Strategic Marketing For Health Care Organizations E-Book

Philip Kotler

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2011

Seitenzahl: 1035

Beschreibung

This much-needed text offers an authoritative introduction to strategic marketing in health care and presents a wealth of ideas for gaining the competitive edge in the health care arena. Step by step the authors show how real companies build and implement effective strategies. It includes marketing approaches through a wide range of perspectives: hospitals, physician practices, social marketing, international health, managed care, pharmaceuticals, and biotechnology. With Strategic Marketing For Health Care Organizations, students and future administrators will have a guide to the most successful strategies and techniques, presented ready to apply by the most knowledgeable authors.

Leseprobe

Table of Contents

Title Page

Copyright Page

List of Tables

Table of Figures

Table of Exhibits

Dedication

PREFACE

Acknowledgments

THE AUTHORS

PART 1 - UNDERSTANDING THE HEALTH CARE SYSTEM AND THE ROLE OF MARKETING

CHAPTER 1 - THE ROLE OF MARKETING IN HEALTH CARE ORGANIZATIONS

LEARNING OBJECTIVES

OVERVIEW: MARKETING IS PERVASIVE IN HEALTH CARE

THE ELEMENTS OF MARKETING THOUGHT

CHAPTER 2 - DEFINING THE HEALTH CARE SYSTEM AND ITS TRADE-OFFS

LEARNING OBJECTIVES

OVERVIEW: DEFINING A HEALTH CARE SYSTEM

A FRAMEWORK FOR UNDERSTANDING HEALTH CARE SYSTEMS

STRATEGIC CHOICE MODEL FOR ORGANIZATIONS AND HEALTH CARE SYSTEMS

STRATEGIC IMPLICATIONS FOR HEALTH CARE

CHAPTER 3 - THE HEALTH CARE INDUSTRY AND MARKETING ENVIRONMENT

LEARNING OBJECTIVES

OVERVIEW: THE U.S. HEALTH CARE SYSTEM NEEDS IMPROVEMENT

DEFINING A WELL-DESIGNED HEALTH CARE SYSTEM

MAJOR PARTICIPANTS IN THE HEALTH CARE SYSTEM

KEY MANAGED CARE TRENDS

DYNAMIC RELATIONS AMONG HEALTH CARE STAKEHOLDERS

THE CHANGING HEALTH CARE ENVIRONMENT

CHAPTER 4 - DETERMINANTS OF THE UTILIZATION OF HEALTH CARE SERVICES

LEARNING OBJECTIVES

OVERVIEW: WHY PEOPLE SEEK HEALTH CARE

MULTIPLE FACTORS INFLUENCE HEALTH-SEEKING BEHAVIOR

LOCAL (SMALL AREA) VARIATIONS

PART 2 - ANALYZING THE MARKET

CHAPTER 5 - STRATEGY AND MARKET PLANNING

LEARNING OBJECTIVES

OVERVIEW: DEFINING THE ORGANIZATION’S PURPOSE AND MISSION

STRATEGIC PLANNING

MARKETING STRATEGIES

REASSESSMENT OF MISSION STATEMENT

STRATEGIC ALLIANCES

MARKETING PLANNING

CHAPTER 6 - HOW HEALTH CARE BUYERS MAKE CHOICES

LEARNING OBJECTIVES

OVERVIEW: KEY PSYCHOLOGICAL PROCESSES

THE BUYING DECISION PROCESS: THE FIVE-STAGE MODEL

ORGANIZATIONAL BUYING AND DECISION MAKING

CHAPTER 7 - USING MARKET INFORMATION SYSTEMS AND MARKETING RESEARCH

LEARNING OBJECTIVES

OVERVIEW: THE NEED FOR MARKET INFORMATION

THE COMPONENTS OF A MODERN MARKETING INFORMATION SYSTEM

INTERNAL RECORDS SYSTEM

HEALTH CARE SERVICES: THE CLINICAL AND FINANCIAL SYSTEMS

HEALTH CARE PRODUCTS: THE ORDER-TO-PAYMENT CYCLE

THE MARKETING INTELLIGENCE SYSTEM (MIS)

MARKETING RESEARCH SYSTEM

THE PATH MODEL: UNDERSTANDING THE HEALTH CARE CONSUMER

MARKETING DECISION SUPPORT SYSTEM

DEVELOPING A MARKETING RESEARCH PLAN: APPLICATION AND EXAMPLE

FORECASTING AND DEMAND MEASUREMENT

APPENDIX: SECONDARY-DATA SOURCES

CHAPTER 8 - MARKET SEGMENTATION, TARGETING, POSITIONING, AND COMPETITION

LEARNING OBJECTIVES

OVERVIEW: MARKET SEGMENTATION

SEGMENTATION OF CONSUMER MARKETS

MARKET TARGETING

MARKET POSITIONING

COMPETITIVE FORCES AND COMPETITORS

PART 3 - APPLYING THE MARKETING MIX

CHAPTER 9 - SHAPING AND MANAGING PRODUCT AND SERVICE OFFERINGS

LEARNING OBJECTIVES

OVERVIEW: DISTINGUISHING PRODUCT TYPES AND LEVELS

THE NATURE OF SERVICES

VIEWING THE PRODUCT MIX

MANAGING PRODUCT LINES

CHAPTER 10 - DEVELOPING AND BRANDING NEW OFFERINGS

LEARNING OBJECTIVES

OVERVIEW: THE NEW OFFERING DEVELOPMENT PROCESS

BUILDING THE BRAND

MANAGING THE STAGES OF THE PRODUCT LIFE CYCLE

BUILDING, MAINTAINING, AND TERMINATING A BRAND

CHAPTER 11 - PRICING STRATEGIES AND DECISIONS IN HEALTH CARE

LEARNING OBJECTIVES

OVERVIEW: UNDERSTANDING PRICING

CONSUMER PAYERS

GOVERNMENT PAYERS

PRIVATE PAYERS

CHAPTER 12 - DESIGNING AND MANAGING HEALTH CARE MARKETING CHANNELS

LEARNING OBJECTIVES

OVERVIEW: MARKETING CHANNELS AND VALUE NETWORKS

THE ROLE OF MARKETING CHANNELS

CHANNEL FUNCTIONS AND FLOWS

CHANNEL LEVELS

SERVICE SECTOR CHANNELS

CHANNEL-DESIGN DECISIONS

IDENTIFYING MAJOR CHANNEL ALTERNATIVES

EVALUATING THE MAJOR ALTERNATIVES

CHANNEL-MANAGEMENT DECISIONS

MODIFYING CHANNEL ARRANGEMENTS

CHANNEL DYNAMICS

LEGAL AND ETHICAL ISSUES IN CHANNEL RELATIONS

CHAPTER 13 - DESIGNING AND MANAGING INTEGRATED MARKETING COMMUNICATIONS

LEARNING OBJECTIVES

OVERVIEW: THE ROLE OF MARKETING COMMUNICATIONS

MARKETING COMMUNICATIONS AND BRAND EQUITY

COMMUNICATIONS PROCESS MODELS

DEVELOPING EFFECTIVE COMMUNICATIONS

ADVERTISING

SALES PROMOTION

PUBLIC RELATIONS AND PUBLICITY

EVENTS AND EXPERIENCES

FACTORS IN SETTING THE MARKETING COMMUNICATIONS MIX

MEASURING THE COMMUNICATIONS RESULTS

MANAGING THE INTEGRATED MARKETING COMMUNICATIONS PROCESS

COORDINATING MEDIA

IMPLEMENTING INTEGRATED MARKETING COMMUNICATIONS

CHAPTER 14 - PERSONAL MARKETING COMMUNICATIONS: WORD-OF-MOUTH, SALES, AND ...

LEARNING OBJECTIVES

OVERVIEW: PERSONAL COMMUNICATION CHANNELS

WORD-OF-MOUTH MARKETING

DESIGNING THE SALES FORCE

HEALTH CARE SALES TO HOSPITALS AND PHYSICIANS

DIRECT MARKETING

PART 4 - IMPLEMENTING AND CONTROLLING THE MARKETING EFFORT

CHAPTER 15 - ORGANIZING, IMPLEMENTING, AND CONTROLLING MARKETING

LEARNING OBJECTIVES

OVERVIEW: ORGANIZING FOR MARKETING

HELPING THE HOSPITAL BECOME PATIENT-ORIENTED

MARKETING IMPLEMENTATION

EVALUATION AND CONTROL

GLOSSARY

NOTES

INDEX

Table of Figures

FIGURE 1.1 . The 4Ps Elaborated

FIGURE 2.1 . Health Care Spending and GDP Per Capita

FIGURE 2.2 . Stakeholders

FIGURE 2.3 . Strategic Choices to Deliver Health Care Stakeholder Value

FIGURE 2.4 . Cost

FIGURE 2.5 . Quality

FIGURE 2.6 . Customer-Intimate or Total Solution

FIGURE 2.7 . Total System of Variables for Each Stakeholder

FIGURE 3.1 . Percent GDP and Sample Health Measures for Selected OECD Countries

FIGURE 3.2 . United States Health Spending 2005

FIGURE 3.3 . Care Providers

FIGURE 3.4 . Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2006

FIGURE 3.5 . Flow of Goods and Financial Transactions Among Players in the U.S. Commercial Pharmaceutical Supply Chain

FIGURE 3.6 . Trends in Promotional Spending for Prescription Drugs, 1996-2004

FIGURE 3.7 . Department of Health and Human Services Organisational Chart

FIGURE 3.8 . Relationships Between Health Care System Stakeholders

FIGURE 4.1 . Outpatient Visits Per 100 Persons in the United States by Age and Sex, 2004

FIGURE 4.2 . Per Capita Spending on Personal Health Care

FIGURE 4.3 . Factors Affecting Health Level of Consumers

FIGURE 5.1 . Porter’s Value Chain Model

FIGURE 5.2 . Shewhart Improvement Cycle

FIGURE 5.3 . Examples of Resources and Capabilities

FIGURE 5.4 . Product-Market Expansion Grid

FIGURE 5.5 . Competitive Turbulence: Porter’s Model

FIGURE 6.1 . Five-Stage Model of Consumer Buying Process

FIGURE 6.2 . Information Sources Influencing Physician Prescription Selection

FIGURE 7.1 . Nine PATH Profiles and Eleven Dimensions

FIGURE 7.2 . PATH Model Dynamics and Applications

FIGURE 7.3 . Marketing Demand Functions

FIGURE 8.1 . Basic Market-Preferences Patterns

FIGURE 8.2 . Competitor Map

FIGURE 9.1 . Five Levels of a Product

FIGURE 9.2 . Positioning of OTC Pain Relievers: Efficacy Versus Gentleness

FIGURE 10.1 . Different Product Life Cycle Patterns

FIGURE 10.2 . The Product Life Cycle of Coronary Artery Bypass Graft Surgery

FIGURE 11.1 . Price Elasticity

FIGURE 11.2 . Cost Behavior

FIGURE 11.3 . Per Unit Costs

FIGURE 11.4 . The Allocation Process

FIGURE 12.1 . Comparing Different Channels on Value and Cost

FIGURE 13.1 . Integrating Marketing Communications to Build Brand Equity

FIGURE 13.2 . Elements in the Communications Process

FIGURE 13.3 . Response Hierarchy Models

FIGURE 13.4 . Semantic Differential for a Hospital

FIGURE 13.5 . Newspaper Advertisements

FIGURE 13.6 . Direct-Mail Invitations

FIGURE 13.7 . The 5 Ms of Communication

FIGURE 15.1 . Brigham and Women’s Hospital

FIGURE 15.2 . The Control Process

List of Tables

TABLE 2.1 . Features of Health Care Systems

TABLE 2.2 . Socioeconomic and Cultural Views of Health Care

TABLE 3.1 . Medicare Payment Methods

TABLE 3.2 . Channel Distribution by U.S. Sales

TABLE 3.3 . Pharmaceutical Industry: Top Ten Companies in R&D Spending and Financial Performance

TABLE 3.4 . Nonelderly Population with Selected Sources of Health Insurance, by Family Income, 2005

TABLE 4.1 . Reasons for Seeking Care and Relevant Stakeholders

TABLE 4.2 . Percent of Adults with Chronic Conditions Who Lack a Usual Source of Health Care, by Insurance Status

TABLE 4.3 . Local Area Variation

TABLE 6.1 . Prochaska and DiClemente’s Stages of Change Model

TABLE 6.2 . Models of Purchase Behavior

TABLE 7.1 . Examples of Internal Records Supporting Health Care Marketing Applications

TABLE 7.2 . What Is Competitive Intelligence?

TABLE 7.3 . Range of Sampling Errors (Plus and Minus) Due to Sample Size (95 Percent Confidence Level)

TABLE 7.4 . Sales Forecast Methods

TABLE 8.1 . Major Segmentation Variables for Consumer Markets

TABLE 8.2 . Steps in the Segmentation Process

TABLE 8.3 . Differentiation Variables

TABLE 9.1 . Hospital DRG Array

TABLE 9.2 . Market Share Capture Potentials

TABLE 9.3 . Hospital Product-Line Marketing Return on Investment

TABLE 10.1 . Levels of Brand Meaning

TABLE 11.1 . Sample Activity Bases for Costing Techniques

TABLE 11.2 . Medicare Payment Methods

TABLE 11.3 . Common Private Insurance Payment Methods

TABLE 13.1 . Advertising Media: Their Costs, Advantages, and Limitations

TABLE 13.2 . Main Obstacles to Calculating ROI on Marketing Tactics

TABLE 15.1 . Major Weaknesses in Marketing Organisations and Corrective Measures

Table of Exhibits

EXHIBIT 1 . Use and Spending per Person in the RAND Health Insurance Experiment

EXHIBIT 5.1 . Checklist for Strengths and Weaknesses Analysis

EXHIBIT 13.1 . Consumer Print Campaign Promoting Hospital Physician Staff

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved.

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Library of Congress Cataloging-in-Publication Data

Kotler, Philip.

Strategic marketing for health care organizations: building a customer-driven health system/Philip Kotler, Joel Shalowitz, and

p.; cm.

Includes bibliographical references and index.

ISBN 978-0-7879-8496-0 (cloth)

1. Medical care—United States—Marketing. I. Shalowitz, Joel, 1953- II. Stevens, Robert J. (Robert John), 1955- III. Title.

[DNLM: 1. Marketing of Health Services—methods—United States.

2. Consumer Satisfaction—United States. W 74 AA1 K87s 2008]

RA410.56.K69 2008

362.1068’8—dc22

2007049548

HB Printing

To our new grandchildren, the triplets—Dante, Sapphire, and Shaina.

—Philip Kotler

To my wife, Madeleine Shalowitz, M.D., M.B.A., and children, David, Kira, and Ilana.

—Joel Shalowitz

In memory of my late father, Jack, who inspired me to pursue a career in health care marketing, and to Elizabeth, who has nurtured it.

—Robert J. Stevens

PREFACE

The U.S. health care system is broadly regarded as the best in the world. Affluent foreign patients needing challenging medical treatment choose to fly to our health care institutions, such as the Mayo Clinic, the Cleveland Clinic, the Massachusetts General Hospital, and Johns Hopkins Hospital.

While most U.S. health care institutions provide good-quality health care, we still have several glaring deficiencies. Consider the following six examples. First, an estimated forty-five million U.S. citizens are without health insurance. When they get ill, they cannot find the best treatment for their problem or even hope to pay the bill. Second, medical costs are highly variable and far from transparent; one finds it difficult to know in advance what a hernia operation or a knee replacement will actually cost. Third, the quality of health care varies greatly among different regions of the country and even within some counties. Fourth, the costs of care are high and rising, putting a heavy burden on average citizens as they are expected to bear more of these expenses. Fifth, Medicare and Medicaid, the two principal federal health care programs, are in financial trouble. Finally, the health system underinvests in preventive measures, such as encouraging lifestyle changes and early detection of medical problems.

Systematic health care problems are not unique to the United States. For example, in the U.K. and Canada, patients wait a long time for elective surgeries such as hip replacements. As a result of a 2001 European court decision, then-prime minister Tony Blair promised to pay for sending patients to other European countries to get more timely care. In less-developed countries, the problems are more severe: equipment, medicine, and qualified personnel are in short supply, facilities are poor, and costs of care are very high in relation to income levels.

To address these problems and identify new opportunities, we believe that health care leaders can improve their efficiency and effectiveness by taking a customer-driven view of their clients and activities. We wrote this book to serve the needs of all those who are or will be working in the health care system: physicians, nurses, medical researchers, hospital administrators, public health workers, nursing home personnel, and managers in the medical device, biotechnology, or pharmaceutical sectors. Ideally, all of these health care participants will supply products and services that enhance the health needs of citizens. To identify these needs and deliver their products and services, they will need to have marketing competencies.

Marketing is both a philosophy and a set of tools. As a philosophy, it calls for serving and satisfying the needs of customers (clients, citizens, and patients) while satisfying the practitioner’s and organization’s requirements. As a set of tools, marketing helps these participants learn about the market’s and individual customer’s needs, develop quality products and services, price them correctly, inform and communicate about their offerings, and make them accessible.

Our book is divided into four parts, following a managerial process.

• Part One (Chapters One to Four) deals with understanding the health care system and the role of marketing. We define a health care system, the providers and institutions it comprises, the determinants of health care utilization, and the role played by strategy and marketing planning.

• Part Two (Chapters Five to Eight) describes ways to analyze the users of the health care system. We explain how consumers and businesses make their health care decisions, how marketing information can be gathered, and how health care organizations can segment, target, and distinctively position their products and services within the health care marketplace.

• Part Three (Chapters Nine to Fourteen) examines the various tools of the marketing mix available to health care providers. The main tools are product and service development, branding, pricing, distribution, and communication and promotion.

• Part Four (Chapter Fifteen) explains how health care providers can organize their marketing resources, implement their marketing plans, and use control tools to reach their stated goals.

Along with this information, we provide several learning aids. For example, each chapter begins with a story that illustrates some aspect of the chapter’s subject; we introduce additional stories and examples in various boxes and exhibits; and we conclude with a set of questions to stimulate further thought. Finally, we include a glossary following the last chapter.

Our hope is that this book will give you many concepts and tools that will enable you to be effective in your chosen field and make a strong contribution to the health of the nation.

March 2008

Philip Kotler Glencoe, IllinoisJoel Shalowitz Glencoe, IllinoisRobert J. Stevens Durham, North Carolina

ACKNOWLEDGMENTS

We would like to acknowledge Dean Dipak Jain of the Kellogg School of Management, Northwestern University, for his support and encouragement of our project, Marge Kaffenberger for help in preparing some of the exhibits, and James Ward for help in gathering information. We would also like to acknowledge the many health care physicians, nurses, administrators, and health care company executives who were interviewed in the course of writing this book. Last but not least, we want to thank Andy Pasternack and Seth Schwartz of Jossey-Bass for their fine editorial help in guiding and producing this book.

THE AUTHORS

PHILIP KOTLER is S. C. Johnson Distinguished Professor of International Marketing at the Kellogg School of Management. He has been honored as one of the world’s leading marketing thinkers. He received his M.A. degree in economics (1953) from the University of Chicago and his Ph.D. degree in economics (1956) from the Massachusetts Institute of Technology (M.I.T.). He has received honorary degrees from ten foreign universities. He is author of over one hundred articles and forty books, including Marketing Management, Principles of Marketing, Marketing for Hospitality and Tourism, Strategic Marketing for Nonprofit Organizations, Social Marketing, Marketing Places, Museum Strategy and Marketing, and The Marketing of Nations. His research covers strategic marketing, consumer marketing, business marketing, professional services marketing, and e-marketing. He has been a consultant to IBM, Merck, General Electric, AT&T, Bank of America, Motorola, Ford, and others.

JOEL SHALOWITZ is professor and director of the Health Industry Management Program at the Kellogg School of Management, Northwestern University. He is also professor of medicine and preventive medicine at Northwestern’s Feinberg School of Medicine. He received his bachelor’s and M.D. degrees from Brown University and completed his internal medicine residency and M.B.A. degree at Northwestern University. He currently teaches courses on the U.S. health care system as well as international health care systems. Dr. Shalowitz received a Fulbright Scholarship in 2004 to the Schulich Business School at York University in Toronto, where he is now a visiting professor. In 2007 he was a Fulbright Senior Specialist and visiting professor at Keio University Medical School in Tokyo. In addition to international health care, his current interests are health care quality and safety, health insurance, and cultural influences on health care. Honors have included election to Sigma Xi, Beta Gamma Sigma, and Fellowship in the American College of Physicians.

ROBERT J. STEVENS is president of Health Centric Marketing Services, a health care marketing research firm. He teaches health care marketing as an adjunct professor at the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill, at the School of Public Health at the University of North Carolina-Chapel Hill, and at the Owen Graduate School of Management at Vanderbilt University. Stevens received a B.A. degree from Colgate University, an M.A. degree in English from Duke University, and an M.B.A. degree from the Kellogg School of Management at Northwestern University. His background includes executive marketing positions with a health care consumer package goods company, a health care system, a publicly held physician staffing and billing company, and a publicly held physician information systems company.

PART 1

UNDERSTANDING THE HEALTH CARE SYSTEM AND THE ROLE OF MARKETING

CHAPTER 1

THE ROLE OF MARKETING IN HEALTHCARE ORGANIZATIONS

LEARNING OBJECTIVES

In this chapter, we will address the following questions:

1. What are the major areas in health care in which marketing is regularly applied and practiced?

2. What is the purpose of marketing thinking and planning in health care organizations?

3. What are the major concepts, tools, and skills in marketing?

4. How is marketing normally organized in health care organizations?

OVERVIEW: MARKETING IS PERVASIVE IN HEALTH CARE

Readers might find it strange to hear that marketing plays an important and pervasive role in the health care marketplace. They are probably aware of the marketing efforts of pharmaceutical and medical device companies to sell their branded products and services. But what about hospitals, nursing homes, hospices, physician practices, managed care organizations, rehabilitation centers, and other health care organizations?

These organizations, for the most part, didn’t think about marketing until the early 1970s. But today we see a great deal of marketing taking place in health care organizations. Consider the following facts:

• Virtually every hospital places ads in newspapers and magazines to tout its facilities and services. Some hospitals run community health programs. Some hospital CEOs appear on talk shows. All of these efforts go toward building their brand.

• Managed care organizations (MCOs) develop health insurance products and use marketing tools to vie with other companies in promoting themselves to employers and their employees.

• New physicians seeking to open their own practices use marketing to help determine good locations, attractive office designs, and practice styles that will attract and retain new patients.

• The American Cancer Society, American Heart Association, and other associations turn to social marketing to encourage more people to adopt healthier life styles, like quitting smoking, cutting down on saturated fats in their diet, and increasing exercise.

These illustrations demonstrate one side of marketing, namely the use of influential advertising and selling to attract and retain customers. But marketing tasks and tools go beyond developing a stream of persuasive messages. Consider the following:

FOR EXAMPLE

Two Vignettes

A hospital is considering adding a sports medicine program to its portfolio of services. Before deciding whether to launch such a program, it plans to do market research to gauge the size of the community need, discover which competitors already offer such a program, consider how it will organize and deliver the program, understand how to price its various services, and determine how profitable the program is likely to be.

Walgreens is opening store-based clinics to provide basic health care services, such as measuring blood pressure, providing vaccinations, and treating such common conditions as sore throats, ear infections, and colds. Key marketing tasks it must perform include deciding which stores will have this service, setting prices, and, most important, determining how physician customers will view this service as possible competition.

From these examples, we recognize that many health sector participants are trying to solve their problems by relying on marketing tools and concepts. Readers who already work in the health care field may recognize some of these tasks as the realm of epidemiology; however, the discipline of marketing is much broader. The American Marketing Association offers the following definition: Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.

Marketing takes place when at least one party to a potential transaction thinks about the means of achieving desired responses from other parties. Thus marketing takes place when

• A physician puts out an advertisement describing his practice in the hope of attracting new patients.

• A hospital builds a state-of-the-art cancer center to attract more patients with this affliction.

• A health maintenance organization (HMO) improves the benefits of its health plan to attract more patients.

• A pharmaceutical firm hires more salespeople to gain physician acceptance and preference for a new drug.

• The American Medical Association lobbies Congress to gain support for a new bill.

• The Centers for Disease Control and Prevention (CDC) runs a campaign to get more people to get an annual flu shot.

• Health Canada develops a campaign to motivate more Canadians to exercise more and eat healthy foods.

Thus a marketer may aim to secure various responses: a purchase of a product or service; an increased awareness, interest, or preference toward an offering or supplier; a change in behavior; or a vote or expression of preference of some kind.

THE ELEMENTS OF MARKETING THOUGHT

In this section, we introduce the purpose of marketing, some important marketing concepts and skills, and how marketing is organized in health care organizations. We will discuss these topics in greater depth in the following chapters.

The Purpose of Marketing

There are two quite different opinions about marketing’s purpose. One might be called the transaction view, which says that its aim is to get an order or make a sale. Marketing’s role is, therefore, to use salesmanship and advertising to sell more “stuff.”1 The focus is on doing everything possible to stimulate a transaction.

The other opinion about marketing can be called the customer relationship-building and satisfaction view. Here the focus is more on the customer and less on the particular product or service. The marketer aims to serve the customer in such a way that he or she will be satisfied and come back for more services or products. In fact, the marketer hopes that the satisfaction will be sufficiently high that the customer will recommend the seller to others. For example, we know that a physician who develops an excellent service reputation will attract many new patients as a result of word-of-mouth recommendations. Also, as patients experience new medical needs and problems, they will return to the same physician for treatment and advice.

Some marketers question the use of terms such as consumer and patient. The traditional view of a consumer or patient is that of someone who is passively consuming something, but today’s consumers are also producers. With respect to health care products and services, they are actively sending messages about their experiences, creating new uses, providing new findings from the Internet and other resources to their physicians, and lobbying for more and better benefits. Predicting this current environment, Peter Drucker viewed marketing as playing the role of serving as the customer’s agent or representative.

In fact, more organizations are moving from the transaction view to the relationship view of marketing, in a shift from Old Marketing to New Marketing. In this environment, the New Marketer’s job is to create a long-term, trusted, and valued relationship with customers, which means getting the whole organization to think about and serve customers and their interests. For instance, hospitals that have built a pervasive marketing culture will usually outperform those that see themselves simply as selling visits, tests, and services, one at a time.

Marketing Uses a Set of Concepts

The first question a health care organization must ask is, Who is potentially interested in the kind of products or services that we offer or plan to offer? Examples include young women and obstetric services, older adults and bypass surgery services, and diabetics and portable blood sugar testing devices. Very few organizations try to serve the entire market, preferring, instead, to distinguish different groups (segments) that make up a market. This distinguishing process is called market segmentation. The organization will then consider which market segments it can serve best in light of the segments’ needs and the organization’s capabilities. We call the chosen segment the target market. Building on this concept of a target market, we can summarize the customer-focused marketing philosophy with the acronym CCDV; the aim of marketing is to create, communicate, and deliver value. Value is the fundamental concept underlying modern marketing. It is not value just because the supplier believes he or she is giving value; it must be perceived by the customer. One job of the marketer is to turn invisible value into perceived value. We can extend CCDV into CCDVT, with the T standing for a target market. Instead of an organization generating general value, it aims to generate specific value for a well-defined target market. If a nursing home decides to serve a high-income market, it must create, communicate, and deliver the value expected by high-income families, with the price set high enough to cover the extra costs of better facilities and services.

We need to extend the expression further to CCDVTP, with the P standing for profitably. The marketing aim is to create, communicate, and deliver value to a target market profitably. Even a nonprofit organization must earn revenues in excess of expenses in order to continue its charitable mission.

To help their firms prepare a valued offering, marketers have long used a tools framework known as the 4Ps marketing mix: product, price, place, and promotion. The organization decides on a product (its features, benefits, styling, packaging), its price (including list price as well as rebate and discount programs), its place (namely, where it is available and its distribution strategies), and the promotion mix (such as advertising, personal selling, and direct marketing) (see Figure 1.1). It turns out that the 4Ps are already present in the CCDVT formulation. Creating value is very much about developing an excellent product and appropriate price. Communicating value involves promotion. Delivering value requires an understanding about place. Thus CCDV is a more active way to state the 4Ps. Some critics have also proposed adding more Ps (people, passion, process, and so on).

Marketers recognize that the 4Ps represent the set of the seller’s decisions, not the buyer’s decisions. Part of the transition from the Old Marketing to the New Marketing, mentioned previously, involves marketers looking at everything from the buyer’s or consumer’s point of view. For a consumer to be interested in an offering, the consumer must have awareness of the offering and find it acceptable, available at the right time and place, and affordable. Professor Jagdish Sheth calls these attributes the “4As of marketing.”2

FIGURE 1.1.The 4Ps Elaborated

We introduce one final concept—positioning. An organization or company positions itself to be the place of choice for its target market. Thus a hospital might position itself as having the most advanced medicine or the best patient service, or being the most efficient hospital. Good positioning requires looking at how to best implement the 4As of that target market. We refer to these steps of segmentation, targeting, and positioning by the acronym STP.

Combining this concept with those just described, we now have a more robust model of marketing strategy: first segment, next target position, then determine the 4As, and finally set the appropriate 4Ps.

When we say that marketing’s purpose is to create value for the customer and profits (or surpluses) for the organization and its stakeholders, we don’t mean that the organization should give customers everything that they want. Customer desires and needs must correspond with the mission or purpose of the organization. For example, a rehabilitation hospital does not need to open a cardiac bypass program just because some of its patients have heart disease. A further problem arises when the customer wants something that is not in his or her best interest. For example, a patient may request an antibiotic to treat a cold or ask for a narcotic for nonmedical reasons.

The Main Skills of Marketing

Marketers rely on seven traditional skills: marketing research, product design, distribution, pricing, advertising, sales promotion, and sales management.

Effective marketing must start with marketing research, which in turn consists of other skills. Suppose a hospital is planning to build a second facility in one of several neighboring communities. It clearly needs to conduct systematic marketing research to find which site is the most promising.

The marketing research will use both secondary and primary data. Secondary data comes from existing sources and yields information about such factors as the population’s size, age, income, and education distribution as well as land costs and transportation resources. Primary data comes from making firsthand observations in each community by hosting focus groups to gather consumer reactions to different proposals, conducting in-depth interviews with specific community members, undertaking surveys to get a more accurate picture of customer attitudes and needs, and, finally, applying statistical techniques to draw insights from the data. By combining primary and secondary data, the hospital hopes that some neighboring community will emerge as the best target market to be served by a second facility.

Product design is the second marketing skill. Suppose a manufacturer of hospital beds wants to design a product that patients can more easily adjust on their own. It will assign a product team to design the new bed, consisting of an engineer, a designer, and a marketer. The marketer will supply some preliminary data about how patients feel about different features of a hospital bed, including functions, colors, and general design appearance. After the design is developed, the marketer might test it with a number of patients.

Although we are talking about designing a physical product, the same principles apply to a service. Many people complain about their experience in emergency rooms (ERs), including long waiting times, crowded facilities, and perfunctory service. Marketers are increasingly studying how to improve the ER experience, because hospital administrators realize that it is the place in which patients often experience their first encounter with the institution and that influences their probability of choosing it for future care.

The third traditional skill of marketers is distribution. Marketers have to choose places in which their products and services will be readily accessible and available to the customers. Marketers have learned to work with different types of wholesalers, jobbers, brokers, retailers, and transportation companies. This knowledge is very useful in activities ranging from pharmaceutical channel distribution to setting up a regional or national chain of in-store medical clinics.

Pricing is the fourth traditional skill of marketers. Marketers have gained much of their experience through setting prices and adjusting them for different markets and in different circumstances. They are guided by both internal constraints (such as their companies’ production cost structure) as well as the realities of the marketplace (such as price elasticity of demand). In the realm of health insurance, the marketplace also demands flexibility to customize the product, with an attendant set of fixed and optional services and their varied prices.

The fifth traditional skill of marketers is the use of advertising. Marketers have extensive experience in working with ad agencies in designing messages, choosing media, setting budgets, and evaluating outcomes of advertising campaigns. The marketer must advise the organization about the best media mix to use, choosing among newspapers, magazines, radio, television, and billboards. Within each medium, the marketer must also make such decisions as whether to employ full-page or part-page ads, thirty-second TV spots or infomercials, and which radio stations will best reach target customers at certain times of the day.

The sixth traditional marketing skill is sales promotion: the use of incentives to stimulate trial or purchase of a product or service. Sales promotions include a wide variety of incentives. For example, community leaders might want 100 percent of citizens to get a flu vaccination; to achieve a big turnout, they may offer a discount for family members, a free booklet on staying fit, or a free coupon for a blood test.

The seventh traditional skill of marketers is management of a sales force. For example, the General Electric (GE) Medical Products division uses a well-trained sales force to sell sophisticated diagnostic imaging equipment to hospitals. This equipment is expensive, so hospitals must be convinced not only that they need this technology, but also that they should prefer to purchase it from GE. GE’s professional sales force will explain the benefits of buying this equipment as justifying its high cost. Thus GE needs to hire, train, compensate, motivate, and evaluate hundreds of skilled professional salespeople.

Many suggest that, in addition to these seven skills, organizations need some newer marketing know-how, including:

• Direct marketing (mail and e-mail)

• Telemarketing

• Public relations

• Product placement

• Sponsorship

• Event management

• Internet marketing

• Blogs and podcasts

These skills, along with the more traditional marketing skills, are discussed in later chapters of this book.

How Marketing Is Organized in Health Care

Formal marketing positions (such as marketing researchers, sales managers, and advertising managers) have existed in pharmaceutical firms, medical device firms, and medical supply firms for many years, but it wasn’t until 1975 that an American hospital first appointed a head of marketing. The Evanston Hospital in Evanston, Illinois (now Evanston Northwestern Healthcare), appointed Dr. John McLaren, a physician, to be its vice president of marketing.

As more hospitals began to appoint a marketing head, two variations emerged: director of marketing and vice president of marketing. The director of marketing provides and orchestrates marketing-related activities and resources. The vice president of marketing performs these activities and also sits with the other hospital officers in developing policies and strategies. The VP of marketing also brings the voice of the customer (VOC) into management and board meetings.

When hospitals first started appointing marketing heads, the public relations (PR) person on the staff often objected on the grounds that he or she was doing the marketing. The PR person’s job was to generate good news about the hospital and defend it against bad news. Hospital CEOs soon realized, however, that PR and marketing have quite different roles and skills, although there is some overlap.

Public relations persons are trained in communication skills and work closely with media (editors, journalists) and occasionally with government officials, although the latter contacts are often handled by public affairs officers. Marketing people, on the other hand, are trained in economic analysis and the social sciences to understand and analyze markets and customer choice behavior. Marketers use the tools detailed earlier to provide estimates of a defined market’s size and its needs, preferences, perceptions, and readiness to respond to alternative offers. Marketers develop a strategy and tactics for serving the target market in a way that will meet the organization’s mission.

Today the marketing department in a large hospital may be staffed with a marketing researcher or analyst, an advertising and sales promotion manager, a sales force director, and in some cases product managers and market segment managers. Even when there are no specific positions dedicated to the functions of product development, pricing, communication, and distribution, these will be carried out by various people in the organization.

SUMMARY

Marketing plays an important role in helping participants in the health care system create, communicate, and deliver value (CCDV) to their respective target markets. Modern marketers start with the customers rather than with the products or services; they are more interested in building a lasting relationship than in securing a single transaction. Their aim is to create a high level of satisfaction so that customers come back to the same supplier.

Marketers have used many traditional skills, including marketing research, product design, distribution, pricing, advertising, sales promotion, and sales management. These skills need to be supplemented by newer ones emerging from new technologies and concepts for reaching and serving customers with messages and offers.

DISCUSSION QUESTIONS

1. You are the president of a hundred-bed hospital that has a public relations person and a development officer but no marketer. Do you need a marketer? How would this person’s role differ from the others? Make an argument pro and con for hiring a marketer.

2. The governor of your state believes that more state funds need to be invested in preventing illness and accidents. He hires you as a social marketer with the mandate to raise consciousness about healthier life styles and to focus on two causes that will have the highest impact. How would you approach this assignment and what would you suggest?

3. You head the marketing department for a medical device firm whose sales department reports not to you but to a vice president of sales. Do you think that the vice president of sales and the sales force should report to you, or is it better to run marketing and sales as separate departments? What are the likely problems? What are the arguments for and against combining the departments?

4. A physician in private practice asks you, as a marketing consultant, how to attract more patients. The practice is serving about ten patients a day and cannot run profitably unless the physician sees about twenty patients a day. What questions would you ask before starting to make suggestions?

CHAPTER 2

DEFINING THE HEALTHCARE SYSTEM AND ITS TRADE-OFFS

LEARNING OBJECTIVES

In this chapter, we will address the following questions:

1. What framework can be used to understand the health care system regarding who pays, how much is paid, and where and to whom care is provided?

2. Who are the main stakeholders in the health care system?

3. What are the main trade-offs among cost, quality, and access that health care organizations must face in allocating their resources?

OPENING EXAMPLE

The State of Oregon Faces Some Hard Decisions with Respect to Allocating Medical Care In the late 1980s, the State of Oregon faced a crisis. About 18 percent of all Oregonians and more than 20 percent of its children had no health insurance. The state wanted to provide coverage, but its Medicaid plan (mainly used to cover the state’s poor) already faced high costs. To control these costs, three options were open: cut already-low payment levels to providers, raise eligibility requirements and serve fewer residents in need, or reduce benefits. Early in 1987, the state chose the third option. One benefit it removed was for organ transplants. In the fall of that year, seven-year-old Coby Howard’s leukemia relapsed, requiring a bone marrow transplant. Despite private fundraising, he never received the procedure, and he died on December 2. In the outcry that followed, others needing transplants came to the public’s attention. While defending the cutbacks, a spokesman for Oregon Medicaid said the money saved by denying the transplant was used to pay for other programs, including prenatal care for 1,500 women.