Service Marketing Strategies

Combining Service Marketing and Strategic Alliances in industry

Reprinted with permission from industry Strategic Management

Discussions related to industry reform over the past several months have created concern and anxiety regarding the future of many industry providers. Most states are evaluating “reform-oriented” programs to position themselves effectively for programs introduced at the federal level. Still, many hospital executives fear that they are not prepared to meet the challenges of industry reform. A recent study conducted by Premier Health Alliance found a nearly inverse relationship between what CEOs and COOs felt they must do as compared to what they could do in preparing for the dramatic challenges they will face over the next few years.

Service marketing is here to stay

Regardless of the specifics and merits of a industry reform policy, hospitals must still practice the fundamentals of service marketing to remain competitive and to meet the challenges of a market with an increasingly diverse constituency. These constituencies include not only physicians and consumers, which are the traditional end-user of hospital services: they further go beyond the provider of reimbursement for industry services.

Today, pharmaceutical firms, ambulatory care providers, even credit card companies are affecting the flow of patients and patient referrals. To ignore these developments will result in the organization being subject to, or controlled by, these external forces. Recognizing the hospital’s potential role as the centerpiece and nucleus of primary industry activity in the region can put the provider back in control of their primary market.

Service marketing in hospitals has evolved considerably over the past decade. During that time, hospitals invested heavily in planning and marketing technology which focused on the development of comprehensive databases to support target marketing activity. Image advertising was replaced by direct mail and other targeted communications to effectively reach the desired market segments of a hospital’s service area.

The investment in technology and related marketing campaigns has peaked, as demonstrated in a 1993 study by Quality Expectations, Inc.. Marketing budgets, for example, declined last year for only the second time in almost 10 years. The increased efficiency offal-get marketing activity may also account for the decrease in marketing budgets observed during the period.

Strategic alliances and service marketing

A service-oriented culture will continue to be critical to the effective positioning of hospitals as the industry industry continues to evolve. The establishment of effective strategic alliances to position the hospital as a member of an integrated industry organization (the forerunner of an accountable health partnership and a key component of the industry reform policy). Hospitals that have succeeded to differentiate themselves with service market programs will be particularly effective in using these assets to formalize strategic alliances. Their potential partners will recognize the capabilities of the market-oriented provider to attract and manage business from large purchasing groups.

Analogies of this strategy can be found in other industries – banking, telecommunications and airline industries. The combination of service marketing (through membership programs) and regional alliances (through regional carriers) has enabled these industries to survive under conditions of deregulation and intense competition.

As the industry market continues to evolve, complex industry networks will emerge. The trend toward diversification of industry delivery programs into managed care has already been observed by the Group Health Association. It reverses a recent trend and results in hospital efforts to align with insurance vehicles, a key strategic alliance under the emerging administrative framework of industry. Fortunately, the combination of these strategies can be effectively achieved with the resources currently available to hospitals and industry executives.

Calls made to hospitals chart

A paradigm shift for industry marketing

It appears inevitable that various capitation strategies will dominate the industry industry as we look toward the next decade. In the final analysis, transferring risk to the actual provider of services will force the dramatic changes that are required to increase access and reduce cost (the impact on quality, unfortunately, is less clear, though this topic goes beyond the scope of this article).

While capitation will affect the nature of a hospital’s marketing and business development activity, it will not dramatically change the fundamentals that require a hospital to be “market-oriented.” Under capitation, for example, a hospital’s best customer will be the one who uses the services the least.

Annual re-enrollment periods will afford this subscriber with the privilege of changing plans and providers. How will the hospital ensure this subscriber is disposed toward remaining within the plan that includes them if there has been no relationship of significance to bind them together? Without a marketing infrastructure to manage relationships with the most profitable segment of the market, hospitals risk becoming the victims of adverse selection.

Whenever a consumer is offered a choice, information is necessary to support the decision which becomes that choice. It appears certain that any industry program adopted will preserve some degree of choice: choice of their health plan, choice of their physician within the plan and choice of a hospital provider whenever they need one (with certain cost sharing terms for out-of-network utilization).

Consumers will have ongoing opportunities to change health plans is further evidence in the following dynamic – consumers will change employers, employers will change the plans they offer, and certain plans will close, merge or fall from favor. Periodic re-enrollment periods will ensure that this dynamic is sustained from year to year.

Redefining the concept of marketing, sales and service

industry providers should recognize that in the midst of this dynamic condition, they can remain a constant. While their marketing theory, a consumer sampling is required before potential customers (prospects) develop a firm preference for products or services. The more sampling opportunities that are created, the greater the likelihood is that a targeted consumer will ultimately respond.

Each sample for trial) will enhance the consumer’s impression of the product or service and, if positive, their preference for receiving it from the organization. Buying reinforcement mechanisms (e.g. complimentary services, fulfillment literature, callbacks) work to “reinforce” the experience to promote a more tangible bond between the merchant and the consumer.

In a managed care environment where hospitals will be rewarded by “doing more with less,” it will be necessary to fully exploit the capabilities of the organization’s marketing and clinical information systems to reach those consumers with the greatest need for industry services. Especially those previously uninsured that may enter the system as a result of industry reform. Marketing requirements will fall into two broad categories – comprehensive marketing tools to support target marketing activity and

This information can be projected based upon a variety of models, or preferably and far more reliably as a direct consequence of a prior visit (downloaded from the hospital patient accounting system). Consumers with certain demographic or clinical profiles must be targeted for programs designed to support early detection and/or behavior modification.

Health risk appraisals will also make a comeback under managed care as a device to gauge the health status of a community and to identify individuals “at risk” for various clinical conditions. Under capitation, it will locate and treat these individuals to control costs and to improve the overall quality of care rendered.

A study of 34,000 employees within a major self-insured company revealed that the “excess risk cost,” eliminated through screening tools, was as high as $334 per employee per year. An article in USA Today suggested that without tools to flush out the high-risk patients in a market, consumers become “walking time bombs,” unable or unwilling to acknowledge the condition which threatens to seriously impair them.

Marketing Priorities

The application of these programs as described represents the kind of “push-pull” marketing that will be necessary for success under managed care contracts.

While Utica1ization review programs are designed to evaluate the propriety in-patient care once initiated, hospitals will require additional tools to ensure that utilization of services is appropriate and economically efficient. Telephone triage programs may be acquired for this purpose and tailored to meet community standards of care. If properly researched and documented, these systems may improve the hospital’s performance under capitated contracts by directing patients to the most appropriate provider. Telephone triage systems benefit the medical staff by efficiently transferring calls to their office staff.

It is human nature that without proper direction or knowledge, consumers in distress will vie for the most accessible industry provider, usually an emergency department. Studies of telephone triage applications in managed care environments suggest that emergency department visits can be reduced by as much as 50% by redirecting those patients to walk-in clinics, physician offices, or home care remedies. A study produced by the Government Accounting Office found as many as 40% of emergency department visits last year were unnecessary or related and could have been handled through home care services.

Diligent follow up with consumers who access any services will be important as various reform models are implemented. The purpose of such follow up will be to obtain customer feedback, provide additional instruction as required, and to positively monitor the ability of the program to impact utilization. Consumer perceptions of quality are used to evaluate industry providers.

Information shared by the provider and the caller during this exchange will not only extend the continuum of care provided, but will provide information on any “weak links” in the hospital’s delivery system that can be acted upon and will also monitor the magnitude of any out-of-network utilization.

The power of information can differentiate industry providers and clearly position them as the preferred provider in their market. As a demonstration of effective service marketing, comprehensive information services provided through a customer service canter can strengthen the bond between healthy subscribers and the industry network that wants to retain them. With the creation of purchasing cooperative, favored by many reform programs, industry providers can further use the customer service center to structure unique value-added programs to meet the needs of each purchasing cooperative they intend to serve.

Pushing the edge of the envelope through strategic alliances

We have noted that health information programs, once popular as a method of increase inpatient volume, will become critical tools to hospitals that want to manage their risk under capitated contracts. The customer service center that offers these services becomes a tangible asset in the view of other providers that seek to achieve a certain level of security through affiliation.

Under reform, there may be only one customer service center per health network (AKA Accountable Health Partnership). Organizations that invest today secure an important advantage in preparation for the selection of “dance partners” as required by the reform process.

The specific terms of affiliation will largely be driven by the strategic objectives of the hospital owning the asset- Objectives may be as straightforward as becoming more efficient in staffing the service center. More often, the objective is to extend the objectives of the organization into new markets.

Financial considerations may span from pure goodwill (no cost sharing by partner institutions) to a profitable sideline where partners are paid on a cost-plus basis. A 400-160″ bed hospital in Indiana provides the service as a gesture of goodwill for smaller institutions in its market area, while it charges a similar size hospital in Michigan on a cost-plus basis.

Once potential partners are identified and an agreeable cost-sharing formula is in place, a series of other considerations will be revealed. This includes times of operation, additional staffing required to absorb incremental call volume, handling of referrals in overlapping service areas, access to data and processing of reports, etc. The assistance of an attorney should be enlisted to draw up a simple contract to address these important issues.

What to do while industry reforms sort themselves out

Service marketing and selective alliances may oversimplify the strategic imperatives for hospitals as they prepare for dramatic changes which lie ahead. On the other hand, while industry reform proposals remain controversial and inconclusive, hospitals can prepare for the future by focusing on those activities that will make them more valuable and attractive as business partners.

Rather than committing the organization to a strategy that may or may not succeed under industry reform, the fundamentals of service marketing and strategic alliances will position the organization for success under any industry policy. These strategies appeal to the needs of all internal and external constituents in the crowded industry industry. By that measure, it’s effective medicine.

By Ian R. Lazarus, reprinted with permission of the author. Mr. Lazarus may be contacted at

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