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STEVEN G. HILLESTAD, BA, MA Strategy Advisor, Minnesota

ERIC N. BERKOWITZ, PHD, MBA Professor Emeritus, University of Massachusetts, Amherst, Massachusetts

HEALTH CARE MARKET STRATEGY FROM PLANNING

FIFTH EDITION

TO ACTION

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Library of Congress Cataloging-in-Publication Data Names: Hillestad, Steven G., author. | Berkowitz, Eric N., author. Title: Health care market strategy: from planning to action / Steven Hillestad and Eric Berkowitz. Description: Fifth edition. | Burlington, Massachusetts: Jones & Bartlett Learning, [2020] | Includes bibliographical references and index. Identifiers: LCCN 2018037600 | ISBN 9781284150407 (paperback) Subjects: LCSH: Medical care—Marketing. | Strategic planning. | Health services administration. | BISAC: MEDICAL / Hospital Administration & Care. Classification: LCC RA410.56 .H55 2020 | DDC 362.1068/8—dc23 LC record available at https://lccn.loc.gov/2018037600

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To Alexandra (who we love as Alex), and Charlotte (who we love as Charlie)

–E.N.B

To Maureen and our Kids

–S.H

Contents Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

About the Authors . . . . . . . . . . . . . . . . . . xiii

Chapter 1 Strategy Development and the Strategic Mindset . . . . . . . . . . . . . 1

What Is Strategy? . . . . . . . . . . . . . . . . . . . . . . . . . 1

Development of the Strategic Mindset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Clear Vision, Focused Strategy, and Understanding by the Leadership . . . . . . 7

Focus on the Customer . . . . . . . . . . . . . . . . . . . 8

Change Is Relentless . . . . . . . . . . . . . . . . . . . . . 10

Search for a Better Way . . . . . . . . . . . . . . . . . . 11

Decision-Making Role of the Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Need for a Champion . . . . . . . . . . . . . . . . . . . . 12

Trade-Offs in Courses of Action . . . . . . . . . . 13

Beware of Growing and Shrinking at the Same Time—Market Share Is the Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Force and Focus . . . . . . . . . . . . . . . . . . . . . . . . . 15

Unique Selling Proposition . . . . . . . . . . . . . . . 18

Creating Barriers for Competitors’ Entry and Minimizing Barriers for Self Exit . . . 24

Diversion and Dissuasion . . . . . . . . . . . . . . . . 24

Growth in the Present Market . . . . . . . . . . . . 25

Fall on Your Sword . . . . . . . . . . . . . . . . . . . . . . . 26

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Questions for Discussion . . . . . . . . . . . . . . . . . 27

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Chapter 2 Understanding the Strategic, Business, and Marketing Planning Process . . . . 29

Resolving the Confusion: Relating the Strategic Plan to the Business Plan and to the Marketing Plan . . . . . . . . . . . . . 29

Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 34

The Process of Starting a New Venture—What It Might Look Like . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

When the Customer’s View Is Different from Your View . . . . . . . . . . . . . . . . . . . . . . . . 41

Overall Strategic and Marketing Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Questions for Discussion . . . . . . . . . . . . . . . . . 45

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Chapter 3 The Challenge of a Competitive Marketplace . . . . . . . . 47

The External Environment . . . . . . . . . . . . . . . 47

Environmental Trends . . . . . . . . . . . . . . . . . . . . 47

The Growing Use of Technology . . . . . . . . . 58

Increase in Competition . . . . . . . . . . . . . . . . . 60

Shifts in the Corporate Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Questions for Discussion . . . . . . . . . . . . . . . . . 74

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

vi Contents

Chapter 4 Step 1: Conducting the Internal/ External Assessment . . . . . . . . 81

The Assessment Process . . . . . . . . . . . . . . . . . 81

Blue Ocean Strategy . . . . . . . . . . . . . . . . . . . . . 90

The Environment . . . . . . . . . . . . . . . . . . . . . . . . 91

The Market and Its Needs . . . . . . . . . . . . . . . . 95

The Competition . . . . . . . . . . . . . . . . . . . . . . .101

Internal Capability . . . . . . . . . . . . . . . . . . . . . .105

Marketing Activities . . . . . . . . . . . . . . . . . . . . .108

Market Research . . . . . . . . . . . . . . . . . . . . . . . .112

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Questions for Discussion . . . . . . . . . . . . . . . .126

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

Chapter 5 Step 2: Creating the Mission, Vision, and Critical Success Factors . . . . . . . . . . . 129

Establishing the Context . . . . . . . . . . . . . . . .129

Constituent Participation . . . . . . . . . . . . . . .130

Understanding the Difference Between Vision and Mission . . . . . . . . . .132

Should We Create A Broad or Narrow Strategy? . . . . . . . . . . . . . . . . . . . .134

Stating the Mission . . . . . . . . . . . . . . . . . . . . .138

Defining the Vision . . . . . . . . . . . . . . . . . . . . .140

Tools to Work Through the Vision Conversation . . . . . . . . . . . . . . . . . . . . . . . .141

What Should a Good Vision Statement Look Like? . . . . . . . . . . . . . . . .146

Critical Success Factors . . . . . . . . . . . . . . . . .147

What Next? Who Does What? . . . . . . . . . . .148

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149

General Strategic Planning Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150

Questions for Discussion . . . . . . . . . . . . . . . .150

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150

Further Reading . . . . . . . . . . . . . . . . . . . . . . . .151

Chapter 6 Step 3: The Strategy/Action Match . . . . . . . . . . . . 153

Perspectives on Strategy . . . . . . . . . . . . . . . .153

Alternative Models for Considering Business Strategies . . . . . . . . . . . . . . . . . . .155

Ansoff Product-Market Growth Matrix . . . . 159

Developing the Strategy/Action Match . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161

Strategy Options . . . . . . . . . . . . . . . . . . . . . . .170

Setting Marketing Objectives . . . . . . . . . . .185

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .186

Questions for Discussion . . . . . . . . . . . . . . . .187

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .188

Chapter 7 Step 4: Determining Marketing Actions. . . 191

Devising Tactics . . . . . . . . . . . . . . . . . . . . . . . . .191

Product/Service . . . . . . . . . . . . . . . . . . . . . . . .192

Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .207

Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .218

Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .228

The Integrated Marketing Communications . . . . . . . . . . . . . . . . . . . .232

Integrating Paid, Owned, and Earned Media . . . . . . . . . . . . . . . . . . . . . . . .232

Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . .234

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .245

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .253

Questions for Discussion . . . . . . . . . . . . . . . .254

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .255

Chapter 8 Step 5: Integration of the Marketing Plan with the Business Plan and the Strategic Plan . . . 263

The Necessity of Integration . . . . . . . . . . . .263

Integration of Plans with Other Management Functions . . . . . . . . . . . . . .265

Contents vii

Integration Within the Organization’s Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .268

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .269

Questions for Discussion . . . . . . . . . . . . . . . .270

Chapter 9 Step 6: The Approval and Monitoring Process . . . . . . . . . . . 271

An End and A Beginning . . . . . . . . . . . . . . . .271

Approval Process: Establishing Guidelines for Selecting Among Alternative Plans . . . . . . . . . . . . . . . . . . . . .271

Monitoring Systems . . . . . . . . . . . . . . . . . . . .277

The Balanced Scorecard . . . . . . . . . . . . . . . .282

The Need for Contingency Plans . . . . . . . .284

Planning for Next Year . . . . . . . . . . . . . . . . . .284

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .284

Questions for Discussion . . . . . . . . . . . . . . . .285

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .285

Further Reading . . . . . . . . . . . . . . . . . . . . . . . .285

Chapter 10 Conclusion . . . . . . . 287 Strategy Versus Tactics . . . . . . . . . . . . . . . . . .287

Planning Issues . . . . . . . . . . . . . . . . . . . . . . . . .288

The Future of Strategy and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .294

Questions for Discussion . . . . . . . . . . . . . . . .299

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .300

Appendix A . . . . . . . . . . . . . . . . . . . . . . . . 301

Appendix B . . . . . . . . . . . . . . . . . . . . . . . 307

Appendix C . . . . . . . . . . . . . . . . . . . . . . . . 323

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

Thirty-five years ago, the first edition of this book was published. Since that time, many changes have occurred in the healthcare environment. However, as we look back and re-read our preface from that first edition, much of what

was written holds true today. As health care continues to dramatically evolve, the need for well-formulated approaches to market-based planning as this text espouses and helps the reader understand is ever more essential.

Thirty-five years ago, health care was transforming, as we described, from a cottage industry to a competitive market in which organizations were restructuring to be more organized entities to respond to a marketplace of “buyers.” The pro- vider systems now recognize that it is important to understand the buyers’ needs and that identifying and deconstructing competitive alternatives are key components in effective market strategic planning.

In today’s healthcare environment, the forces of change are rooted in technol- ogy, demography, government policies, and structural shifts. All these forces signifi- cantly impact the need for healthcare organizations and the leaders of those entities to be more sophisticated in planning their marketing strategy and appropriate tactics considering these forces. As we noted in the last edition of this text, entrepreneurs recognized health care as a place for considerable opportunity. In this edition, many of these entrepreneurial opportunities have resulted in disruptive new services that influence the strategies for others within the healthcare provider ecosystem. Plans must be developed considering the marketplace changes. Demographics impact services in terms of opportunities. Planning must reflect these realties and shape marketing strategies. Over the course of the previous four editions, government pol- icies have changed as health policy has changed. While this book is not a discourse on reimbursement rules and regulations, it is important to link the environment to strategy and to action and to understand the influence of these forces. Finally, the structural shifts that have occurred have been dramatic. As plans are developed rela- tive to the competition, new entrants into the market, realignment with mergers and acquisitions, and the impact of global competitors all are ever more present factors in the 35th year of this text’s edition.

These changes today make healthcare market strategy ever more complex. Strategy under the rules of cost-based reimbursement of some 40 years ago for those who may still remember and long for them or those who study healthcare reim- bursement and wish they were the rules today recognize the ease of management strategy. Patients were admitted, care was delivered for the necessary procedure, and the costs were passed along to an insurer. Now, there is value-based care, high deductible healthcare plans, individuals who may still buy on an exchange, “center of excellence” contracting, reference pricing, as well as other variations that may affect the price component of marketing as well as overall marketing strategy.

Preface

x Preface

In promotional planning, technology as well as marketplace behavior has dra- matically altered over the decades. Social media strategies are a major component of strategy and resultant tactics. Competitors’ presence—along with third-party sites for education as well as for evaluative reference—is now utilized by consumers. Here too, healthcare strategy must be linked to these environmental shifts compared to the simpler days of media that were dictated by broadcast and print and message control and tactics under the organization’s control.

Marketing strategy and planning today may be no greater changed than in terms of distribution. New technology and new competitors have entered through Web-based alternatives. From a competitive perspective, the organization and the leadership must broaden their views with regard to whom they consider within their competitive set of players.

Finally, it is important to understand our goal in this text. We have tried to fur- ther refine a market-focused approach between strategy design and tactical imple- mentation. Reading an introductory text in marketing or strategic management alone does not equip one to take the next step in planning a strategy with the tac- tics to move the organization to act. In our foundation of creating a strategy/action match based on when an organization enters the market and the stage of market development, a leader can consider the alternative possibilities in terms of strategy and the appropriate tactics to consider.

For those who have used the earlier editions of this text or for our loyal readers of the past edition, you will notice many updates and additions in each of the chap- ters throughout this text, some of which we want to highlight for you.

Chapter 1—The first chapter sets the stage for the balance of the text. The chap- ter is a set of basic observations and beliefs that that we have found helpful when working with organizations as they develop strategies and actions. Over the years, we have observed—to the dismay of many executives—that change is relentless and that clear and dedicated focus is critical. We also would suggest that before a senior management team or board of directors or a group of physicians begins the strategic process, it would be wise for them to use Chapter 1 as a starting point to gain a com- mon understanding that we call the strategic mindset.

Chapter 2—The process of creating an integrated strategic and marketing plan begins here. First, it is necessary to clarify the connection between the strategic plan, the business plan, and the marketing plan to avoid confusion. Furthermore, for each of these elements, we offer key observations to enable executives to make better decisions. For example, we note that in many strategic plans, these plans are often too general to offer guidance to managers or too far removed from reality to be believable. In this chapter, we offer ideas that are designed to help executives estab- lish clear strategies and integrate strategic, business, and market plans.

Chapter 3—This chapter discusses the changes in the competitive marketplace. As a result, you will notice significant changes, updates, and additions throughout your reading. As the U.S. policy on immigration is changing, there is some discus- sion regarding how the immigration population affects population growth in the United States. Additionally, there is an interesting discussion of patient portal use across ethnicity. Similarly, there is an expanded and significantly revised discussion of aging in the United States. In this chapter, we provide the concept of domes- tic tourism as a new factor. The discussion of transparency has been significantly

Preface xi

revised with greater depth of government transparency sites, along with third-party sites, such as YELP.

Chapter 4—In this chapter discussing the Internal/External Assessment, we have added a new and important presentation on Scenario planning as an input to internal assessment. More so in this edition than in the previous, our review of the SWOT and Five Forces model has increased emphasis on healthcare examples for students who might use this text as well as greater applicability for practitioners. A significant change is the addition of a third model or framework “Blue Ocean Strat- egy” that has recently received some recognition in the management literature. It is helpful to consider these three models (SWOT, Five Forces, and Blue Ocean) in the context of the Strategy/Action Match presented in our book. Finally, in the section on market research data, we have added a new discussion on sentiment (opinion) mining that is now being utilized to analyze discussions in social media sites.

Chapter 5—Ultimately, this book is about achieving to actionable marketing strategies. In order to get to that specific level, organizations need to be clear about who they are (mission), where they are going (vision), and what is critical in terms of a successful vision (critical success factors). Successful business organizations typi- cally know where they are headed, and they begin to place resources to achieve that vision. In health care, we tend to see less than accurate mission statements, gener- alized vision direction, and little attention or investment in critical success factors. This chapter is designed to add more rigor to the mission, vision, critical success factor conversation, and decision-making.

Chapter 6—The healthcare environment is constantly changing at the local, statewide, and national policy levels. Some organizations are growing, while others are not. Disruption is a common term at the clinical, health system, and payer levels. Growing organizations have different tactical opportunities than organizations that are in decline. The focus of this chapter is to help organizations understand the kind of marketing tactics they should use for each major market condition. This model that we created is called the “Strategy/Action Match.”

Chapter 7—This chapter focuses on the determination of marketing actions. Within the Product/Service section, a central component is the evaluation of core quality. As a result, we have expanded our presentation of the federal government’s expansion of their comparison websites for quality and its impact on reimburse- ment. In response to greater structural changes in the healthcare industry with mergers and acquisitions, there has been more focus on branding. Strategy and the resultant tactics have been at the forefront of marketing concerns. This edition has an expanded and revised discussion on choosing a brand strategy. Similarly, as the changes in distribution strategy and tactics have been so significant since our last edition, we have revised and enhanced our approach in this chapter; readers of prior editions will note the impact of technology discussion in terms of the distribution and channel and the discussion on the changing nature of channels. In terms of mar- keting actions, pricing has undergone significant enhancement as the tactics in this component of marketing have seen renewed emphasis within health care since our last edition. Discounting, contracting variations, center of excellence contracting, price bundling are but a few of the tactics to consider within the marketing planning approach. “Integrated Marketing Communications” is a new section in this chap- ter within the overall discussion of strategy in promotional planning. This edition

xii Preface

also has included the costing discussion regarding how to do so for digital media alternatives.

Chapter 8—Coordination is the focus of this chapter. Understanding how one clinical product line, such as the cardiology marketing plan, fits as a part of the overall business plan is key. Creating a system where multiple hospitals in a system work in concert is the focus of this chapter. This concept can be difficult because while hospitals might be in the same system, individual hospitals may still compete even though they are part of the same organization. Great strategies on paper often become difficult to execute when it comes to coordination across health system or clinical lines.

Chapter 9—Creating strategy and implementing it can be energizing. Monitor- ing strategy can often be less satisfying. But it is necessary. All organizations mon- itor results monthly with financial statements. This chapter assumes that financial statements are in place. Therefore, the goal of Chapter 9 is to provide ideas on how to monitor results that go beyond the traditional financial statements, and we provide ideas on how to evaluate marketing tactics, including salespersons and advertising results.

Chapter 10—In our last chapter, we have added a brief new discussion on “expecting the unexpected” and the steps by which this must be factored into the planning process. Additionally, to enforce reexamination of assumptions, organi- zations intent on developing a plan with a team must consider “the inclusion of programmed conflict.” We have observed that many organizations often say, “The marketing dollars were poorly spent.” While in many instances that statement might have some merit, we have added a new discussion of the sequence of values process and promotional expenditures as it pertains to the marketing message. The role of the Chief Marketing Officer is changing, and we have provided in this edition three trends that are making this role more important to consider. Hopefully, with some guidance in implementing strategy and tactics in this book, we have helped in some small way.

xiii

About the Authors Steven G. Hillestad, BA, MA, trained at the University of Wisconsin–Madison in business and public administration. He led marketing efforts at the Fairview System in Minneapolis in the late 1970s, when the first edition of this book was published. Until 1998, he led marketing, strategy, acquisitions, and business-development efforts at Abbott Northwestern Hospital, LifeSpan, and Allina Health System, all located in Minneapolis. He provides consulting support to healthcare organizations in strategic planning and market research. He has been active in professional organizations and has published extensively. He was awarded the Frank Weaver Leadership Award and the Corning Award from the American Hospital Association, where he served as Presi- dent of the Society for Healthcare Strategy and Market Development. Hillestad teaches part-time at the University of Minnesota, co-owns an upscale lodge on the shores of Lake Superior, and provides consultation to organizations involved in healthcare deliv- ery. Currently, he is working with not-for-profit boards to help them improve perfor- mance so they can achieve their vision. He resides in the Twin Cities area.

Eric N. Berkowitz received his PhD from Ohio State University and presently serves as Acting Managing Director and Professor of Marketing for Babson Global, a divi- sion of Babson Global College in Wellesley, Massachusetts. He is also Professor Emeritus of Marketing, School of Management, the University of Massachusetts at Amherst where he served for 12 years as Associate Dean of Professional Programs for the Isenberg School of Management. Before joining the faculty at Massachusetts, Dr. Berkowitz was on the faculty of the University of Minnesota in the School of Management and the Center for Health Services Research.

Professor Berkowitz has published extensively in both marketing and health care. He is author of six books: Essentials of Health Care Marketing (Jones and Bart- lett 4th ed. 2017); Marketing (Richard D. Irwin, 8th ed., 2006); Marketing in Canada (Richard D. Irwin, 5th ed.); Health Care Market Strategy: From Planning to Action (Jones and Bartlett 4th ed., 2013), forthcoming 5th edition 2019; Strategic Planning in Health Care Management: Marketing and Finance Perspectives (Aspen 1981); and Health Care Market Research (Richard D. Irwin, 1997).

Dr. Berkowitz is a past editor of the Journal of Health Care Marketing. He also served as Chairperson of the Alliance for Health Care Strategy and Marketing. In 1985, Dr. Berkowitz was named an honorary member of the American College of Physician Executives. In 1988, Professor Berkowitz received the Frank J. Weaver Leadership Award from the Alliance for Healthcare Strategy and Marketing for his contributions to the advancement of healthcare marketing. For 15 years, he was on the board of Cooley Dickinson Hospital in Northampton Hospital serving for 3 years as Board Chair, and he served for 9 years on the board of Reliant Medical Group, a multispecialty group practice in Massachusetts.