas targets well-to-do executives and other high-income individuals (for example, former President George W. Bush) for preventive care. The institute provides physicals, colonoscopy services, dermatology screening, and nutrition and exercise counsel- ing. The Cooper Institute is not contracted as a provider with any insurance company and does not accept Medicare (The Cooper Institute, 2013). Thus, competitive strategies must be considered in developing the marketing strategy for a firm where established markets are at stake. A company must strive to develop a marketing strategy that will give it a competitive advantage and provide long-run profitability.

Positioning Strategies Positioning strategies usually evolve when there are several well-defined competitors with fairly unambiguous images. This situation permits placement of a firm or a new product rela- tive to existing firms or products or, in some instances, the repositioning of a firm or product. The firm or product is positioned in the market based on customers’ needs and the firm’s own distinctive competencies, that is, what the firm does well.

For firms that have gone through the strategic planning process, this positioning approach is an extension of the work done in answering such questions as What kind of firm are we? and What kind of firm do we want to become? Such a strategy encourages the firm to focus on what it does best relative to other competing firms and clearly defined client markets.

The positioning of healthcare will increase in importance with the implementation of the Affordable Care Act. HCOs will need to position themselves in terms of service level and inte- gration of care. For example, the positioning strategy of Northwest Hospital in Randallstown, Maryland is to highlight the variety of outpatient services it offers. Patients are able to receive many tests and medical procedures without being admitted to the hospital. The positioning map shown in Figure 7.4 demonstrates such an approach for day care services for adults (Ginter, Duncan, & Swayne, 2013).

Section 7.4Marketing Strategy

Adult day centers are places that care recipients with Alzheimer’s or other dementias can go to during the day. The care recipients participate in activities and their attendance at the day center allows their caregivers to run errands or tend to other family needs. These centers vary in price and, accordingly, the activities offered to differentiate their services.

Figure 7.4: Positioning of adult daycare services

The activities and prices for a facility depend on the needs of its care recipients.

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Low price

High price

Few activities

Many activities

• Adult Day Stay

• Encore Care

• Friend’s Place

• New Horizons

• Comfort Care

• Agape Care

• Omni Care

Source: Adapted from Ginter, P. (2013) The Strategic management of healthcare organizations, John Wiley & Sons: Hoboken, N. J.

Factors Influencing the Strategy Selected At least four factors influence the choice of the strategy selected by a firm: (a) corporate strat- egy and resources, (b) the firm’s distinctive competencies, (c) the stage of the product’s mar- ket and the stage of the product’s life cycle, and (d) competitive strategies. There is no single strategy that will always prove successful. Instead, the strategy chosen must be the one that is best for the firm, given the nature of these four factors. A firm’s resources, for example, may limit the company to a relatively low position in the market, and a niche strategy may be the only feasible alternative to follow. The firm may even be an innovator in terms of product ideas but not have the financial, marketing, or personnel resources to compete for the mass market.

Section 7.5Transition from Strategy to Tactics

The marketing strategy must be derived from the corporate strategy. If the corporate strategy is focused on diversification through funds generated by a specific product or product line, then the strategy used for the product must be one that generates maximum cash flow. If the firm wants to harvest a product, then the marketing strategy must reflect the need to generate short-term cash and eventual elimination through reduced research, promotion, and so forth. Also, the organization’s value discipline provides a context within which the strategy should fall. For example, it would be inconsistent for a firm whose business is grounded in customer intimacy to pursue a strategy that reflects a desire to be a low-cost, one-size-fits-all producer.

The distinctive competencies of the company have a direct bearing on the strategy selected. Distinctive skills and experience in marketing, production, or finance influence strategy choice. These distinctive competencies are the basis of targeting marketing efforts and devel- oping a competitive advantage.

Two additional factors that influence strategy selection are the product’s life cycle stage and competitive strategies. The influence of competitive marketing strategies was discussed ear- lier in this chapter (see Table 7.3). The firm’s or specific product’s stage in its life cycle also distinctly influences strategy. For example, a firm whose market share has eroded over time because it failed to alter its marketing strategy may need to take an aggressive, turnaround strategy stance. Repositioning the firm by introducing new products or going after new mar- kets would be pivotal for its turnaround strategy. Chapter 10 discusses the product life cycle in more detail.

As the product and its market go through cyclical stages, many alterations in the firm’s mar- keting strategy may become necessary to adjust to the growth or decline in the size of the market and the entrance or departure of competitors. The evolving stages of the market require commensurate adjustments to marketing strategy. Note the many strategy-element changes that may need to be made by a firm to remain competitive in the market. The selected marketing strategy must be given sufficient time to be implemented and affect consumers, but an obviously ineffective strategy should be changed. Still, resistance to change, in many companies, is a common phenomenon.

7.5 Transition from Strategy to Tactics Once the marketing strategy is selected, specific marketing activities—usually called market- ing tactics—must be created to implement the marketing strategy. Turning the strategic ele- ments of the marketing mix into tactics is not an easy task and requires detailed knowledge of each of the mix elements. Discussions follow for each of these marketing elements, which include (a) product/service, (b) place, (c) promotion, and (d) price/fees.

Product/Service Moving from a product-positioning statement to a tangible product that delivers customer satisfaction in accordance with the positioning strategy and at a profit to the company is not easily accomplished. Positioning involves determining how the firm’s product or service is perceived by the customer in relation to the firm’s competition. Such a strategy encourages

Section 7.5Transition from Strategy to Tactics

the HCO to focus on what it does best relative to competing HCOs and clearly defined patient markets (Stevens et al., 2006). The design team must not lose sight of the product strategy, while applying a high degree of creative and technical skill to their tasks. They must under- stand not only the strategic needs affecting the product’s design before the sale, but also the entire product use or consumption experience in order to make the product as user-friendly as possible. Follow-up services must also be considered. For example, at Cleveland Clinic, it was found that patients who were ordered to have no food or drink before a procedure would go hungry all day, if the procedure was delayed, because staff failed to follow up with the attending physician (Merlino & Raman, 2013).

Decisions about product quality, the provision of services, market-entry timing, scheduling, follow-up services, and many other issues must be made. All of these decisions should be influenced by how they affect the delivery of customer value and the correct tactical imple- mentation of the selected marketing strategy.

An HCO should never lose sight of its product strategy, which indicates where its competitive advantage lies when it engages in the myriad acts required of the exchange process with new, existing, or potential customers.

Place In terms of distribution tactics, value is defined not simply by physical access to the service but also by quality of performance, including procedural follow-ups and medication. All of these functions play a role in implementing the positioning strategy and must be seen as parts of a whole strategy instead of autonomous tasks. Likewise, accessibility—the type and number of locations—plays a major role in positioning the product in the minds of target- market consumers.

Promotion Many models exist for selecting promotional media to maximize reach and frequency objec- tives for a given audience at a given budget. However, in this area, models are never a perfect substitute for managerial judgment. Promotional tactics involve the actual presentation of communication messages to target-audience members. These messages must be formulated to be the most effective means possible of presenting the essence of the positioning strategy to potential customers. Many examples exist of companies with a sound positioning strategy, which self-destructed at the implementation stage because the chosen advertising approach was totally unsuited to conveying the image they wished to project. Promotions, materi- als, special-event marketing, displays, collateral material, and all other forms of promotion should likewise be carefully designed to support the tactical implementation of the position- ing strategy. Possible competitive reactions to promotional efforts should also be considered when choosing tactics. Coherence with marketing strategy is as important with staff interac- tions as it is with the other promotional elements, training, and support materials; addition- ally, reward systems must be considered with the overall strategy. Some special events, such as opening a new location, may require the services of event planners to ensure that all ele- ments are coordinated. If there is going to be a groundbreaking ceremony with the traditional “shovel picture,” then someone has to bring a shovel.

Section 7.5Transition from Strategy to Tactics

Price/Fees Implementation issues with respect to pricing may pertain to fee mandates and third-party reimbursements and deductibles. Policies established in these areas are, in essence, the implementation of a pricing plan that acknowledges the necessity of adjustments to price to fit market and cost conditions. Other price implementation issues include initiating price increases and responding to changes in competitors’ prices.

As costs rise, organizations feel the pressure to initiate price increases. The following types of price adjustments are commonly used by HCOs:

• Collecting deductibles upfront for some services. This tactic may seem simple, but it is complicated by situations where patients have more than one form of insurance and the deductibles are large. It may be necessary to offer payment plans in some cases. The most important aspect of this price adjustment is communicating to patients about the policy or the change in policy.

• Unbundling of goods and services. The fees for the service are maintained, but ser- vices that were previously included, such as X-rays, are now priced separately.

• Reducing discounts. Policy changes might be initiated that preclude offering dis- counts (Kotler, 1980).

A company’s reaction to a change in price by a competitor also affects pricing implementa- tion. Market leaders, in particular, must determine how they will react to a drop in price by major competitors. Several options, which include the following, are available:

• Maintain price. The market leader may decide to maintain its price without losing customers it wishes to retain. This strategy can be risky in some circumstances, but it avoids giving the competitor confidence that price changes will not be challenged.

• Raise perceived quality. Another option is to maintain price but improve the prod- uct’s perceived value by strengthening the product, services, or communication messages.

• Reduce price. A market leader might decide to lower its price in response to the competitor. This tactic is commonly motivated by a belief that buyers primarily make their purchase decisions on the basis of price, and that a failure to lower a price will result in an unacceptable decline in market share. However, quality should be main- tained, even if the price is lowered.

• Increase price and improve quality. By establishing an elite image as the “best” in the market, a company believes it can better capture the share of the market that comprises customers who are motivated by that image. Some firms pursuing this strategy simultaneously launch a less expensive “fighting brand,” which is intended to compete against the lower-cost competitor.

Any price-implementation actions should be governed by the objectives a company sets for its price decisions. These objectives must be clearly communicated to patients to avoid misunderstanding.

Section 7.6Organizational Designs for Marketing

7.6 Organizational Designs for Marketing Organizing marketing refers to the process of developing a structure to accommodate and assign responsibility for managing marketing activities. Organizing may be defined simply as a process that includes the following:

1. Determining what must be done to achieve a given set of objectives. 2. Dividing the necessary activities into segments small enough so that each can be

performed by one person. 3. Providing a means of coordination to ensure that no effort is wasted and that the

members of the organization do not get in each other’s way.

Organization design should produce a structure of task-and-authority relationships that enhance the firm’s ability to accomplish its stated marketing objectives. The end result of the process is usually represented by an organizational chart that shows individuals’ positions and their formal relationships of authority. When detailed job descriptions, which specify duties and responsibilities, are prepared for each position, the foundations for the manage- rial system have been laid. If current job descriptions do not list the development of strategic and annual marketing plans, the job description should be rewritten to state the individual’s responsibility toward that task. This, of course, does not mean that each manager would indi- vidually carry out all the activities necessary to develop a plan, only that he or she is respon- sible for seeing that a plan is prepared or providing input for it.

The organizational structure reveals the relationships between activities, authority, and responsibility at a given time within the organization. The nature of a firm’s organization greatly influences not only who will be responsible for marketing planning but also how much assistance the planner can expect from others in the organization.

Two basic types of organizational structures are (a) the line organization and (b) the line and staff organization. The distinction between these two organizations is the separation of planning from operating tasks in the line-and-staff approach. The line organization is the simplest organizational structure and will be described first.

In a line organization, authority flows directly from the chief executive to the first subordi- nate, then to the second, and so forth. Few, if any, specialists are present in the line organiza- tion, and planning and operating activities are usually performed by the same individual. The chief executive might do all the planning for all areas and maintain primary authority and responsibility for all areas. This type of organizational structure is depicted in Figure 7.5.

In the marketing line organization, the marketing manager is responsible for planning and for the operations in marketing. The sales supervisor and distribution supervisor carry out the manager’s plans through supervision of other employees. Although this type of organization may be successful for small organizations, its usefulness in larger, more complex situations is limited. Effectiveness of the line organization depends on division of effort, and this is exactly what staff positions provide. Staff personnel are added to help the line personnel perform the various functions carried on in an organization, especially planning. A marketing manager in a line organization must not only develop plans but also carry them out. This means less time is available for planning because the manager is involved in the organization’s operations. Good planning procedures can still be used under these conditions, especially if there are only

Section 7.6Organizational Designs for Marketing

a few services and customers. However, the analysis section of the plan usually will not be as thorough simply because the manager has less time and fewer resources.

Figure 7.5: Marketing line organization structure

The marketing manager is responsible for the planning and operations in each marketing area.

f07.05_MHA 626.ai

Marketing Manager

Advertising Public Relations Provider Relations Payer Relations

Social Media Patient Relations Wellness Center Contracting

The line and staff organization, depicted in Figure 7.6, illustrates the addition of staff special- ists to the organization. This approach permits separation of planning and operating activi- ties, which in turn means more time and resources available for marketing planning.

Figure 7.6: Marketing line and staff organizational structure

Specialized staff can help the organization’s overall efforts by providing assistance in their areas of expertise.

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Marketing Manager

Advertising Public Relations

Planning Director

Media Specialist

Provider Relations Payer Relations

Social Media Patient Relations Wellness Center Contracting

Section 7.7The Ethical Orientation of Marketing Decisions

The marketing planning effort that results from this organizational design should be more thorough. Figure 7.6 shows the addition of staff positions at both the headquarters and regional level. This makes staff specialists available to coordinate overall company efforts in their areas of specialization at the headquarters level, and also takes into consideration regional differences that warrant additional specialization by geographical area. Of course, there are many other ways for staff personnel to be specialized—by services, customer type, channel of distribution, and so forth. A wide variety of potential organizational structures can be adapted to a specific organization’s needs.

7.7 The Ethical Orientation of Marketing Decisions In recent years, leaders have focused attention on creating an organizational environment with a high concern for ethics. Ethics are principles of right or good conduct, or a body of such principles. Ethical issues in marketing can be categorized by type into one of two areas: issues pertaining to individual marketing decisions and those related to collective marketing decisions. Ethical issues arising from individual marketing decisions are those that lead to unethical practices, although they may help the company. Ethical issues arising from collec- tive marketing decisions result in no ethical infraction in and of themselves, but they do con- tribute to problems in combination with similar decisions over time or by other marketers. The adverse impact of packaging on the environment might be an example of such a collective marketing decision.

The American Marketing Association has developed ethical standards of behavior for its members through the use of a code of ethics, a portion of which follows. Not only are general areas covered, such as honesty and fairness, but specific attention is devoted to the marketing mix variables.

Numerous ethical issues have surfaced in recent years that apply specifically to healthcare. Some, such as patient referrals, have been addressed through legislation. For example, physi- cians may not refer a patient to entities in which they or any family member have a financial interest.

Another issue is patient privacy. The Health Insurance Portability and Accountability Act (U.S. Department of Health & Human Services, 2014) addresses this issue. Physicians and other care providers, as well as nonmedical personnel, are prohibited by this act from unlawfully disclosing patient information.

Other, more complex ethical issues also face healthcare providers. Examples include deter- mining how long to maintain life-support systems for brain-dead patients, determining how long to maintain a life-support system for a brain-dead patient who is pregnant with a viable fetus, deciding who should make end-of-life decisions for patients, and granting hospital priv- ileges to physicians who perform abortions.

Section 7.7The Ethical Orientation of Marketing Decisions

T H E A M E R I C A N M A R K E T I N G A S S O C I A T I O N C O D E O F E T H I C S

Honesty and Fairness

Marketers shall uphold and advance the integrity, honor and dignity of the marketing profession by:

1. Being honest in serving consumers, clients, employees, suppliers, distributors, and the public;

2. Not knowingly participating in conf lict of interest without prior notice to all parties involved; and

3. Establishing equitable fee schedules including the payment or receipt of usual, cus- tomary and/or legal compensation for marketing exchanges.

Rights and Duties of Parties in the Marketing Exchange Process

Participants in the marketing exchange process should be able to expect that

1. Products and services offered are safe and fit for their intended uses; 2. Communications about offered services and services are not deceptive; 3. All parties intend to discharge their obligations, financial and otherwise, in good

faith; and 4. Appropriate internal methods exist for equitable adjustment and/or redress of griev-

ances concerning purchases.

It is understood that the above would include, but is not limited to, the following responsibilities of the marketer:

In the area of service development and management:

• disclosure of all substantial risks associated with service or service usage; • identification of any service component substitution that might materially change the

service or impact on the buyer’s purchase decision; • identification of extra cost-added features.

In the area of promotions:

• avoidance of false and misleading advertising; • rejection of high-pressure manipulations, or misleading sales tactics; • avoidance of sales promotions that use deception or manipulation.

In the area of distribution:

• not manipulating the availability of a service for the purpose of exploitation; • not using coercion in the marketing channel; • not exerting undue inf luence over the reseller’s choice to handle a service.

In the area of pricing:

• not engaging in price fixing; • not practicing predatory pricing; • disclosing the full price associated with any purchase.

(continued)

Section 7.7The Ethical Orientation of Marketing Decisions

In the area of marketing research:

• prohibiting selling or fundraising under the guise of conducting research; • maintaining research integrity by avoiding misrepresentation and omission of perti-

nent research data; • treating outside clients and suppliers fairly.

Organizational Relationships

Marketers should be aware of how their behavior may influence or impact the behavior of others in organizational relationships. They should not demand, encourage or apply coercion to obtain unethical behavior in their relationships with others, such as employees, suppliers, or customers.

Source: Adapted from the American Marketing Association, Statement of Ethics https://www.ama.org/AboutAMA/Pages/Statement-of-Ethics.aspx

The growth and impact of the Internet on marketing activities has prompted the American Marketing Association’s development of a code of ethics dealing specifically with the use of the Internet as a marketing tool. As shown in the following statements, the code focuses on privacy, ownership, and access to infrastructure. These are the key areas of concern for ethi- cal standards of conducting marketing or marketing research on the Internet.

A M E R I C A N M A R K E T I N G A S S O C I A T I O N C O D E O F E T H I C S F O R M A R K E T I N G O N T H E I N T E R N E T

General Responsibilities

Internet marketers must assess the risks and take responsibility for the consequences of their activities. Internet marketers’ professional conduct must be guided by:

• Support of professional ethics to avoid harm by protecting the rights of privacy, owner- ship and access.

• Adherence to all applicable laws and regulations with no use of Internet marketing that would be illegal, if conducted by mail, telephone, fax or other media.

• Awareness of changes in regulations related to Internet marketing. • Effective communication to organizational members on risks and policies related to

Internet marketing, when appropriate. • Organizational commitment to ethical Internet practices communicated to employees,

customers and relevant stakeholders.

Privacy

Information collected from customers should be confidential and used only for expressed purposes. All data, especially confidential customer data, should be safeguarded against unauthorized access. The expressed wishes of others should be respected with regard to the receipt of unsolicited e-mail messages.

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Summary & Resources

Ownership

Information obtained from the Internet sources should be properly authorized and docu- mented. Information ownership should be safeguarded and respected. Marketers should respect the integrity and ownership of computer and network systems.

Access

Marketers should treat access to accounts, passwords, and other information as confiden- tial, and only examine or disclose content when authorized by a responsible party. The integrity of others’ information systems should be respected with regard to placement of information, advertising or messages.

Source: Adapted from the American Marketing Association https://www.ama.org/search/pages/results.aspx?k=ethics

Summary & Resources

Chapter Summary This chapter introduced the concept of marketing and discussed how HCOs can design effec- tive marketing programs. Additionally, basic marketing strategies were described, along with the organizational structures necessary to put these strategies in place. Lastly, ethical decision-making, as it relates to healthcare, was discussed.

Key Points 1. It is important to understand what marketing is. While there are many definitions of

marketing (including that of the American Marketing Association at www.market- ingpower.com/AboutAMA/Pages/Definitionofmarketing.aspx), we will use this defi- nition: Marketing directs those activities that involve the creation and distribution of products and services to identified market segments. Key to an understanding of this definition are the following statements:

• Marketing is a managerial function directed by executives. • Marketing involves specific activities. • Marketing is involved in both the creation and distribution of products and

services. • Marketing is concerned with satisfying customer needs.

2. While it is important to satisfy customer needs and wants, it is also critical to do so at an acceptable level of revenue and costs. Marketing with this in mind is known as the marketing concept. For-profit and not-for-profit institutions similarly need to satisfy customer needs and wants. The for-profit institution, however, needs to gen- erate enough profit to attract investors, while the not-for-profit institution requires a positive cash flow to remain viable.

Summary & Resources

3. An HCO can follow three basic orientations in its organizational function. The first of these is a service orientation, where the dominant desire is to capitalize on efficiency in the operating process. While this approach helps control costs, it does not address quality, revenues, customer needs and wants, or the firm’s benefit to society.   The second basic orientation that an HCO can follow in its organizational func- tion is a selling orientation. Here, the dominant factor is to increase revenues by stimulating interest in the product or service. Secondary factors include controlling costs and providing quality. However, sales of existing products or services are more important than actually addressing customer needs with specifically designed prod- ucts and services.   The most preferable of these three orientations is the marketing orientation. With this orientation in practice at an HCO, marketing costs are controlled, quality is addressed, and increasing revenues is important. The dominant factors, however, are identifying and addressing customer needs while considering the effect of the HCO’s product and services on both customers and society at large.

4. HCO executives first develop the firm’s overall strategic plan. Once this plan is in place, the strategic marketing plan is developed so that it conforms to the strategic plan. Following the strategic marketing plan is the annual operational marketing plan. Annual operational marketing plans spell out the details of what is to be done, when, and by whom. By deciding on the overall strategic plan first, the HCO can ensure that the direction of the marketing efforts indicated in the strategic market- ing plan and the activities directed by the annual operational marketing plan are consistent with the direction of the overall strategic plan.

5. Marketing strategies provide the direction to marketing efforts. Three basic mar- keting strategies are in use: undifferentiated strategy, segmentation strategy, and focused marketing strategy. Undifferentiated strategy offers one or a few products or services aimed at all market segments. This type of strategy works best when there is little or no competition.   A segmentation strategy recognizes differences in the needs of each market segment and responds with products or services developed for each segment pur- sued. While not all segments will be pursued, at least two are required to be consid- ered a segmentation strategy.   Focused marketing strategies pinpoint one segment of the market and focus all efforts on that segment. An example is a hospital that specializes in emergency and acute care.

6. Marketing tactics are the activities required to implement the chosen strategy. Turning the strategic elements of the marketing mix into tactics is not an easy task and requires detailed knowledge of each of the mix elements. Specific product, place, promotion, and price decisions must be aligned with the overall strategy and planned in great detail to avoid failures. Some special events, such as opening a new location, may require the services of event planners to ensure that all elements are coordinated.

7. Organizing marketing refers to the process of developing a structure to accom- modate and assign responsibilities for managing marketing activities. Two basic organizational structures exist: (a) the line organization, and (b) the line and staff organization. a. In a line organization, authority flows from the chief executive to the first sub-

ordinate, then to the second and so forth. In a line organization, the person responsible for planning marketing is also responsible for marketing operations.

Summary & Resources

b. A line and staff organization adds staff specialists to the organization. In this type of structure, planning is done by line employees and carried out by staff specialists.

8. Ethics are principles of right or good conduct. In marketing, ethics can be broadly categorized into two areas: ethical issues connected to individual marketing deci- sions and ethical issues pertaining to collective marketing decisions. Individual marketing decisions are those that—though they can benefit the HCO—may lead to unethical practices. Collective marketing decisions do not result in an unethical act but may contribute to problems in combination with similar decisions by other HCOs. For example, bionic body parts are now available that replicate the part of the body they replace, an invaluable aid to people who have been disabled through injury. However, does this present a challenge to ethical limits? Can it be right to replicate an entire human body?

Key Terms concern with customers Understanding the needs and wants of target markets.

creation and distribution of goods and services In HCOs, the service is actually cre- ated by the operating function, but market- ers are involved to make sure the product or service meets patient needs.

ethics Principles of right or good conduct, or a body of such principles.

focused strategy A marketing strategy that concentrates on a marketing segment and competes with rivals based on a lower price or some other form of differentiation.

line and staff organization A form of organization that adds staff specialists to the organizational structure. This approach permits separation of planning and operat- ing activities.

line organization A form of organiza- tion in which authority flows directly from the chief executive to the first subordinate, then to the second, and so forth. Few, if any, specialists or support staff are present in the line organization, resulting in planning and operating activities being performed by the same person.

managerial perspective A perspective that is proactive, customer oriented, and aligned with the firm’s overall strategy.

market segment(s) An aggregation, in healthcare, for example, of patients with similar characteristics, such as diabetics, heart patients, children, geriatrics, and so forth.

marketing Directs those activities that involve the creation and distribution of products and services to identified market segments.

marketing concept A business orientation that focuses on satisfying customers’ needs at acceptable levels of revenue and costs.

marketing mix A combination of the four strategic marketing elements—product, place (distribution), promotion, and price— to satisfy the needs of the market selected in the marketing strategy process.

marketing strategy A strategic plan for selecting a particular target market and then satisfying customers in that market through the marketing mix.

Summary & Resources

marketing tactics Specific actions taken to execute a marketing strategy.

operating marketing plan A plan that spells out the details of what is to be done on a day-to-day, week-to-week, or month- to-month basis to translate an organiza- tion’s major strategies into specific actions, responsibilities, and time schedules.

positioning The placement of a firm or a new product/service, relative to exist- ing firms or products, in the mind of the consumer.

product life cycle The progression of a product through various stages from intro- duction to decline. The stages of the product life cycle are introduction, growth, maturity, and decline.

residual perspective A perspective that is reactive and only deals with needs as they arise.

segmentation strategy A strategy that aggregates consumer groups with similar characteristics and common interests.

strategic marketing The overall approach to marketing within an HCO.

strategic marketing plan A plan that con- tains the organization’s overall approaches to marketing. The strategic marketing plan is always aligned with the HCO’s overall strategic plan.

undifferentiated strategy A strategy that concentrates on producing a single product that is marketed to all customers.

Critical Thinking Questions 1. How can an HCO implement the marketing concept into its organization? 2. Explain the relationship between the strategic plan and the marketing plan. 3. How could a dental organization implement a focused marketing strategy?