Health Services Marketing 1-3 Discussions

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Health Services Marketing

HSA 305

Analyzing the Environment

Kotler, P., Shalowitz, J., & Stevens, R. J. (2008). Strategic marketing for health care organizations. San

Francisco: Jossey-Bass

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Welcome to Health Services Marketing. In this lesson, we will discuss

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Objectives

  • Upon completion of this lesson, you will be able to:
  • Analyze the competitive environment of a health services organization and prepare a course of action that will allow for strategic marketing success

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Upon completion of this lesson, you will be able to:

Analyze the competitive environment of a health services organization and prepare a course of action that will allow for strategic marketing success.

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Strategy and Market Planning

  • Purpose
  • Mission statement
  • What is our business?
  • Who is the customer?
  • What is of value to the customer?
  • What will our business be?
  • What should our business be?
  • What could our business be?

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In this lesson, we will look at the guidelines on developing marketing strategy in order to achieve desired outcomes as well as how health care consumers make choices. Every organization has a specific reason for its existence. That specific reason is usually included in its mission statement. The mission statement should be specific and customer outcome oriented. In defining a mission statement, an organization needs to address the following questions:

What is our business?;

Who is the customer?;

What is of value to the customer?;

What will our business be?;

What should our business be?; and

What could our business be?

We will analyze each of these questions through guidelines on developing a market strategy to achieve desired customer outcomes.

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Business Definition

  • History of aims, policies, and achievements
  • Current preferences of owners and management
  • Market environment
  • Resources
  • Distinctive competencies
  • Additional three dimensions

Strategic planning begins with a definition of the business. The definition of a business has at least five elements:

One. History of aims, policies, and achievements. It pertains to having an understanding of

Why the organization was formed;

The processes that have contributed to or reduced from its success;

And what it has accomplished.

It is important for the members of the organization to have an understanding of its history so that the leaders can predict how members will react to the process as well as the content of changes pertinent for strategy implementation.

Two. Current preferences of owners and management. It must be in sync with the mission. It must determine not only which services it seeks to provide, but also the relative importance of the mix of those services. Hence, these preferences must be clear and explicit prior to the organization writing a mission statement or embarks on a strategy formulation.

Three. Market environment . This can be achieved by conducting an environmental assessment in a mission formulation.

Four. Resources of an organization. It sets restraints regarding the mission statement. The resources are both tangible and intangible. Tangible resources are resources such as cash, plant, and equipment and intangible resources are things such as reputation and image.

And five. Distinctive competencies. It should be determined in order to see what it does better than other similar organizations.

In addition, a business can be defined in terms of three dimensions: customer groups, customer needs, and technology.

Having realistic addition resources, what that business look like and what it could accomplish can assist an organization to begin the process of realistic goal setting and capital budgeting.

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Strategic Planning

  • Customer Identification
  • Value Proposition
  • Primary activities
  • Support activities
  • Core business processes
  • Marketing sensing
  • New offering realization
  • Channel bonding
  • Customer acquisition
  • Customer relationship management
  • Fulfillment management

The next phase in strategic planning is customer identification. Customer identification makes it necessary for the organization to answer the following questions:

Who are our customers?;

Where are they? and;

What are their characteristics?

A quality expert, J. M. Juran indicated that customers include all people who are affected by an organization’s processes, products, and services. The people can be internal customers who are a part of the organization or external customers who are not a part of the organization.

A user is anyone who carries out positive actions regarding an organization’s product such as suppliers being external customers and patients are both customers and users of health care services. An organization must prioritize the importance of its different customers. This can be achieved by implementing three categories:

Those who are most impacted by what the organization does;

Those who the organization desires to impact the most by diversifying or seeking unfulfilled mission objectives; and

Those who can assist the organization in furthering its business by crafting a symbiotic relationship with its important customers like with health plans and physicians.

Once the organization has defined its customers and prioritized its relevance, the service area must be defined to include the scope of its geographic coverage. The next step is to define the segments of the market the organization is looking to serve.

The next phase in strategic planning is value proposition. Value is defined as the trade off among cost, quality and access. Porter’s value Chain Model is a tool for identifying ways to create customer value. The value chain identifies nine strategically relevant activities or five primary activities and four support activities that create value and cost.

Primary activities are activities that:

Bring materials into the organization or inbound logistics;

Converting them into final products and services or operations;

Shipping out final products and services or outbound logistics;

Marketing them to the targeted market; and

Servicing them.

Examples of support activities are procurement, technology development, human services management, and organization infrastructure. These are usually handled in specialized departments. The organization should analyze its cost and performance of each value creating activity and look for improvement opportunities. In addition, it should estimate its competitors’ costs and performance standards as benchmarks. The core business processes also contribute to the success on how well each department performs its work as well as how well the different departmental activities are coordinated. The core business processes are as follows:

Marketing sensing which includes gathering market intelligence, disseminating it within the organization, and acting on the information;

New offering realization which is researching, developing, and launching new, high quality offerings quickly and within budget;

Channel bonding is developing strong partners regarding the supply and distribution side of the organization;

Customer acquisition is defining target markets and prospecting for new customers;

Customer relationship management is building a profound understanding, relationships, and offerings to individual customers; and

Fulfillment management is receiving and approving orders, shipping goods or delivering services on time, and collecting payment.

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Strategic Planning, continued

  • Goal setting
  • Tied to the mission statement
  • Clearly defined
  • Measurable
  • Prioritized
  • Target time
  • Strategy
  • Environmental assessment and planning
  • Implementation
  • Evaluation
  • Reassessment

Once the mission statement is determined, then the goals should be formulated. The goals are the milestones that indicate how well the organization is progressing. Goals must have at least the five elements:

Must be clearly tied to the mission statement;

Must be clearly defined;

Must be measurable;

Must be prioritized; and

Must include a target time by which they must be achieved.

An organization must have a business strategy to achieve its mission and goals. There are at least four steps in drafting a useful and appropriate strategy:

Environmental assessment and planning that includes both the internal and external environments;

Implementation of the strategy;

Evaluation of the strategy’s success; and

Reassessment.

There are four levels of strategic planning. These are:

Corporate;

Division;

Strategic business unit; and

Product;

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Environmental Assessment Models

  • SWOT Analysis
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Limitations

Internal and external environments

Not provide a systematic means of analysis

Not offer an approach to strategic implementation

The environment of an organization can be assessed with a SWOT analysis and-or the Porter’s Five Forces Analysis.

SWOT is the oldest of the two models. It looks at the strengths and weaknesses of the internal environment and the opportunities and threats of the external environment. Strengths can be divided into two categories:

Resources which are what the organization has; and

Capabilities which are what the organization do well.

Both of these categories can be tangible or intangible. In addition to looking at the resources and capabilities, organizations need to include assessing potential capabilities given the current resources. This can be perceived as what the organization should be.

An organization can assess its internal weaknesses through:

Finances;

Performance capabilities; and

Human resource capabilities.

An organization has three options if they want to exploit environmental opportunities to enhance its operations:

Intensive growth opportunities ;

Integrative growth opportunities; and

Diversification growth opportunities.

An analysis of threats will reveal current and projected threats.

The limitations of SWOT are as follows:

One. Although an organization may be able to clearly indicate its internal and external environments, it may not be able to correlate appropriate elements to achieve organizational success.

Two. It does not provide a systematic means of analysis. It may overlook important environmental factors; and

Three. It does not offer an approach to strategic implementation.

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Environmental Assessment Models

  • Porter’s Five Forces Analysis

Internal rivalry

Threat of new entrants

Threat of substitute products

Buyer power

Supplier power

  • Limitations

Growth of demand

Focuses on the industry

Does not account for nonmarket

Qualitative model

Porter’s Five Forces Analysis consists of :

Internal Rivalry;

Threat of New Entrants;

Therat of Substiture Products,

Buyer Power; and

Supplier Power.

One. Internal Rivalry. It is the competition among like firms. The organizations compete in non-price and price competitions. Non-price competition has three categories: products and services, promotion and branding, and access.

Products and services are determined by the organization’s mission.

Promotion and branding can be determined by the reputation of the organization.

Access has four dimensions regarding health care: location, delivery of services, convenience, and insurance contracting status.

Many organizations engage in price competition under three circumstances:

One. They may reduce their prices when the costs to their customers for switching providers are low;

Two. They may also reduce their prices when they seek to gain market share or avoid losing the market share they currently have; and

Three. Price reduction happens in sectors in which the organizations view themselves as independent actors instead of as part of a cohesive industry.

In addition, there are also six environmental circumstances that encourage price reductions:

Excess capacity;

The presence of many sellers;

Absence of a history of cooperation and facilitation among organizations;

Undifferentiated products or services;

Sellers can set prices secretly; and

Sales orders are large and infrequent.

Two. Threat of New Entrants. New Entrants must overcome the following barriers:

Economies of scale and scope;

Capital requirements;

Access to key resources or distribution channels;

Legal restrictions;

Branding;

Exclusive and or long term agreements with major customers; and

Current firms with excess capacity.

Three. Threat of substitute products or services. A substitute drug does the same thing as those that they replace such as generic drugs. Complements are used in addition to the product or service.

Four. Buyer Power. It is promoted by two circumstances:

Direct buyer power occurs when the buyer is so large that the seller cannot turn away the business; and

Indirect buyer power occurs when the purchasers are motivated and able to shop around.

And five. Supplier Power. It can be determined by the extent to which suppliers can exert their power over an organization.

To do this, the following questions must be answered:

How important is the product or service that the supplier provides?

How many similar supplier competitors are there?

How high is the cost of switching form one supplier to another?

The limitations to using the five forces model are:

One. It does not deal with the growth of demand in a given industry.

Two. It focuses on the industry as a whole and not the individual organization.

Three. It does not account for nonmarket forces such as the role of government or nongovernmental organizations.

And four. It is a qualitative model and not a quantitative model.

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Marketing Strategies

  • Changing forces
  • Segmentation
  • Positioning
  • Product leadership
  • Customer intimacy
  • Operational excellence

Both the SWOT and five forces analyses can be used in assessing an organization’s environment; however, they are not as useful in deciding on implementation strategies that will assist the organization in surviving and prospering. An organization may elect to use any of the three approaches:

Changing forces. An organization may choose to change one of more of the five forces that are working against it. This has been evident in legislative initiatives in increasing the OB/GYN availability for women who have managed care plans.

Segmentation. This involves finding a sector or part of the industry that is not so affected by the five forces. Hospitals began to diversify into health care segments that were less affected by reimbursement changes such as in rehabilitation services, pediatrics, home health care, and skilled nursing facilities.

Positioning. This is when the organization develops a differential advantage from other organizations that protects it from the five forces. When positioning, a specific value driven strategy is selected. The specific strategy will depend upon the organization’s mission and target population. There are three positioning strategies:

Product leadership. An organization that uses this position is completely devoted to producing the best product or service and all organizational processes are subservient to this function. An example of this type of organization is a start of biotechnology firm. This position provides a benefit advantage to customers.

Customer intimacy. An organization that uses this position, realize that it cannot satisfy everyone; therefore, it targets specific customers and add value by providing total solution products and services in a long term relationship. Consulting firms are examples of organizations that usually adopts this position. This position provides a benefit advantage to customer; and

Operational excellence. An organization that uses this position aims to provide its products and services at a low price in a standardized, low stress environment. Its profit depends on high volume sales and adoption of the notion of variety is not good for efficiency. This position provides cost advantage to customers.

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Next Steps

  • Reassessment of mission statement
  • Vision and values
  • Alliances
  • Market planning
  • Marketing plan components
  • Executive summary and table of contents
  • Environmental analysis
  • Opportunity and issue analysis
  • Objectives
  • Marketing strategy

Once the organization has evaluated its environment and its strategic options, then it should review its mission statement to determine if it is still feasible. The reassessment can validate the reasons for the statement and the organization’s purpose; it can cause the organization to realistically assess its purpose, and the organization may find out that it can accommodate a broader mission than it first envisioned.

Health care organizations have discovered that they need strategic partners to complement or leverage their capabilities and resources. Many have and are doing this in the form of alliances.

After the environmental analysis has been completed and the mission statement has been reassessed, then a marketing plan should be developed. A marketing plan is a written document that summarizes what the organization has learned about the environment and describes how the organization plans to reach its goals within the frame of the strategic plan. A marketing plan has the following components:

Executive summary and table of contents. The plan should have a brief summary of the main goals and recommendations. The table of contents outlines the plan, the supporting rationale, and operational detail.

Environmental analysis. This contains relevant background data regarding sales, cost, profits, the market, competitors, channels and they key forces in the environment. It also should have a detailed description of the customer and competitive behavior.

Opportunity and issue analysis. This section should be the opportunities indicated from the SWOT analysis and identifies the key issues likely to impact the organization’s ability to achieve its objectives.

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Next Steps, continued

  • Objectives & Marketing Strategy
  • Action programs
  • Financial projections
  • Implementation controls

A marketing plan should also have:

Objectives. This section outlines the plan’s major financial and marketing goals usually illustrated in sales volume, market share, profit, and any other relevant terms.

Marketing strategy. This section defines the target segments. It provides the competitive positioning. It also has the branding and customer strategies that will be implemented.

Action programs. This section specifies the activities for achieving the business objectives to include each strategy elements.

Financial projections. This section includes the financial impact of the action programs. It also illustrates the forecasted sales volume in units and average prices as well as the expected costs of operations, distribution, and marketing. And implementation controls. This section outlines the controls of monitoring and adjusting the plan.

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Key Psychological Processes

  • Motivation
  • Perception
  • Health Belief Model
  • Learning
  • Memory

Next, lets discuss how health care buyers make choices. It is necessary to have an understanding of consumer and buyer behavior to improve or introduce products or services, setting prices, devising channels, crafting messages, and developing other marketing activities. To begin, there are four key psychological processes:

Motivation. There are three know theories of human motivation. Sigmund Freud’s theory is applied in the context of consumer behavior by indicating that when a person analyzes specific brands, he will react not only to their indicated capabilities, but also to their, less conscious cues. Abraham Maslow’s theory explains why people are driven by particular needs at specific times. Frederick Herberg’s two factory theory distinguishes the factors that cause dissatisfaction and factors that cause satisfaction. James Prochaska and Carlo DiClemente’s Stages of change theory indicates that behavior change does not happen in one step. Individuals go through different stages.

Perception. Perceptions can vary significantly among individuals exposed to the same phenomena due to three perceptual processes:

Selective attention. This is the process where a person screens out almost all of the stimuli exposed to.

Selective distortion. This is the tendency to manipulate information into personal meanings and interpret information in a way that fits one’s perception.

And, selective retention. This is retaining information that supports one’s attitude and beliefs.

The Health Belief Model is a model related to perception. It indicates that recognizing a personal health behavior threat is impacted by three factors:

General health values including interest and concern regarding health;

Specific health beliefs regarding vulnerability to a particular health threat; and

Beliefs regarding the consequences of the health problem.

This model indicates an individual who perceives a health threat and then takes action to prevent a health problem most likely have:

Perceived susceptibility;

Perceived seriousness;

Perceived benefits of taking action;

Perceived barriers to taking action;

Perceived cues to action; and

Perceived efficacy.

Learning. Theorists believe learning is produced through the interaction of drives, stimuli, cues, responses, and reinforcement.

Memory. Memory can be applied to consumers in that they brand knowledge in their memory which can be conceptualized as having a brand node in memory with a variety of linked association. Encoding is how and where information gets into memory. Retrieval is how information is pulled out of memory.

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Buying Decision Process

  • Five Stage Model
  • Problem recognition
  • Information search
  • Evaluation of alternatives
  • Purchase decisions
  • Post purchase behavior

The Five Stage Model can be used to explain customers’ buying decision process.

The first stage is problem recognition. The buyer recognizes there is a need or problem. This is triggered by an internal or external stimuli.

The second stage is information search. The information neediness of a target market and the information sources. The information sources can be personal, commercial, public, and or experiential.

The third stage is evaluation of alternatives. Consumers forms attitudes, judgments, and preferences toward some brands by an attribute evaluation procedure. The expectancy value model of attitude formation indicates consumers assess products and services by combining their brand beliefs. The assumption of this model is that there is high consumer involvement.

The fourth stage is Purchase decision. This stages is where the consumer develops preferences regarding the brands in the choice set. An intention to purchase the most popular or preferred brand may also be formed. The attitude of others, unanticipated factors, and perceived risks are factors that can intervene between a purchase intention and a purchase decision.

And the last stage is Post purchase behavior.It must be monitored to help the consumers to feel good about a purchase because some purchasers experience buyers remorse.

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Organizational Buying

  • Three types of markets
  • Business
  • Institutional
  • Government
  • Buying situations
  • Systems Buying and Selling
  • Business Buying Process Decision Makers
  • Buying Center

Now, we will look at how organizations make their purchase decisions. There are three types of organizational markets:

Business markets. These markets consist of organizations that acquire goods and services implemented in the production of other products or services that are sold, rented, or supplied to others. More characteristics of this market are they deal with fewer larger buyers; have close supplier-customer relationship; have professional purchasing agents; have multiple buying influences; have multiple sales calls; have derived demand; are inelastic demand; have fluctuating demand; have geographically concentrated buyers, and buys directly from manufacturers instead of through intermediaries.;

Institutional markets. These markets are hospitals, nursing homes, prisons, and other institutions that must provide health care goods and services to people in their care.; and

Government market. The US government is the largest customer of goods, services, and technology in the world. Its spending decisions are subject to public review. Hence, it requires a significant amount of paperwork, bureaucracy, regulations, decision making delays and shifts in procurement personnel.

There are three types of buying situations that every business buyer encounters:

Straight rebuy refers to reordering routinely from preapproved suppliers;.

Modified rebuy occurs when the buyers wants to modify product specifications, prices, delivery requirements, or some other terms. This usually involves more participants on both sides; and

New task involves purchasing a product or service for the first time. This type goes through awareness, interest, evaluation, trial, and adoption stages.

Many business buyers prefer to purchase a total system from one seller. This practice is called system buying. Systems contraction is a variant of systems selling where a single supplier providers the buyer with the entire requirement of the maintenance, repair and operating supplies. The benefit of system contracting is that it lowers the buyer’s cost due to the seller managing the customer’s inventory and less time is spent on selecting a supplier.

There can be more decision makers in new buy situations such as finance personnel, physicians, nurses, and technical experts in information systems who share some common goals and risk from their purchase decisions. This is also known as the buying center. The members of the buying center play any of the following roles:

Initiators request something to be purchased;

Users are the ones who will use the product or service;

Influencers impact the buying decision;

Deciders decide on product requirements or on suppliers;

Approvers authorize the proposed actions of deciders or buyers;

Buyers with formal authority can select the supplier and arrange the purchase terms; and

Gatekeepers have the power to prevent sellers or information from reaching members of the buying center.

Since there is a mix of decision makers in the buyer center, each participant has personal motivations, perceptions, and preferences that are influenced by the buyer’s age, income, education, job position, personality, attitude regarding risk and culture. The result is buyers have different buying styles.

When defining target segments, there are four types of business customers:

Price oriented customers;

Solution oriented customers

Gold standard customers; and

Strategic value customers.

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Stages in the Buying Center

  • Problem recognition
  • General need review description and product specification
  • Supplier search
  • Proposal solicitation
  • Supplier selection
  • Order routine specification
  • Performance

Buy phases includes eight stages that business buying goes through. The process begins with someone recognizing a problem or need that needs to be met by obtaining a good or service. Next, the buyer must determine the general characteristics and the number required. Then the buyer search for the most appropriate suppliers. This may be done by through trade directories, contacts with other companies, trade advertisement, and trade shows. The buyer will obtain a short list of qualified suppliers based on the criteria that the buying center sets. The buyer will invite qualified buyers to submit a proposal. The buying center will provide the number of suppliers to use. Once the suppliers are selected, the buyer negotiates the final order to include listing the technical specifications, the number needed, the expected time of delivery, return policies, warranties and so on. With maintenance, repair and operating items, many buyers move to having blanket contracts instead of periodic purchase orders. The last stage of the buying process is the performance review of the chosen suppliers. This is done by one of the following methods:

Contact the end users and ask for their evaluations;

Rate the supplier on several criteria using a weighted score method; and

Combine the cost of poor supplier performance to come up with the adjusted cost of purchase to include price.

The performance review can lead to continue, modify or stop the relationship with a supplier.

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Check Your Understanding

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Summary

  • Strategy and market planning
  • SWOT and Porter’s Five Forces
  • Components of a marketing plan
  • Key psychological processes in consumer decision making
  • Five Stage model for consumer buying process
  • Organizational buying and decision making
  • Stages in the buying process

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We have now reached the end of this lesson. Let’s take a look at what we’ve covered.

First, we discussed the purpose of strategy and market planning. This included defining the business, the target segment, value proposition, goal setting, and strategy. We also discussed the strategy in detail to include:

Environmental analysis;

Implementation;

Evaluation; and

Reassessment.

Then we discussed two models of environmental analysis:

SWOT; and

Porter’s Five Forces.

Along with these two models, we discussed the caveats to using them and how some organizations have controlled for some of the caveats. The components of a marketing plan are:

Executive summary and table of contents;

Environmental analysis;

Opportunity and issue analysis;

Objectives;

Marketing strategy;

Action programs;

Financial projections; and

Implementation controls.

Then we discussed the key psychological processes involved in customer decision making regarding purchasing:

Motivation;

Perception;

Learning; and

Memory.

Also, the five stage model regarding consumer buying process and its components were discussed. These are

Problem recognition;

Information search;

Evaluation of alternatives;

Purchase decisions; and

Post purchase behavior.

Next, the organization’s business markets were discussed along with buying situations, systems buying and selling, buying center, and the buying center’s decision makers.

Finally, the stages in the buying center were discussed. These are:

Problem recognition;

General need review description and product specification;

Supplier search;

Proposal solicitation;

Supplier selection;

Order routine specification; and

Performance.

This concludes this lecture.