The Importance of Marketable Objectives. Riverside Health System
This week’s assignment will provide information regarding marketable objectives found within the strategic plan for your chosen HCO. (Riverside Health System) The information can be applied to the Introduction portion of the marketing plan for your Final Project. After reading Chapter 7 and reviewing the strategic plan of your chosen healthcare organization, construct a three- to four-page paper in which you discuss the following:
- The key marketing objectives found in your chosen HCO’s (Riverside Health System) strategic plan
- Why the objectives fit the role of the health care organization
- What key marketing objectives a marketing director should focus on when developing a marketing plan (Explain your reasoning.)
The paper
- Must be three to four double-spaced pages in length (not including the title page and references page) and formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.).
- Must include a separate title page with the following:
Title of paper
Student’s name
Course name and number
Instructor’s name
Date submitted - Must use at least three scholarly sources in addition to the course text.
- Must document all sources in APA style as outlined in the Ashford Writing Center.
- Must include a separate references page that is formatted according to APA style as outlined in the Ashford Writing Center.
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Ch 7: Managing Marketing Activities
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7
Managing Marketing Activities
Thomas Northcut/Digital Vision/Thinkstock
Marketing is too important to be left to the marketing department.
—David Packard
Learning Outcomes
After reading this chapter, you should be able to do the following:
· Define marketing and explain how the marketing concept is patient centered in HCOs.
· Discuss the relationship between organizational planning and marketing planning with regard to objectives andstrategies throughout the planning levels.
· Name the three basic marketing strategies that can be used under the product/market approach to marketingstrategy development, identify two other approaches to marketing strategy development, and list four factorsinfluencing the strategy selection.
· Discuss how the four strategic elements of the marketing mix become marketing tactics for implementing theselected marketing strategy.
· Identify two basic types of organizational structures for managing marketing activities.
· Explain how ethical issues in marketing relate to marketing decisions, and provide examples of ethical issuesfacing healthcare providers.
Introduction
This chapter provides an overview of marketing, the relationship between marketing planning and overall organizational planning, basicmarketing strategies, and approaches to organizing marketing activities in an HCO. This chapter also includes a discussion of the ethicaldecision-making process in marketing and lays the groundwork for later chapters on the marketing process and its role in HCOs.
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Pre Test Ch 7: Managing Marketing Activ…
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This is a self-assessment and will not affect your grade. You may only take this pre-test once.
Test Ch 7: Managing Marketing Activities
Top of Form
1. Because a community clinic is already known to be patient-centered, its marketing orientation can concentrate on increasing revenues and advertising acceptable levels of patient services.
· a. TRUE
· b. FALSE
2. Promotional materials derive from a product or service positioning statement.
· a. TRUE
· b. FALSE
3. A physician refers his patients to a rehabilitation center in which his daughter has a financial interest. This is legal if the physician himself does not have a financial interest in the rehab center.
· a. FALSE
· b. TRUE
4. Within the line organizational structure of marketing, each unit manager individually carries out any activities related to developing a marketing plan for their unit.
· a. TRUE
· b. FALSE
5. The best marketing strategy for St. Luke’s Pediatric Cancer Center would be an undifferentiated one, because St. Luke’s works with a very specific client base: children with various types of cancer.
· a. FALSE
· b. TRUE
Finish
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7.1 What Is Marketing?
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7.1 What Is Marketing?
The marketing of HCOs is a relatively recent phenomenon. It was as late as 1977 that the American Hospital Association held its firstconvocation on marketing. Much of the early marketing efforts by hospitals were aimed toward the recruitment and retention of physicians.Many physicians remained skeptical of marketing to patients and believed it was unprofessional. However, as healthcare has become morecomplex and expensive, HCOs and individual healthcare providers have seen the need to better communicate to patients the value of theirservices (MacStravic, 1994).
Over the last two decades, the discussion of marketing in HCOs has evolved from whether it was even appropriate for HCOs to usemarketing to give the organization a competitive advantage and “tell its story.” But what is meant by the term marketing?
Various definitions of marketing have evolved over the years, but one that appears to be fairly complete is as follows: Marketing directsthose activities that involve the creation and distribution of products and services to identified market segments. Several key words in thisdefinition need further explanation. First, what is meant by the words marketing directs. This is a managerial perspective rather than a residual perspective, which is concerned only with what has to be done to get goods and services to customers. A managerial perspectiveis one that is proactive, customer oriented, and aligned with the firm’s overall strategy. In contrast, a residual perspective is one that isreactive and only deals with needs as they arise. Thus, marketing is not just a group of activities but, more specifically, activities that arecontrolled in their execution to attain identifiable objectives. Second, marketing involves the performance of specific activities or functions.These functions constitute the work or substance of what marketing is all about. To be involved in marketing means to be involved in theplanning, execution, and control of these activities.
Third, marketing involves both the creation and distribution of goods and services. Although the service is actually created by theoperating function, marketing personnel are very much concerned not only about the way goods are created and services are performedbut also the way customers utilize goods and services. Marketing needs to have a vital role in the creation as well as the distribution ofgoods and services. In fact, a well-conceived service or good makes the rest of the marketing tasks easier to perform.
Finally, marketing’s concern with customers, and meeting a need in the marketplace, is patient centered in an HCO. However, marketing isparticularly concerned with customers preselected by management as the market segment(s) on which the organization will concentrate.Thus, specific customers with their specific needs become the focal point of marketing activities.
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7.2 The Marketing Concept
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7.2 The Marketing Concept
The marketing concept is a business orientation that focuses on satisfying customers’ needs at acceptable levels of revenue and costs. Infor-profit organizations, acceptable levels of revenue and costs are defined in terms of a target return on investment, while in not-for-profitorganizations the focus is achieving a balance between revenues and costs.
Organizations that have a true marketing orientation focus on addressing the needs and wants of one or more targeted segments of themarket. However, managers with marketing titles may apply other business philosophies that, in reality, do not reflect authentic marketingthought. Table 7.1 shows three different business orientations that have been used as the operating philosophies behind managementdecision-making (Stevens, Loudon, Wrenn, & Mansfield, 2006). The term dominant in the table identifies the core objective, which gives theorientation its name.
Present
means that the orientation includes that objective, but does not use it as the centrally controlling goal inorienting the manager’s thoughts about his or her company, its services, or its customers. Not pertinent means that objective has norelevance, pertinence, or connection with the orientation described. This table makes it clear that the service and selling orientations are internally driven. Put simply, managers using these orientations determine what they want to dictate to the market. The last orientation—marketing—contains the elements of an outside-in, market-driven, or customer-oriented philosophy, which stresses discovery of marketopportunities, marketplace input regarding the organization’s claim of a competitive advantage, and the integration of effort across allaspects of the organization to deliver quality and customer satisfaction.
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Table 7.1: Possible organizational orientations |
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Serviceorientation |
Sellingorientation |
Marketingorientation |
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|
Desire to capitalize on synergies andefficiencies in operating processes |
Dominant |
Present | |||||||
|
Attention to designing acceptable levelsof quality services |
Not Pertinent |
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|
Dedicated resources to stimulatinginterest and desire for increasingrevenues |
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|
Focus on identifying and satisfyingneeds and wants of customers |
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|
Considering the short- and long-termeffects of actions on customers and onsociety |
HCOs have been concerned with the delivery of a satisfactory level of patient services for decades. Most services, including healthcareservices, are intangible. That is, they cannot be touched or held before being purchased. Additionally, the delivery of a service is dependenton the ability of the service provider. As service providers are human, the quality of service varies from patient to patient.
Traditional strategies in healthcare for overcoming these limitations include improving the appearance of physical facilities, projectingcompetence, and employing empathetic personnel (Stevens et al., 2006). However, these strategies have been shown to be inadequate, ashealthcare has become more expensive and complex, from both the providers’ and the patients’ perspectives (Merlino & Raman, 2013).
According to Michael Porter and Thomas Lee, “the overarching goals for providers . . . must be improving value for patients, where value isdefined as the health outcomes achieved that matter to patients relative to the cost of achieving those outcomes” (Porter & Lee, 2013, p.52). The implied message for HCOs is not just to put together procedures to help patients navigate the system, but to fundamentally changethe system.
The marketing orientation is particularly well suited to dealing with the internal and external environmental forces currently facinghealthcare managers. Marketing includes all of the positive contributions of the service and selling philosophies, but it adds concern for thelong-term effects of the organization’s actions and services on its customers, as well as the desire to consider the effects of theorganization’s actions on society at large. Putting the marketing-orientation philosophy into practice requires a planning procedure thattransforms the external consumer orientation into marketing activities.
Thus, the marketing orientation holds that the only social and economic justification for the existence of a business enterprise is this: thesatisfaction of customer needs, either at a profit or at acceptable levels of revenues and costs, and with due diligence for the long-runwelfare of the customer and society. A firm’s existence is justified socially in meeting customer needs—directly through the provision ofgoods and services, and indirectly through being a good citizen of its operating environment. In healthcare, meeting customer needs meansbeing a patient-centered organization. Thus, everyone in an HCO is concerned with patient care, including nonmedical employees. In the U.S.economy, the marketing-orientation philosophy is exactly why organizations were given the right by society to own and use resources toproduce goods and services. A firm finds economic justification by making a profit or generating enough revenue to cover costs. Profit orbreakeven for nonprofit organizations rewards the stakeholders’ investment in the organization and supports the continued availability offunds. Customer needs become the focus of firms that operate under the marketing-orientation philosophy.
Traditionally, medical providers have seen their role as healers who provide a valuable social service. Costs have been secondary. The needfor economic justification has created tension for many healthcare providers. However, providers cannot just continue to increase fee-for-service. Many physicians lose money on Medicare and Medicaid patients but have been able to make up the difference from the uninsuredand commercial insurance patients. With more patients now covered by governmental programs and with commercial insurers’ andemployers’ emphasis on costs, those days are over (Porter & Lee, 2013).
Administrators and other healthcare providers who have adopted the marketing-orientation philosophy must continually survey theenvironment to detect changes in consumer needs, or other related variables, that warrant the altering of their marketing activities.Revenues, in effect, become votes to help management judge the effectiveness of its efforts in meeting market needs compared to those ofcompetitors; and profits or breakeven serve to judge the efficiency of management in this attempt. Putting the marketing-orientationphilosophy into practice requires effective management of the marketing process.
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7.3 The Organizational Planning and Mark…
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7.3 The Organizational Planning and Marketing Planning Connection
The strategic planning process described in the first six chapters of this textbook has concentrated on the organization’s overall strategicplan. The development of that overarching strategic plan precedes the development of the strategic marketing plan, as well as the annualor operating marketing plan. The strategic marketing plan contains the overall approaches to marketing within an HCO, and the annual oroperating marketing plan spells out the details of what is to be done on a day-to-day, week-to-week, and month-to-month basis to translatethe major strategies into specific actions, responsibilities, and time schedules.
Both the strategic marketing and the annual operational marketing plans must be consistent with the organization’s overall strategic plan.Although marketing plans are more detailed and cover only the marketing functions, the marketing planning process involves steps similarto the strategic planning process at the organization level. These steps usually involve including a detailed analysis of the company’ssituation, setting specific objectives, developing strategy, implementing strategy, and evaluating and controlling strategy. The details of themarketing planning process are discussed in Chapter 8.
The relationship between the organization’s strategic plan, strategic marketing plan, and annual operational marketing plan is shown inFigure 7.1 (Loudon, Stevens, & Wrenn, 2005). Note the connection of both objectives and strategies from the organization’s strategic plan tothe organization’s strategic marketing plan and, finally, its annual or operating marketing plan. This approach to planning ensures thatconsistency is maintained between what is done on a weekly or monthly basis and the organization’s overall marketing strategy. Thestrategic marketing plan is devised from and in turn supports the organization’s strategic plan.
Figure 7.1: Organizational and marketing plan relationships
Connecting an organization’s objectives and strategies ensures that the entire planmaintains consistency between current actions and the overall marketing strategy.
Source: Loudon, D., Stevens, R., & Wrenn, B. (2005). Marketing management: Text and cases. TheHaworth Press, Inc., p. 126.
Figure 7.2 provides an industry-specific example of how objectives and strategy should be consistent throughout the planning levels(Stevens et al., 2006). Pharmaceutical firm Eli Lilly and Company chose the service leadership value discipline to provide strategic directionat the organization level. Servant leaders are those who want to lead because they want to serve first. The servant leader ensures that otherpeople’s highest priority needs are being served (Greenleaf, 2002). The organization-level objective is general in nature and consistent withthe value discipline. At the strategic marketing level, this organization’s strategic direction is focused in one instance on objectives andstrategies for its nonnarcotic analgesic line. The leading product in the line, Darvon, will be going off-patent during the year. The objective ofmaintaining a high market share in this market would be impossible, given the influx of new generic competitors for Darvon, unless newpatent-protected products can be introduced and physician prescribing habits changed so that an increasing number of prescriptions willbe written for the new drug. This new product-entry strategy is an embodiment of the service leadership organization value discipline.
Figure 7.2: Eli Lilly Pharmaceutical Company
In this industry-specific example, the objectives and the strategies are consistentthroughout the different levels.
Source: Stevens, R., Loudon, D., Wrenn, B., & Mansfield, P. (2006). The marketing planning guide. TheHaworth Press, Inc., p. 248.
At the operating level, one of several objectives deals with tactical implementation of the product line extension and aggressive pricingstrategy. The objective here is to get the word to the physicians that a new and improved product, Darvocet, is now available withadvantages over Darvon, so they should change their prescribing to write for the new drug. Simultaneously, tactics include making detailcalls to pharmacists to let them know that Darvon is now discounted 30%. If successful, this sale should cause the pharmacists to stock upon Darvon, so that prescriptions written for it will be filled with the Lilly product and not some generic equivalent. While the pharmacistsreduce their Darvon inventory, the objective effects a change: physicians prescribing to Darvocet. Hence, there is a consistency betweenobjectives and strategies among the three levels, and within any particular level. It should also be noted that these objectives and strategiesare only a sample of what would be set for sales volume, growth, share, percentage of prescriptions written for new versus old products,and so forth. Finally, it is important that objectives set in functional areas other than marketing (finance, R&D, and so forth) support theoverall organization strategy to pursue service leadership.
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7.4 Marketing Strategy
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7.4 Marketing Strategy
Like management itself, marketing strategy development is both a science and an art, a product of both logic and creativity. The scientificaspect deals with assembling and allocating the resources necessary to achieve a company’s marketing objectives by emphasizingopportunities, costs, and time. The art of strategy is mainly concerned with the use of resources, including motivation of the workforce,sensitivity to the environment, and ability to readjust to the counterstrategies of competitors.
Marketing strategies provide direction for marketing efforts. Alternate strategies are courses of action managers evaluate beforecommitting to the specific course of action outlined in the marketing plan. Thus, strategy links objectives and results. Strategy is the answerto one of the basic questions posed in a marketing plan: How are we going to get there?
The development of a marketing strategy usually encompasses a two-step process: (a) identification of the target market (discussed indetail in Chapter 8); and (b) creation of a marketing mix aimed at satisfying the needs of that target market (discussed in detail in Chapters9–11). The marketing strategy used by a company is the result of the blending together of various marketing elements. These elements,which are known as the four Ps of marketing, consist of (a) the product/service to be offered to buyers; (b) the distribution of products tovarious outlets, referred to as place; (c) the promotion or communications to prospective customers, using various promotional techniques;and (d) the price charged for the product or service. The term marketing mix describes these various elements. Therefore, marketingstrategy development may be viewed as developing a marketing mix aimed at satisfying the needs of selected market segments andaccomplishing specific marketing objectives.
As Figure 7.3 shows, marketing-mix decisions are made with a particular market segment in mind. Marketing effort is targeted at theselected segments through blending the elements of the marketing mix into a cohesive strategy aimed at satisfying those specific segments.An organization targeting several segments must develop an overall marketing program, which includes all of its marketing activities.
The development of alternate marketing strategies can be viewed in many ways, but three approaches will be discussed in this chapter.First, there is the overall way a firm approaches the markets it is attempting to serve. Second, there is one firm’s strategy in relation tocompetitive strategies. The third approach deals with the position of a product or firm in relation to competitive offerings.
Figure 7.3: The marketing mix and target markets
Marketing activities, usually a blend of different elements, target the specificmarket identified by the organization.
Product/Market-Oriented Strategies
The product/market approach to strategy development is illustrated in Table 7.2. Three approaches can be used under this strategydevelopment concept. Undifferentiated strategy basically offers one product aimed at all market segments. Even if differences in marketsegments are recognized, these differences are not incorporated into the firm’s marketing activities. Ford Motor Company used such astrategy in its early days when its only model was the Model T. As Henry Ford might have said, “You can have any color you want, as long asit’s black.”
An undifferentiated strategy only works when there is little or no competition. New competitors that enter the market, using a differentiatedstrategy or a concentrated strategy, soon begin to erode the market share of an undifferentiated strategist. For example, a hospital with anundifferentiated strategy advertises its image, rather than specific services. The goal is to convince patients to use the hospital when theyneed care, even if it is just a one-time sale. As hospitals have become savvier in their marketing efforts, they have begun to develop differentservice features, such as heart health, newborn care, and behavioral health. These new marketing approaches are effective against the one-size-fits-all message that many hospitals initially adopted.
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Table 7.2a: Undifferentiated hospital marketing |
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Image |
|
Table 7.2b: Segmentation, or differentiated, hospital marketing |
||
|
Newborn care |
Cancer treatment |
Heart health |
|
Sports medicine |
Digestive health |
Radiology |
|
Neuroscience |
Rehabilitation |
Women’s health |
|
Table 7.2c: Concentrated, or focused, hospital marketing |
|
Behavioral health |
A firm using a segmentation marketing strategy recognizes differences in the needs of each market segment and responds by developing aunique marketing mix for each segment pursued. Of course, not all segments have to be pursued, but at least two are required to use theterm
segmentation strategy
. When a company develops mixes aimed at different segments, it can also be referred to as a marketsegmentation strategy. A firm using this approach usually offers a wide variety of products to meet the needs of customers in manysegments.
Focused marketing strategies pinpoint one segment of the market and concentrate all their efforts on that one segment. A financial firmspecializing in mergers and acquisitions would use this strategy as would firms specializing in financing new ventures. Firms using thisstrategy option develop a distinctive competence for doing one thing well. Focused marketing strategies are based on finding growthsegments with unique requirements the firm can meet. The vision of Cancer Treatment Centers of America to be “the premier center forhealing and hope” for cancer patients is an example of a focused marketing strategy based on unique end-user needs.
The basic difference between the segmentation marketing strategy and the focused marketing strategy is the number of segments the firmattempts to serve. Firms following a focused strategy target their efforts on one segment only. The factors that influence the choice of aparticular marketing strategy will be discussed in another section of this chapter.
Baylor Medical Center at McKinney in McKinney, Texas is following a segmentation marketing strategy. This full-service hospital offersadvanced treatment for many medical specialties, including cancer care, digestive diseases, emergency care, heart and vascular, imaging andradiology, neuroscience, orthopedics, rehabilitation and physical therapy, transplant services, and women’s health (Baylor Health CareSystem, 2013).
A focused marketing strategy concentrates on one segment of the market and directs all of its efforts to that one segment. For example, St.Jude Children’s Research Hospital in Memphis, Tennessee treats children with cancer and other catastrophic diseases and seeks to advancecures for pediatric catastrophic diseases through research (St. Jude Children’s Research Hospital, 2013). Brentwood Hospital in Shreveport,Louisiana is a psychiatric hospital that provides treatment for chemical dependency and other behavioral health disorders (BrentwoodHospital, 2013). A psychologist who accepts only cash-paying clients is also adopting a focused marketing strategy. By refusing to takeinsurance benefits, the psychologist ensures that no record is kept by insurance companies to label the client or patient as mentallyunstable.
Competitive Marketing Strategies
Another approach to strategy development employs competitive marketing strategies currently used in the market. Table 7.3 classifies thestrategies that may be used by a company based on its market position. Market position is defined in terms of one firm’s share of the totalmarket and its relation to competitors in the industry. Table 7.3 identifies four market positions and some possible strategies for each(Kotler, 1980).
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Table 7.3: Competitive marketing strategies |
|
|
Market position |
Possible strategies |
|
Market leader |
1. Expand total market: Develop new uses, new users, ormore usage by existing customers. 2. Protect market share: Use innovative marketing tacticsor retaliate against challengers. |
|
Market challenger |
1. Direct attack strategy: Meet leader head-on withaggressive promotion and/or prices. 2. Backdoor strategy: Go around leader options throughinnovative strategy. 3. Guppy strategy: Increase market share by going aftersmaller firms. |
|
Market follower |
1. Copy leader: Match as closely as possible leader’sstrategy without directly challenging. 2. Coping strategy: Adjust to strategies of both leader andchallenger without direct confrontation. |
|
Market nicher |
1. Geographic niche: Specialize by offering quickresponse to customers. 2. Product niche: Offer products that are unique to thecustomers served. |
Market leaders are the recognized leaders that have the largest market share of the relevant market. Although their position of dominancemay be widely recognized, their success may be constantly challenged by other firms. The strategies that are used by market leaders focuson expanding their own control of the market while warding off or countering the activities of aggressive competitors. The market leader’sstrategy becomes the pivot around which other competitors adjust their own strategies.
Market challengers are the firms that are constantly trying to increase their market share in head-on competition with the leader, attackingthe leader at its weak points or merging with smaller competitors. Market challengers are usually large firms in terms of revenues andprofits, and they may be even more profitable than the leader. The challenger usually tries to identify weaknesses in the market leader’sstrategy and either confronts or goes around the leader, or concentrates its efforts on taking over smaller firms. Pepsi’s challenge of Coke’sleadership position clearly demonstrates how the challenger’s strategy can affect the strategies of other competitors. The New Coke, whichwas closer in taste to that of Pepsi than Classic Coke, was clearly a competitive strategy response.
Market followers and nichers adjust to the strategies of the market leader and challenger without making challenges. Nichers usually try tospecialize geographically or by products offered, and basically avoid direct confrontation with other competitors. The followers simply copythe leader’s strategy or adjust their strategy to cope with both the leader’s and the challengers’ strategies, without calling attention to theirown activities. For example, The Cooper Institute in Dallas, Texas targets well-to-do executives and other high-income individuals (forexample, former President George W. Bush) for preventive care. The institute provides physicals, colonoscopy services, dermatologyscreening, and nutrition and exercise counseling. The Cooper Institute is not contracted as a provider with any insurance company anddoes not accept Medicare (The Cooper Institute, 2013). Thus, competitive strategies must be considered in developing the marketingstrategy for a firm where established markets are at stake. A company must strive to develop a marketing strategy that will give it acompetitive advantage and provide long-run profitability.
Positioning Strategies
Positioning strategies usually evolve when there are several well-defined competitors with fairly unambiguous images. This situationpermits placement of a firm or a new product relative to existing firms or products or, in some instances, the repositioning of a firm orproduct. The firm or product is positioned in the market based on customers’ needs and the firm’s own distinctive competencies, that is,what the firm does well.
For firms that have gone through the strategic planning process, this positioning approach is an extension of the work done in answeringsuch questions as What kind of firm are we? and What kind of firm do we want to become? Such a strategy encourages the firm to focus onwhat it does best relative to other competing firms and clearly defined client markets.
The positioning of healthcare will increase in importance with the implementation of the Affordable Care Act. HCOs will need to positionthemselves in terms of service level and integration of care. For example, the positioning strategy of Northwest Hospital in Randallstown,Maryland is to highlight the variety of outpatient services it offers. Patients are able to receive many tests and medical procedures withoutbeing admitted to the hospital. The positioning map shown in Figure 7.4 demonstrates such an approach for day care services for adults(Ginter, Duncan, & Swayne, 2013).
Adult day centers are places that care recipients with Alzheimer’s or other dementias can go to during the day. The care recipientsparticipate in activities and their attendance at the day center allows their caregivers to run errands or tend to other family needs. Thesecenters vary in price and, accordingly, the activities offered to differentiate their services.
Figure 7.4: Positioning of adult daycare services
The activities and prices for a facility depend on the needs of its care recipients.
Source: Adapted from Ginter, P. (2013) The Strategic management of healthcare organizations, JohnWiley & Sons: Hoboken, N. J.
Factors Influencing the Strategy Selected
At least four factors influence the choice of the strategy selected by a firm: (a) corporate strategy and resources, (b) the firm’s distinctivecompetencies, (c) the stage of the product’s market and the stage of the product’s life cycle, and (d) competitive strategies. There is nosingle strategy that will always prove successful. Instead, the strategy chosen must be the one that is best for the firm, given the nature ofthese four factors. A firm’s resources, for example, may limit the company to a relatively low position in the market, and a niche strategymay be the only feasible alternative to follow. The firm may even be an innovator in terms of product ideas but not have the financial,marketing, or personnel resources to compete for the mass market.
The marketing strategy must be derived from the corporate strategy. If the corporate strategy is focused on diversification through fundsgenerated by a specific product or product line, then the strategy used for the product must be one that generates maximum cash flow. Ifthe firm wants to harvest a product, then the marketing strategy must reflect the need to generate short-term cash and eventual eliminationthrough reduced research, promotion, and so forth. Also, the organization’s value discipline provides a context within which the strategyshould fall. For example, it would be inconsistent for a firm whose business is grounded in customer intimacy to pursue a strategy thatreflects a desire to be a low-cost, one-size-fits-all producer.
The distinctive competencies of the company have a direct bearing on the strategy selected. Distinctive skills and experience in marketing,production, or finance influence strategy choice. These distinctive competencies are the basis of targeting marketing efforts and developinga competitive advantage.
Two additional factors that influence strategy selection are the product’s life cycle stage and competitive strategies. The influence ofcompetitive marketing strategies was discussed earlier in this chapter (see Table 7.3). The firm’s or specific product’s stage in its life cyclealso distinctly influences strategy. For example, a firm whose market share has eroded over time because it failed to alter its marketingstrategy may need to take an aggressive, turnaround strategy stance. Repositioning the firm by introducing new products or going afternew markets would be pivotal for its turnaround strategy. Chapter 10 discusses the product life cycle in more detail.
As the product and its market go through cyclical stages, many alterations in the firm’s marketing strategy may become necessary to adjustto the growth or decline in the size of the market and the entrance or departure of competitors. The evolving stages of the market requirecommensurate adjustments to marketing strategy. Note the many strategy-element changes that may need to be made by a firm to remaincompetitive in the market. The selected marketing strategy must be given sufficient time to be implemented and affect consumers, but anobviously ineffective strategy should be changed. Still, resistance to change, in many companies, is a common phenomenon.
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7.5 Transition from Strategy to Tactics
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7.5 Transition from Strategy to Tactics
Once the marketing strategy is selected, specific marketing activities—usually called marketing tactics—must be created to implementthe marketing strategy. Turning the strategic elements of the marketing mix into tactics is not an easy task and requires detailedknowledge of each of the mix elements. Discussions follow for each of these marketing elements, which include (a) product/service, (b)place, (c) promotion, and (d) price/fees.
Product/Service
Moving from a product-positioning statement to a tangible product that delivers customer satisfaction in accordance with the positioningstrategy and at a profit to the company is not easily accomplished. Positioning involves determining how the firm’s product or service isperceived by the customer in relation to the firm’s competition. Such a strategy encourages the HCO to focus on what it does best relative tocompeting HCOs and clearly defined patient markets (Stevens et al., 2006). The design team must not lose sight of the product strategy,while applying a high degree of creative and technical skill to their tasks. They must understand not only the strategic needs affecting theproduct’s design before the sale, but also the entire product use or consumption experience in order to make the product as user-friendlyas possible. Follow-up services must also be considered. For example, at Cleveland Clinic, it was found that patients who were ordered tohave no food or drink before a procedure would go hungry all day, if the procedure was delayed, because staff failed to follow up with theattending physician (Merlino & Raman, 2013).
Decisions about product quality, the provision of services, market-entry timing, scheduling, follow-up services, and many other issues mustbe made. All of these decisions should be influenced by how they affect the delivery of customer value and the correct tacticalimplementation of the selected marketing strategy.
An HCO should never lose sight of its product strategy, which indicates where its competitive advantage lies when it engages in the myriadacts required of the exchange process with new, existing, or potential customers.
Place
In terms of distribution tactics, value is defined not simply by physical access to the service but also by quality of performance, includingprocedural follow-ups and medication. All of these functions play a role in implementing the positioning strategy and must be seen as partsof a whole strategy instead of autonomous tasks. Likewise, accessibility—the type and number of locations—plays a major role inpositioning the product in the minds of target-market consumers.
Promotion
Many models exist for selecting promotional media to maximize reach and frequency objectives for a given audience at a given budget.However, in this area, models are never a perfect substitute for managerial judgment. Promotional tactics involve the actual presentation ofcommunication messages to target-audience members. These messages must be formulated to be the most effective means possible ofpresenting the essence of the positioning strategy to potential customers. Many examples exist of companies with a sound positioningstrategy, which self-destructed at the implementation stage because the chosen advertising approach was totally unsuited to conveying theimage they wished to project. Promotions, materials, special-event marketing, displays, collateral material, and all other forms of promotionshould likewise be carefully designed to support the tactical implementation of the positioning strategy. Possible competitive reactions topromotional efforts should also be considered when choosing tactics. Coherence with marketing strategy is as important with staffinteractions as it is with the other promotional elements, training, and support materials; additionally, reward systems must be consideredwith the overall strategy. Some special events, such as opening a new location, may require the services of event planners to ensure that allelements are coordinated. If there is going to be a groundbreaking ceremony with the traditional “shovel picture,” then someone has tobring a shovel.
Price/Fees
Implementation issues with respect to pricing may pertain to fee mandates and third-party reimbursements and deductibles. Policiesestablished in these areas are, in essence, the implementation of a pricing plan that acknowledges the necessity of adjustments to price to fitmarket and cost conditions. Other price implementation issues include initiating price increases and responding to changes in competitors’prices.
As costs rise, organizations feel the pressure to initiate price increases. The following types of price adjustments are commonly used byHCOs:
· Collecting deductibles upfront for some services. This tactic may seem simple, but it is complicated by situations where patients havemore than one form of insurance and the deductibles are large. It may be necessary to offer payment plans in some cases. The mostimportant aspect of this price adjustment is communicating to patients about the policy or the change in policy.
· Unbundling of goods and services. The fees for the service are maintained, but services that were previously included, such as X-rays,are now priced separately.
· Reducing discounts. Policy changes might be initiated that preclude offering discounts (Kotler, 1980).
A company’s reaction to a change in price by a competitor also affects pricing implementation. Market leaders, in particular, must determinehow they will react to a drop in price by major competitors. Several options, which include the following, are available:
· Maintain price. The market leader may decide to maintain its price without losing customers it wishes to retain. This strategy can berisky in some circumstances, but it avoids giving the competitor confidence that price changes will not be challenged.
· Raise perceived quality. Another option is to maintain price but improve the product’s perceived value by strengthening the product,services, or communication messages.
· Reduce price. A market leader might decide to lower its price in response to the competitor. This tactic is commonly motivated by abelief that buyers primarily make their purchase decisions on the basis of price, and that a failure to lower a price will result in anunacceptable decline in market share. However, quality should be maintained, even if the price is lowered.
· Increase price and improve quality. By establishing an elite image as the “best” in the market, a company believes it can better capturethe share of the market that comprises customers who are motivated by that image. Some firms pursuing this strategy simultaneouslylaunch a less expensive “fighting brand,” which is intended to compete against the lower-cost competitor.
Any price-implementation actions should be governed by the objectives a company sets for its price decisions. These objectives must beclearly communicated to patients to avoid misunderstanding.
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7.6 Organizational Designs for Marketing
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7.6 Organizational Designs for Marketing
Organizing marketing refers to the process of developing a structure to accommodate and assign responsibility for managing marketingactivities. Organizing may be defined simply as a process that includes the following:
1. Determining what must be done to achieve a given set of objectives.
2. Dividing the necessary activities into segments small enough so that each can be performed by one person.
3. Providing a means of coordination to ensure that no effort is wasted and that the members of the organization do not get in eachother’s way.
Organization design should produce a structure of task-and-authority relationships that enhance the firm’s ability to accomplish its statedmarketing objectives. The end result of the process is usually represented by an organizational chart that shows individuals’ positions andtheir formal relationships of authority. When detailed job descriptions, which specify duties and responsibilities, are prepared for eachposition, the foundations for the managerial system have been laid. If current job descriptions do not list the development of strategic andannual marketing plans, the job description should be rewritten to state the individual’s responsibility toward that task. This, of course,does not mean that each manager would individually carry out all the activities necessary to develop a plan, only that he or she isresponsible for seeing that a plan is prepared or providing input for it.
The organizational structure reveals the relationships between activities, authority, and responsibility at a given time within theorganization. The nature of a firm’s organization greatly influences not only who will be responsible for marketing planning but also howmuch assistance the planner can expect from others in the organization.
Two basic types of organizational structures are (a) the line organization and (b) the line and staff organization. The distinctionbetween these two organizations is the separation of planning from operating tasks in the line-and-staff approach. The line organization isthe simplest organizational structure and will be described first.
In a line organization, authority flows directly from the chief executive to the first subordinate, then to the second, and so forth. Few, if any,specialists are present in the line organization, and planning and operating activities are usually performed by the same individual. Thechief executive might do all the planning for all areas and maintain primary authority and responsibility for all areas. This type oforganizational structure is depicted in Figure 7.5.
In the marketing line organization, the marketing manager is responsible for planning and for the operations in marketing. The salessupervisor and distribution supervisor carry out the manager’s plans through supervision of other employees. Although this type oforganization may be successful for small organizations, its usefulness in larger, more complex situations is limited. Effectiveness of the lineorganization depends on division of effort, and this is exactly what staff positions provide. Staff personnel are added to help the linepersonnel perform the various functions carried on in an organization, especially planning. A marketing manager in a line organizationmust not only develop plans but also carry them out. This means less time is available for planning because the manager is involved in theorganization’s operations. Good planning procedures can still be used under these conditions, especially if there are only a few services andcustomers. However, the analysis section of the plan usually will not be as thorough simply because the manager has less time and fewerresources.
Figure 7.5: Marketing line organization structure
The marketing manager is responsible for the planning and operations in eachmarketing area.
The line and staff organization, depicted in Figure 7.6, illustrates the addition of staff specialists to the organization. This approach permitsseparation of planning and operating activities, which in turn means more time and resources available for marketing planning.
Figure 7.6: Marketing line and staff organizational structure
Specialized staff can help the organization’s overall efforts by providing assistancein their areas of expertise.
The marketing planning effort that results from this organizational design should be more thorough. Figure 7.6 shows the addition of staffpositions at both the headquarters and regional level. This makes staff specialists available to coordinate overall company efforts in theirareas of specialization at the headquarters level, and also takes into consideration regional differences that warrant additionalspecialization by geographical area. Of course, there are many other ways for staff personnel to be specialized—by services, customer type,channel of distribution, and so forth. A wide variety of potential organizational structures can be adapted to a specific organization’s needs.
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7.7 The Ethical Orientation of Marketing…
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7.7 The Ethical Orientation of Marketing Decisions
In recent years, leaders have focused attention on creating an organizational environment with a high concern for ethics. Ethics areprinciples of right or good conduct, or a body of such principles. Ethical issues in marketing can be categorized by type into one of twoareas: issues pertaining to individual marketing decisions and those related to collective marketing decisions. Ethical issues arising fromindividual marketing decisions are those that lead to unethical practices, although they may help the company. Ethical issues arising fromcollective marketing decisions result in no ethical infraction in and of themselves, but they do contribute to problems in combination withsimilar decisions over time or by other marketers. The adverse impact of packaging on the environment might be an example of such acollective marketing decision.
The American Marketing Association has developed ethical standards of behavior for its members through the use of a code of ethics, aportion of which follows. Not only are general areas covered, such as honesty and fairness, but specific attention is devoted to themarketing mix variables.
Numerous ethical issues have surfaced in recent years that apply specifically to healthcare. Some, such as patient referrals, have beenaddressed through legislation. For example, physicians may not refer a patient to entities in which they or any family member have afinancial interest.
Another issue is patient privacy. The Health Insurance Portability and Accountability Act (U.S. Department of Health & Human Services,2014) addresses this issue. Physicians and other care providers, as well as nonmedical personnel, are prohibited by this act from unlawfullydisclosing patient information.
Other, more complex ethical issues also face healthcare providers. Examples include determining how long to maintain life-support systemsfor brain-dead patients, determining how long to maintain a life-support system for a brain-dead patient who is pregnant with a viablefetus, deciding who should make end-of-life decisions for patients, and granting hospital privileges to physicians who perform abortions.
THE AMERICAN MARKETING ASSOCIATION CODE OF ETHICS
Honesty and Fairness
Marketers shall uphold and advance the integrity, honor and dignity of the marketing profession by:
1. Being honest in serving consumers, clients, employees, suppliers, distributors, and the public;
2. Not knowingly participating in conflict of interest without prior notice to all parties involved; and
3. Establishing equitable fee schedules including the payment or receipt of usual, cus-tomary and/or legalcompensation for marketing exchanges.
Rights and Duties of Parties in the Marketing Exchange Process
Participants in the marketing exchange process should be able to expect that
1. Products and services offered are safe and fit for their intended uses;
2. Communications about offered services and services are not deceptive;
3. All parties intend to discharge their obligations, financial and otherwise, in good faith; and
4. Appropriate internal methods exist for equitable adjustment and/or redress of griev-ances concerning purchases.
It is understood that the above would include, but is not limited to, the following responsibilities of the marketer:
In the area of service development and management:
· disclosure of all substantial risks associated with service or service usage;
· identification of any service component substitution that might materially change the service or impact on thebuyer’s purchase decision;
· identification of extra cost-added features.
In the area of promotions:
· avoidance of false and misleading advertising;
· rejection of high-pressure manipulations, or misleading sales tactics;
· avoidance of sales promotions that use deception or manipulation.
In the area of distribution:
· not manipulating the availability of a service for the purpose of exploitation;
· not using coercion in the marketing channel;
· not exerting undue influence over the reseller’s choice to handle a service.
In the area of pricing:
· not engaging in price fixing;
· not practicing predatory pricing;
· disclosing the full price associated with any purchase.
In the area of marketing research:
· prohibiting selling or fundraising under the guise of conducting research;
· maintaining research integrity by avoiding misrepresentation and omission of perti-nent research data;
· treating outside clients and suppliers fairly.
Organizational Relationships
Marketers should be aware of how their behavior may influence or impact the behavior of others in organizationalrelationships. They should not demand, encourage or apply coercion to obtain unethical behavior in their relationshipswith others, such as employees, suppliers, or customers.
Source: Adapted from the American Marketing Association, Statement of Ethics
https://www.ama.org/AboutAMA/Pages/Statement-of-Ethics.aspx
The growth and impact of the Internet on marketing activities has prompted the American Marketing Association’s development of a codeof ethics dealing specifically with the use of the Internet as a marketing tool. As shown in the following statements, the code focuses onprivacy, ownership, and access to infrastructure. These are the key areas of concern for ethical standards of conducting marketing ormarketing research on the Internet.
AMERICAN MARKETING ASSOCIATION CODE OF ETHICS FOR MARKETINGON THE INTERNET
General Responsibilities
Internet marketers must assess the risks and take responsibility for the consequences of their activities. Internetmarketers’ professional conduct must be guided by:
· Support of professional ethics to avoid harm by protecting the rights of privacy, ownership and access.
· Adherence to all applicable laws and regulations with no use of Internet marketing that would be illegal, ifconducted by mail, telephone, fax or other media.
· Awareness of changes in regulations related to Internet marketing.
· Effective communication to organizational members on risks and policies related to Internet marketing, whenappropriate.
· Organizational commitment to ethical Internet practices communicated to employees, customers and relevantstakeholders.
Privacy
Information collected from customers should be confidential and used only for expressed purposes. All data, especiallyconfidential customer data, should be safeguarded against unauthorized access. The expressed wishes of others shouldbe respected with regard to the receipt of unsolicited e-mail messages.
Ownership
Information obtained from the Internet sources should be properly authorized and documented. Information ownershipshould be safeguarded and respected. Marketers should respect the integrity and ownership of computer and networksystems.
Access
Marketers should treat access to accounts, passwords, and other information as confidential, and only examine ordisclose content when authorized by a responsible party. The integrity of others’ information systems should berespected with regard to placement of information, advertising or messages.
Source: Adapted from the American Marketing Association
https://www.ama.org/search/pages/results.aspx?k=ethics
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Summary & Resources
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Summary & Resources
Chapter Summary
This chapter introduced the concept of marketing and discussed how HCOs can design effective marketing programs. Additionally, basicmarketing strategies were described, along with the organizational structures necessary to put these strategies in place. Lastly, ethicaldecision-making, as it relates to healthcare, was discussed.
Key Points
1. It is important to understand what marketing is. While there are many definitions of marketing (including that of the
AmericanMarketing Association
), we will use this definition: Marketing directs those activities that involve the creation and distribution ofproducts and services to identified market segments. Key to an understanding of this definition are the following statements:
· Marketing is a managerial function directed by executives.
· Marketing involves specific activities.
· Marketing is involved in both the creation and distribution of products and services.
· Marketing is concerned with satisfying customer needs.
2. While it is important to satisfy customer needs and wants, it is also critical to do so at an acceptable level of revenue and costs.Marketing with this in mind is known as the marketing concept. For-profit and not-for-profit institutions similarly need to satisfycustomer needs and wants. The for-profit institution, however, needs to generate enough profit to attract investors, while the not-for-profit institution requires a positive cash flow to remain viable.
3. An HCO can follow three basic orientations in its organizational function. The first of these is a service orientation, where the dominantdesire is to capitalize on efficiency in the operating process. While this approach helps control costs, it does not address quality,revenues, customer needs and wants, or the firm’s benefit to society.
The second basic orientation that an HCO can follow in its organizational function is a selling orientation. Here, the dominant factoris to increase revenues by stimulating interest in the product or service. Secondary factors include controlling costs and providingquality. However, sales of existing products or services are more important than actually addressing customer needs with specificallydesigned products and services.
The most preferable of these three orientations is the marketing orientation. With this orientation in practice at an HCO, marketingcosts are controlled, quality is addressed, and increasing revenues is important. The dominant factors, however, are identifying andaddressing customer needs while considering the effect of the HCO’s product and services on both customers and society at large.
4. HCO executives first develop the firm’s overall strategic plan. Once this plan is in place, the strategic marketing plan is developed sothat it conforms to the strategic plan. Following the strategic marketing plan is the annual operational marketing plan. Annualoperational marketing plans spell out the details of what is to be done, when, and by whom. By deciding on the overall strategic planfirst, the HCO can ensure that the direction of the marketing efforts indicated in the strategic marketing plan and the activities directedby the annual operational marketing plan are consistent with the direction of the overall strategic plan.
5. Marketing strategies provide the direction to marketing efforts. Three basic marketing strategies are in use: undifferentiated strategy,segmentation strategy, and focused marketing strategy. Undifferentiated strategy offers one or a few products or services aimed at allmarket segments. This type of strategy works best when there is little or no competition.
A segmentation strategy recognizes differences in the needs of each market segment and responds with products or servicesdeveloped for each segment pursued. While not all segments will be pursued, at least two are required to be considered asegmentation strategy.
Focused marketing strategies pinpoint one segment of the market and focus all efforts on that segment. An example is a hospitalthat specializes in emergency and acute care.
6. Marketing tactics are the activities required to implement the chosen strategy. Turning the strategic elements of the marketing mix intotactics is not an easy task and requires detailed knowledge of each of the mix elements. Specific product, place, promotion, and pricedecisions must be aligned with the overall strategy and planned in great detail to avoid failures. Some special events, such as opening anew location, may require the services of event planners to ensure that all elements are coordinated.
7. Organizing marketing refers to the process of developing a structure to accommodate and assign responsibilities for managingmarketing activities. Two basic organizational structures exist: (a) the line organization, and (b) the line and staff organization.
g. In a line organization, authority flows from the chief executive to the first subordinate, then to the second and so forth. In a lineorganization, the person responsible for planning marketing is also responsible for marketing operations.
g. A line and staff organization adds staff specialists to the organization. In this type of structure, planning is done by line employeesand carried out by staff specialists.
1. Ethics are principles of right or good conduct. In marketing, ethics can be broadly categorized into two areas: ethical issues connectedto individual marketing decisions and ethical issues pertaining to collective marketing decisions. Individual marketing decisions arethose that—though they can benefit the HCO—may lead to unethical practices. Collective marketing decisions do not result in anunethical act but may contribute to problems in combination with similar decisions by other HCOs. For example, bionic body parts arenow available that replicate the part of the body they replace, an invaluable aid to people who have been disabled through injury.However, does this present a challenge to ethical limits? Can it be right to replicate an entire human body?
Chapter 7 Flashcards
Key Terms
Click on each key term to see the definition.
concern with customers
creation and distribution of goods and services
ethics
focused strategy
line and staff organization
line organization
managerial perspective
market segment(s)
marketing
marketing concept
marketing mix
marketing strategy
marketing tactics
operating marketing plan
positioning
product life cycle
residual perspective
segmentation strategy
strategic marketing
strategic marketing plan
undifferentiated strategy
Critical Thinking Questions
1. How can an HCO implement the marketing concept into its organization?
2. Explain the relationship between the strategic plan and the marketing plan.
3. How could a dental organization implement a focused marketing strategy?
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