Running head: BRINGING IT ALTOGETHER

Bringing It Altogether Karla Alvarez

Professor Becky Gilliland HSA 505 Health Services Strategic Marketing March 17, 2013

BRINGING IT ALTOGETHER Bringing It Altogether

Marketing healthcare services and products presents unique challenges compared to other consumer goods and services, because it deals with health behaviors as opposed to just purchasing behaviors (Johnson, n.d.). Products are physical and tangible. They can be divided into non-durable goods and durable goods. A nondurable good is an item that can be consumed in some defined period of time. A durable good is a product that lasts over an extended period of time (Berkowitz, 2011). Products can also be classified by whom and for what the consumers of these products are purchased. Those products that are purchased by the final consumer are known as consumer goods, while those purchased for use in the manufacture of other products are referred as industrial products (Berkowitz, 2011). Furthermore, consumer goods can be classified by the amount of effort and manner of search the consumer uses in purchasing the product. Those that require little deliberation or search are known as convenience goods. Shopping goods are products in which the consumer takes the time to compare attributes, price, style and/or features. And specialty items are those that the consumer specifically seeks out (Berkowitz, 2011). Services, on the other hand, are intangible. Services are inconsistent, they cannot be owned or stored and they lack durability. Differences between tangible goods and services are based on five components: intangibility, inconsistency, inseparability, inventory, and interaction with customers. A service cannot be seen, felt, tasted, smelled, or heard prior purchase. Inconsistency refers to the variation in both the quality and the composition of service from one occasion to another. Inseparability implies that the service is produced and consumed simultaneously. In contrast, tangible goods are produced, sold, and consumed at separate points in time (France & Grover, 1992). In service businesses, inventory occurs whenever an employee who delivers the service is not being utilized, but is still being paid (Berkowitz, 2011). The performance of a specific service requires

BRINGING IT ALTOGETHER participation from both provider and consumer. The quality of this interaction with customers in health care marketing especially is fundamental to retain customer and build customer relationship and loyalty. According to France & Grover (1992), another difference between tangible goods and services is that goods are high in search qualities whereas services are high in experience qualities. Search qualities, such as size, color, and shape are product characteristics that can be

evaluated prior to purchase and therefore help in reducing the amount of risk associated with the purchase. Experience qualities, in contrast, are characteristics that can be discerned only after consuming the product. Therefore, services are more difficult to evaluate prior to purchase and more risky. Taking this idea into consideration, one could say that health care is the most intangible of all services. For example, a patient goes to the doctor complaining of knee pain. The doctor examines the patient, checks the patients history and sends the patient home with a prescription for pain medicine, x-rays, and a supplement for joint pain. The patient cannot rate his experience right after the doctors visit because his condition has not been healed or even treated yet. If the patient does not follow the doctors instructions his pain may not go away, but this does not reflect the doctors skills. Understanding these differences between products and services in health care marketing is necessary to develop the product line and mix for healthcare organizations. The product mix can be defined in terms of width, length, and depth of an organizations product offerings. According to Berkowitz (2011), width refers to the number of product lines offered by an organization. The number of different products offered within each line defines the length of the product line. Product depth refers to the number of alternate products available to meet the same generic need. Each product within a product line can be considered to have depth (France &

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Grover, 1992). The more product lines (width) give the provider the advantage to attract different patients. Additionally, the length of the product line can allow the provider to have better control of its competition by not needing to refer patients to other providers for related illness. A product line management approach in healthcare is a grouping of products that are related to each other in terms of needs they satisfy, the customers who purchase them, and the means by which they are delivered. According to Johnson (n.d.), the product line management planning and management system coordinates and facilitates the services within each product line to provide comprehensive and cost-effective care to each patient. In classic marketing strategy, pricing is important enough to be one of the four Ps of the marketing mix along with product, promotion, and place. Price is the value that it is paid for a good or service received. Pricing can be used to generate revenues and income, to give customers incentives or disincentives to use a product or service, to capture market share or squeeze out a rival, and to create an image for a product or service. A fifth pricing objective is to establish a price level that will encourage a similar response from competitors (Berkowitz, 2011). Pricing in healthcare is subject to a complex set of counterbalancing forces. As with all industries, healthcare has a list charge (gross charges) and a net price (payments). Over the past two decades, the gap between gross charges and payment has grown so wide because the majority of net prices are either set by the government or contractually negotiated in large blocks with managed care companies (Krentz & Clay, 2008). The health care climate in New Jersey is marked by the national recession and the crises that result from a broken national health care system. A new report by the NJ Consumer Voices for Coverage Leadership Team shows that nearly one out of three people (32%) under the age of 65 went without health insurance for all part of the two year period 2007-2008. Among those

BRINGING IT ALTOGETHER uninsured New Jerseyans, nearly 2.4 million or 3 out 4 (76.2%), went without health insurance for six months or longer during this period. Health insurance premiums for New Jersey working families have skyrocketed, increasing 71% - 4.7 times faster than wages from 2000 to 2007. According to this report, New Jersey spends close to $1 billion annually treating the uninsured

and those without access to primary or preventative health care services through the Charity Care Program. In 2007, 12% of New Jerseyans reported not seeing a doctor due to cost. The passage of the Affordable Care Act creates opportunities to pursue innovative health care payment reform models designed to promote accessible, coordinated, patient-centered care that focuses on health and disease prevention and reduces health care costs. The NJ for Health Care Coalition has adopted a payment reform model known as 12 Patient Priorities to ensure that the health and the rights of consumers are protected. The 12 patient priorities are: (1) Transparency measures of care and incentives built into the payment system must be open, transparent, and understandable by patients. The legislation should provide for an open process through which there is full disclosure, capacity for public review, and explanation of all payment criteria. (2) Protect Vulnerable Consumers patients with high medical utilization should be protected by global payments. (3) Consumer Voice, (4) Savings Shared with Consumers any cost savings must be used by the ACO to expand access and improve the quality of services provided in addition to providing saving to taxpayers; (5) Patient Choice and Care Accessibility, (6) Improve Quality, (7) Evaluation and Monitoring the legislation must include independent, meaningful and frequent monitoring and evaluation of the payment system focusing on quality of care, including outcomes, patient satisfaction and quality of life. (8) Patient Empowerment, (9) Promote Public and Community Health payment reform must be accompanied by a commitment to fund public and community health initiatives. (10) Patient-centered Primary

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Care, (11) Care by Appropriate providers, and (12) Public Benefit Driven Motives (NJ for Health Care Coalition, n.d.). Based on these findings, it is clear that determining pricing strategies in health care is more complex than in other industries. Healthcare marketers, now more than ever, face public scrutiny about pricing. Financial transparency has become mandatory for most healthcare organizations. Health care organizations using a pricing strategy to maximize profit will impact New Jerseys health care system because New Jerseyans can barely make ends meet. They will rather delay care, according to the report by the NJ Consumer Voices for Coverage Leadership Team. However, implementing a sales pricing objective can benefit most families looking for care at an affordable price. In New Jersey, market share and stabilization as pricing objectives are going to become more common with the passage of the Affordable Care Act and the new payment reform principle adopted by the NJ for Health Care Coalition. According to Berkowitz (2011), an effective communication process involves a sender which can be a person or company who wants to communicate a message; a receiver the target of the communication; the process of encoding, or developing the message; the message which is what is to be communicated; the channel by which the message is sent; the process of decoding, or interpreting the message encoded by the sender; the element of noise which includes external factors that affect how the message is interpreted; and feedback which provides the sender with an assessment of the effectiveness of the communication between the sender and receiver. Technology, however, is changing how we communicate. Before the internet and social medial, health care organizations approached communication and marketing through mass media, one-way messages. And the receivers - patients, physicians, community were forced to accept the message being fed to them.

BRINGING IT ALTOGETHER Communication is no longer one way from the sender to a receiver. Today, the communication model is much closer to a constellation of messages (Berkowitz, 2011). The traditional channels of communication were radio, television, magazines, newspapers, and billboards. Nowadays, in the era of technology and internet, the sender and receiver have access to an unlimited number of channels such as: websites, blogs, podcasts, LinkedIn, Facebook, Twitter, Instagram, YouTube, and Vine a new way to share videos. Consumers use the web to

search for health information. According to TSchetter & Associates (2011), e-communications is now the foundation of marketing communication. 61% of adults find their health information online and 45% of patients say they choose specialists from medical websites. In addition, 60% of online users have consulted blog comments, hospital reviews and doctor reviews, listened to podcast about health care and signed up to receive updates about medical issues via email. Yet, only 20% of physician practices have a website. According to Boyer (2011), social media has leveled the playing field. Now patients can communicate about health at any time. They can share fears about diagnoses with distant friends and families. They can connect with people across the world who struggle with similar health conditions, finding support and companionship. They can question whether the doctor gave the right diagnoses or express displeasure with a recent emergency room visit. Social media also allows customers to vent and be heard. This type of channel involves real-time interactions. Therefore, the organization has the chance to put into practice their customer recovery systems right away, from the moment a complaint is received. If a health care organization needs to communicate changes to the distribution strategies for services and/or products, they should embrace social media as their communication strategy. Customers can be very sensitive to changes, for that reason the company should make sure to announce these changes before they

BRINGING IT ALTOGETHER go into place and even solicit feedback from their target market. To be successful at any change

that affects the customer, the organization must always search for feedback if they want to retain their customers. In this internet and social media era, healthcare marketers should implement a communication strategy that includes multiple ways for the community to engage with the organization. The community as main stakeholder includes current and potential patients, physicians, social workers, and even other organizations. Although healthcare is still practiced face-to-face, marketers should see social media as a way to talk with, and not at, their followers (Boyer, 2011). Social media allows the organization to communicate directly with current or potential customers and gives the organization the advantage to hear what they are saying. The goal of this communication strategy is to be patient-centered, to focus on the audiences needs, and not the promotion of the organization. First, audiences must be engaged with valuable health care information, and then the organization can share details about their services and how they align with audiences interests. Advertising is an indispensable part of the marketing strategy of any product or service. In 2005, more than $25 billion was spent annually on health care advertising. Advertising may be defined as any directly paid form which distinguishes from publicity of nonpersonal presentation of goods, services, or ideas by an identified sponsor. The most common classifications of advertising are product and institutional (Berkowitz, 2011). Product advertising tries to sell a product by educating potential customers on why they need the product, how is it used and the benefits derived from its use (Fears, n.d.). This type of advertising can create product awareness, tell the consumer how the product is better than similar offerings by competitor, and keep the products name before the public. On the other hand, institutional

BRINGING IT ALTOGETHER advertising tries to sell the image and reputation of a company rather than a specific good or service.

Product advertising has the advantage of attracting a large number of potential customers and informs people about specific products and services, their utilities, cost and other requirements. Product advertising can also create a brand name for the product being promoted. People can recognize the products from catchy advertisements they see and thus sales are also improved. Additionally, product advertising creates a market attitude for a product which would not otherwise be desired. Thus artificial demand can be created by exploiting fears (Penn, n.d.). Another major advantage of this type of advertising is that it makes the job of the sales person easier. Effective product advertising satisfies the customer in the pre-purchase stage and drives him/her towards the product, making it less expensive than conducting the entire sell on personal basis. Since the objective of institutional advertising is to promote the company itself, the obvious advantage is that it can lead to increased product purchase intentions for a corporations products even though the corporate ads are not product focused (Kim, Haley & Koo, 2009). Institutional advertising is frequently used in health care (Berkowitz, 2011). Typical institutional advertising activities include image advertising, event sponsorships, advocacy advertising, and cause-related advertising. Healthcare organizations can use institutional advertising to establish reputation and goodwill of products by creating moral and educative value. Advertisements of non-commercial issues like AIDS and obesity can help in educating people and notifying them of events and programs related to them. According to Kim et al. (2009), consumers have higher identification toward a company when the companys core business matches a cause they support. Because consumers

BRINGING IT ALTOGETHER perceive the company as an expert when the cause matches its core business, more positive feelings are transferred to the company. Therefore, consumers seem to use the degree of similarity between their own identity and a companys identity, values or causes, or its social

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responsibility efforts when they evaluate corporate advertising. Institutional advertising has the advantage of connecting with customers in a different level, without directly selling their products or services. This type of advertising can be more welcoming by the customers if implemented effectively. The main idea is to show a deeper side of the company that in the long run will create more sales and a higher market share. Health care ethics is a set of moral principles, beliefs, and values that guide us in making choices about medical care. Fortunately, for us as patients and marketers, the health care industry in the United States is highly regulated. We have the Health Insurance Portability and Accountability Act (HIPAA), the U.S. Food and Drug Administration (FDA), and the Centers for Medicare and Medicaid Services (CMS) among others as regulatory agencies. For example, the Alliance for Health Care Strategy and Marketing developed a set of voluntary guidelines regarding the concerns and issues that should be considered in health care advertising (Berkowitz, 2011). Issues of price fixing and price discounting were addressed by the Sherman Act, which ruled that price fixing, per se, is illegal and will restrain trade. In terms of discounting, the law allows for discounts to be offered to buyers, providing cost savings can be demonstrated in dealing with a particular buyer (Berkowitz, 2011). A policy for healthcare marketing firms to avoid ethical violation in the areas of pricing, service and advertising needs to always put patients interests first. Health care is the most regulated sector of the U.S. economy. Therefore, all eyes of the government agencies are on every health care organization. To be successful, marketing firms must follow government

BRINGING IT ALTOGETHER regulations, stay alert to changes on these laws, and be accountable to the public by providing honest and accurate claims. Now more than ever, with the new health reform law, health care organizations will have to more transparent in regards with their prices. As long as health care

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firms practice honesty and accuracy in all their communications, they are guaranteed to have an indisputable reputation. Also, to avoid violating healthcare marketing ethics, the firm must be very careful when developing their message. Marketing companies must make sure that they are not recommending a product or service just for the sake of their financial benefit. They must prove the benefits for the targeted audience. Additionally, they have to be very careful when marketing services. The intangibility of services makes its marketing very delicate. Because services are intangible, consumer interactions with the processes and the individuals who deliver the service are often the bases by which consumers evaluate the actual service itself (Berkowitz, 2011). Showing consumer interactions usually appeals to the emotional side of the audience. The use of emotional appeals in health care advertisements has some troubling ethical dilemmas. In fact, the Alliance for Health Care Strategy and Marketing specifically noted that advertising should not use emotional appeals to take advantage of individuals who are vulnerable due to health care needs (Berkowitz, 2011).

BRINGING IT ALTOGETHER References Berkowitz, E. (2011). Essentials of Health Care Marketing. Third Edition. Jones & Bartlett Learning. Boyer, C. (2011). Social Media For Healthcare Makes Sense. Frontiers of Health Services Management. Retrieved from http://web.ebscohost.com/ehost/pdfviewer/pdfviewer? sid=efe78eab-c2cf-42bb-8c8f-f42597978cfd%40sessionmgr112&vid=2&hid=128 Fears, R. (n.d.). What is product advertising? Chron. Retrieved from http://smallbusiness.chron.com/product-advertising-43332.html France, K. & Grover, R. (1992). What is The Health Care Product? Journal of Health Care Marketing. Retrieved from http://web.ebscohost.com/ehost/detail?sid=dc2153d8-34284a4b-9bea-

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eb2e388a0c20%40sessionmgr13&vid=1&hid=21&bdata=JnNpdGU9ZWhvc3QtbGl2ZS ZzY29wZT1zaXRl#db=bth&AN=9602160716 Johnson, J. (n.d.). Product Line Management in Healthcare. Pittsburgh: As seen in Hospital News. Retrieved from http://www.corazoninc.com/downloads/articles/productlinemgt.pdf Kim, S., Haley, E. & Koo, G. (2011). Comparison of the Paths from Consumer Involvement Types To Ad Responses Between Corporate Advertising and Product Advertising. The Journal of Advertising. Retrieved from http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=fc656278-3642-4c46-bb3da72608b1e594%40sessionmgr111&vid=2&hid=128 Krentz, S. & Clay, S. (2008). Strategic Pricing: Walking the Tightrope. Healthcare Strategy Alert. Retrieved from http://krentzconsulting.net/media//DIR_6801/Strategic_Pricing_Tightrope.pdf

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NJ For Health Care. (2009). Making Health Care Affordable for New Jersey: Real Families, Real Health Care Stories. Retrieved from http://njforhealthcare.org/affordabilityreport200912.pdf NJ For Health Care. (n.d.). Payment Reform: 12 Patient Priorities. Retrieved from http://njforhealthcare.org/nj.html#aco Penn, S. (n.d.). What Are The Benefits of Sales Advertising and Product Planning? Chron. Retrieved from http://smallbusiness.chron.com/benefits-sales-advertising-productplanning-22019.html TSchetter & Associates. (2011). Top 10 Strategies for Successful Healthcare Marketing in 2011. Retrieved from http://www.tschetterandassociates.com/top-10-strategies-for-successfulhealthcare-marketing-in-2011/