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After reading this chapter, you should be able to do the following:
De�ine 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 and strategiesthroughout the planning levels.Name the three basic marketing strategies that can be used under the product/market approach to marketing strategydevelopment, identify two other approaches to marketing strategy development, and list four factors in�luencing the strategyselection.Discuss how the four strategic elements of the marketing mix become marketing tactics for implementing the selectedmarketing 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 issues facinghealthcare providers.
IntroductionThis chapter provides an overview of marketing, the relationship between marketing planning and overall organizational planning, basic marketing strategies,and approaches to organizing marketing activities in an HCO. This chapter also includes a discussion of the ethical decision-making process in marketing andlays the groundwork for later chapters on the marketing process and its role in HCOs.
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7.1WhatIsMarketing?The marketing of HCOs is a relatively recent phenomenon. It was as late as 1977 that the American Hospital Association held its �irst convocation onmarketing. Much of the early marketing efforts by hospitals were aimed toward the recruitment and retention of physicians. Many physicians remainedskeptical of marketing to patients and believed it was unprofessional. However, as healthcare has become more complex and expensive, HCOs and individualhealthcare providers have seen the need to better communicate to patients the value of their services (MacStravic, 1994).
Over the last two decades, the discussion of marketing in HCOs has evolved from whether it was even appropriate for HCOs to use marketing to give theorganization a competitive advantage and "tell its story." But what is meant by the term marketing?
Various de�initions of marketing have evolved over the years, but one that appears to be fairly complete is as follows: Marketingdirectsthoseactivitiesthatinvolvethecreationanddistributionofproductsandservicestoidenti�iedmarketsegments. Several key words in this de�inition need further explanation. First,what is meant by the words marketingdirects. This is a managerialperspective rather than a residualperspective, which is concerned only with what has tobe done to get goods and services to customers. A managerial perspective is one that is proactive, customer oriented, and aligned with the �irm's overallstrategy. In contrast, a residual perspective is one that is reactive and only deals with needs as they arise. Thus, marketing is not just a group of activities but,more speci�ically, activities that are controlled in their execution to attain identi�iable objectives. Second, marketing involves the performance of speci�icactivities 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 creationanddistributionofgoodsandservices. Although the service is actually created by the operating function,marketing personnel are very much concerned not only about the way goods are created and services are performed but also the way customers utilize goodsand services. Marketing needs to have a vital role in the creation as well as the distribution of goods and services. In fact, a well-conceived service or goodmakes the rest of the marketing tasks easier to perform.
Finally, marketing's concernwithcustomers, and meeting a need in the marketplace, is patient centered in an HCO. However, marketing is particularlyconcerned with customers preselected by management as the marketsegment(s) on which the organization will concentrate. Thus, speci�ic customers withtheir speci�ic needs become the focal point of marketing activities.
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7.2TheMarketingConceptThe marketingconcept is a business orientation that focuses on satisfying customers' needs at acceptable levels of revenue and costs. In for-pro�itorganizations, acceptable levels of revenue and costs are de�ined in terms of a target return on investment, while in not-for-pro�it organizations the focus isachieving 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 the market. However,managers with marketing titles may apply other business philosophies that, in reality, do not re�lect authentic marketing thought. Table 7.1 shows threedifferent business orientations that have been used as the operating philosophies behind management decision-making (Stevens, Loudon, Wrenn, & Mans�ield,2006). The term dominant in the table identi�ies the core objective, which gives the orientation its name. Present means that the orientation includes thatobjective, but does not use it as the centrally controlling goal in orienting the manager's thoughts about his or her company, its services, or its customers. Notpertinent means that objective has no relevance, pertinence, or connection with the orientation described. This table makes it clear that the service and sellingorientations 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 market opportunities,marketplace input regarding the organization's claim of a competitive advantage, and the integration of effort across all aspects of the organization to deliverquality and customer satisfaction.
Desire to capitalize on synergies andef�iciencies in operating processes
Dominant Present Present
Attention to designing acceptable levels ofquality services
Not Pertinent Present Present
Dedicated resources to stimulating interestand desire for increasing revenues
Not Pertinent Dominant Present
Focus on identifying and satisfying needsand wants of customers
Not Pertinent Not Pertinent Dominant
Considering the short- and long-term effectsof actions on customers and on society
Not Pertinent Not Pertinent Dominant
HCOs have been concerned with the delivery of a satisfactory level of patient services for decades. Most services, including healthcare services, are intangible.That is, they cannot be touched or held before being purchased. Additionally, the delivery of a service is dependent on the ability of the service provider. Asservice 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, projecting competence, andemploying empathetic personnel (Stevens et al., 2006). However, these strategies have been shown to be inadequate, as healthcare has become moreexpensive 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 is de�ined as thehealth outcomes achieved that matter to patients relative to the cost of achieving those outcomes" (Porter & Lee, 2013, p. 52). The implied message for HCOs isnot just to put together procedures to help patients navigate the system, but to fundamentally change the system.
The marketing orientation is particularly well suited to dealing with the internal and external environmental forces currently facing healthcare managers.Marketing includes all of the positive contributions of the service and selling philosophies, but it adds concern for the long-term effects of the organization'sactions and services on its customers, as well as the desire to consider the effects of the organization's actions on society at large. Putting the marketing-orientation philosophy into practice requires a planning procedure that transforms the external consumer orientation into marketing activities.
Thus, the marketing orientation holds that the only social and economic justi�ication for the existence of a business enterprise is this: the satisfaction ofcustomer needs, either at a pro�it or at acceptable levels of revenues and costs, and with due diligence for the long-run welfare of the customer and society. A�irm's existence is justi�ied socially in meeting customer needs—directly through the provision of goods and services, and indirectly through being a goodcitizen of its operating environment. In healthcare, meeting customer needs means being a patient-centered organization. Thus, everyone in an HCO isconcerned with patient care, including nonmedical employees. In the U.S. economy, the marketing-orientation philosophy is exactly why organizations weregiven the right by society to own and use resources to produce goods and services. A �irm �inds economic justi�ication by making a pro�it or generatingenough revenue to cover costs. Pro�it or breakeven for nonpro�it organizations rewards the stakeholders' investment in the organization and supports thecontinued availability of funds. Customer needs become the focus of �irms 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 need for economicjusti�ication has created tension for many healthcare providers. However, providers cannot just continue to increase fee-for-service. Many physicians losemoney on Medicare and Medicaid patients but have been able to make up the difference from the uninsured and commercial insurance patients. With morepatients now covered by governmental programs and with commercial insurers' and employers' 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 the environment to detectchanges in consumer needs, or other related variables, that warrant the altering of their marketing activities. Revenues, in effect, become votes to helpmanagement judge the effectiveness of its efforts in meeting market needs compared to those of competitors; and pro�its or breakeven serve to judge theef�iciency of management in this attempt. Putting the marketing-orientation philosophy into practice requires effective management of the marketing process.
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7.3TheOrganizationalPlanningandMarketingPlanningConnectionThe strategic planning process described in the �irst six chapters of this textbook has concentrated on the organization's overall strategic plan. Thedevelopment of that overarching strategic plan precedes the development of the strategicmarketingplan, as well as the annual or operatingmarketingplan. The strategic marketing plan contains the overall approaches to marketing within an HCO, and the annual or operating marketing plan spells out thedetails of what is to be done on a day-to-day, week-to-week, and month-to-month basis to translate the major strategies into speci�ic actions, responsibilities,and time schedules.
Both the strategicmarketing and the annual operational marketing plans must be consistent with the organization's overall strategic plan. Althoughmarketing plans are more detailed and cover only the marketing functions, the marketing planning process involves steps similar to the strategic planningprocess at the organization level. These steps usually involve including a detailed analysis of the company's situation, setting speci�ic objectives, developingstrategy, implementing strategy, and evaluating and controlling strategy. The details of the marketing 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 in Figure 7.1 (Loudon,Stevens, & Wrenn, 2005). Note the connection of both objectives and strategies from the organization's strategic plan to the organization's strategic marketingplan and, �inally, its annual or operating marketing plan. This approach to planning ensures that consistency is maintained between what is done on a weeklyor monthly basis and the organization's overall marketingstrategy. The strategic marketing plan is devised from and in turn supports the organization'sstrategic plan.
Figure 7.2 provides an industry-speci�ic example of how objectives and strategy should be consistent throughout the planning levels (Stevens et al., 2006).Pharmaceutical �irm Eli Lilly and Company chose the service leadership value discipline to provide strategic direction at the organization level. Servant leadersare those who want to lead because they want to serve �irst. The servant leader ensures that other people's highest priority needs are being served(Greenleaf, 2002). The organization-level objective is general in nature and consistent with the value discipline. At the strategicmarketinglevel, thisorganization's strategic direction is focused in one instance on objectives and strategies for its nonnarcotic analgesic line. The leading product in the line,Darvon, will be going off-patent during the year. The objective of maintaining a high market share in this market would be impossible, given the in�lux of newgeneric competitors for Darvon, unless new patent-protected products can be introduced and physician prescribing habits changed so that an increasingnumber of prescriptions will be written for the new drug. This new product-entry strategy is an embodiment of the service leadership organization valuediscipline.
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At the operatinglevel, one of several objectives deals with tactical implementation of the product line extension and aggressive pricing strategy. The objectivehere is to get the word to the physicians that a new and improved product, Darvocet, is now available with advantages over Darvon, so they should changetheir prescribing to write for the new drug. Simultaneously, tactics include making detail calls to pharmacists to let them know that Darvon is now discounted30%. If successful, this sale should cause the pharmacists to stock up on Darvon, so that prescriptions written for it will be �illed with the Lilly product and notsome generic equivalent. While the pharmacists reduce their Darvon inventory, the objective effects a change: physicians prescribing to Darvocet. Hence, thereis a consistency between objectives and strategies among the three levels, and within any particular level. It should also be noted that these objectives andstrategies are only a sample of what would be set for sales volume, growth, share, percentage of prescriptions written for new versus old products, and soforth. Finally, it is important that objectives set in functional areas other than marketing (�inance, R&D, and so forth) support the overall organization strategyto pursue service leadership.
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7.4MarketingStrategyLike management itself, marketing strategy development is both a science and an art, a product of both logic and creativity. The scienti�ic aspect deals withassembling and allocating the resources necessary to achieve a company's marketing objectives by emphasizing opportunities, costs, and time. The art ofstrategy is mainly concerned with the use of resources, including motivation of the workforce, sensitivity to the environment, and ability to readjust to thecounterstrategies of competitors.
Marketing strategies provide direction for marketing efforts. Alternate strategies are courses of action managers evaluate before committing to the speci�iccourse of action outlined in the marketing plan. Thus, strategy links objectives and results. Strategy is the answer to one of the basic questions posed in amarketing plan: How are we going to get there?
The development of a marketing strategy usually encompasses a two-step process: (a) identi�ication of the target market (discussed in detail in Chapter 8); and(b) creation of a marketingmix aimed at satisfying the needs of that target market (discussed in detail in Chapters 9–11). The marketing strategy used by acompany 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) theproduct/service to be offered to buyers; (b) the distribution of products to various outlets, referred to as place;(c) the promotion or communications toprospective customers, using various promotional techniques; and (d) the price charged for the product or service. The term marketingmix describes thesevarious elements. Therefore, marketing strategy development may be viewed as developing a marketing mix aimed at satisfying the needs of selected marketsegments and accomplishing speci�ic marketing objectives.
As Figure 7.3 shows, marketing-mix decisions are made with a particular market segment in mind. Marketing effort is targeted at the selected segmentsthrough blending the elements of the marketing mix into a cohesive strategy aimed at satisfying those speci�ic segments. An organization targeting severalsegments 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 theoverall way a �irm approaches the markets it is attempting to serve. Second, there is one �irm's strategy in relation to competitive strategies. The thirdapproach deals with the position of a product or �irm in relation to competitive offerings.
Product/Market-OrientedStrategiesThe product/market approach to strategy development is illustrated in Table 7.2. Three approaches can be used under this strategy development concept.Undifferentiatedstrategy basically offers one product aimed at all market segments. Even if differences in market segments are recognized, these differencesare not incorporated into the �irm's marketing activities. Ford Motor Company used such a strategy in its early days when its only model was the Model T. AsHenry Ford might have said, "You can have any color you want, as long as it's black."
An undifferentiated strategy only works when there is little or no competition. New competitors that enter the market, using a differentiated strategy or aconcentrated strategy, soon begin to erode the market share of an undifferentiated strategist. For example, a hospital with an undifferentiated strategyadvertises its image, rather than speci�ic services. The goal is to convince patients to use the hospital when they need care, even if it is just a one-time sale. Ashospitals have become savvier in their marketing efforts, they have begun to develop different service features, such as heart health, newborn care, andbehavioral health. These new marketing approaches are effective against the one-size-�its-all message that many hospitals initially adopted.
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Table7.2a:UndifferentiatedhospitalmarketingImage Image Image
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Table7.2b:Segmentation,ordifferentiated,hospitalmarketingNewborn care Cancer treatment Heart health
Sports medicine Digestive health Radiology
Neuroscience Rehabilitation Women's health
A �irm using a segmentation marketing strategy recognizes differences in the needs of each market segment and responds by developing a unique marketingmix for each segment pursued. Of course, not all segments have to be pursued, but at least two are required to use the term segmentationstrategy. When acompany develops mixes aimed at different segments, it can also be referred to as a market segmentation strategy. A �irm using this approach usually offers awide variety of products to meet the needs of customers in many segments.
Focusedmarketingstrategies pinpoint one segment of the market and concentrate all their efforts on that one segment. A �inancial �irm specializing in mergersand acquisitions would use this strategy as would �irms specializing in �inancing new ventures. Firms using this strategy option develop a distinctivecompetence for doing one thing well. Focused marketing strategies are based on �inding growth segments with unique requirements the �irm can meet. Thevision of Cancer Treatment Centers of America to be "the premier center for healing and hope" for cancer patients is an example of a focused marketingstrategy 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 �irm attempts to serve.Firms following a focusedstrategy target their efforts on one segment only. The factors that in�luence the choice of a particular marketing strategy will bediscussed in another section of this chapter.
Baylor Medical Center at McKinney in McKinney, Texas is following a segmentation marketing strategy. This full-service hospital offers advanced treatment formany medical specialties, including cancer care, digestive diseases, emergency care, heart and vascular, imaging and radiology, neuroscience, orthopedics,rehabilitation and physical therapy, transplant services, and women's health (Baylor Health Care System, 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'sResearch Hospital in Memphis, Tennessee treats children with cancer and other catastrophic diseases and seeks to advance cures for pediatric catastrophicdiseases through research (St. Jude Children's Research Hospital, 2013). Brentwood Hospital in Shreveport, Louisiana is a psychiatric hospital that providestreatment for chemical dependency and other behavioral health disorders (Brentwood Hospital, 2013). A psychologist who accepts only cash-paying clients isalso adopting a focused marketing strategy. By refusing to take insurance bene�its, the psychologist ensures that no record is kept by insurance companies tolabel the client or patient as mentally unstable.
CompetitiveMarketingStrategiesAnother approach to strategy development employs competitive marketing strategies currently used in the market. Table 7.3 classi�ies the strategies that maybe used by a company based on its market position. Market position is de�ined in terms of one �irm's share of the total market and its relation to competitorsin the industry. Table 7.3 identi�ies four market positions and some possible strategies for each (Kotler, 1980).
Marketleader Firm acknowledged as the leader, with thelargest market share of the relevant market.
1. Expand total market: Develop new uses, new users, or moreusage by existing customers.
2. Protect market share: Use innovative marketing tactics orretaliate against challengers.
Marketchallenger Second, third, or fourth �irm in market share.May be quite large, though smaller in arelevant market than the market leader.
1. Direct attack strategy: Meet leader head-on with aggressivepromotion and/or prices.
2. Backdoor strategy: Go around leader options throughinnovative strategy.
3. Guppy strategy: Increase market share by going after smaller�irms.
Marketfollower A �irm that chooses not to challenge theleader and is content with marketconditions.
1. Copy leader: Match as closely as possible leader's strategywithout directly challenging.
2. Coping strategy: Adjust to strategies of both leader andchallenger without direct confrontation.
Marketnicher A smaller �irm that operates in a geographicor client niche without directly clashing withcompetitors. Specialization is the key to itssuccess.
1. Geographic niche: Specialize by offering quick response tocustomers.
2. Product niche: Offer products that are unique to thecustomers served.
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Marketleaders are the recognized leaders that have the largest market share of the relevant market. Although their position of dominance may be widelyrecognized, their success may be constantly challenged by other �irms. The strategies that are used by market leaders focus on expanding their own control ofthe market while warding off or countering the activities of aggressive competitors. The market leader's strategy becomes the pivot around which othercompetitors adjust their own strategies.
Marketchallengers are the �irms that are constantly trying to increase their market share in head-on competition with the leader, attacking the leader at itsweak points or merging with smaller competitors. Market challengers are usually large �irms in terms of revenues and pro�its, and they may be even morepro�itable than the leader. The challenger usually tries to identify weaknesses in the market leader's strategy and either confronts or goes around the leader,or concentrates its efforts on taking over smaller �irms. Pepsi's challenge of Coke's leadership position clearly demonstrates how the challenger's strategy canaffect the strategies of other competitors. The New Coke, which was closer in taste to that of Pepsi than Classic Coke, was clearly a competitive strategyresponse.
Market followers and nichers adjust to the strategies of the market leader and challenger without making challenges. Nichers usually try to specializegeographically or by products offered, and basically avoid direct confrontation with other competitors. The followers simply copy the leader's strategy oradjust their strategy to cope with both the leader's and the challengers' strategies, without calling attention to their own activities. For example, The CooperInstitute in Dallas, Texas targets well-to-do executives and other high-income individuals (for example, former President George W. Bush) for preventive care.The institute provides physicals, colonoscopy services, dermatology screening, and nutrition and exercise counseling. The Cooper Institute is not contracted asa provider with any insurance company and does not accept Medicare (The Cooper Institute, 2013). Thus, competitive strategies must be considered indeveloping the marketing strategy for a �irm 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 pro�itability.
PositioningStrategiesPositioning strategies usually evolve when there are several well-de�ined competitors with fairly unambiguous images. This situation permits placement of a�irm or a new product relative to existing �irms or products or, in some instances, the repositioning of a �irm or product. The �irm or product is positioned inthe market based on customers' needs and the �irm's own distinctive competencies, that is, what the �irm does well.
For �irms that have gone through the strategic planning process, this positioning approach is an extension of the work done in answering such questions asWhatkindof�irmarewe? and Whatkindof�irmdowewanttobecome? Such a strategy encourages the �irm to focus on what it does best relative to othercompeting �irms and clearly de�ined client markets.
The positioning of healthcare will increase in importance with the implementation of the Affordable Care Act. HCOs will need to position themselves in terms ofservice level and integration of care. For example, the positioning strategy of Northwest Hospital in Randallstown, Maryland is to highlight the variety ofoutpatient services it offers. Patients are able to receive many tests and medical procedures without being admitted to the hospital. The positioning map shownin 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 recipients participate in activities andtheir attendance at the day center allows their caregivers to run errands or tend to other family needs. These centers vary in price and, accordingly, theactivities offered to differentiate their services.
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At least four factors in�luence the choice of the strategy selected by a �irm: (a) corporate strategy and resources, (b) the �irm's distinctive competencies, (c) thestage of the product's market and the stage of the product's life cycle, and (d) competitive strategies. There is no single strategy that will always provesuccessful. Instead, the strategy chosen must be the one that is best for the �irm, given the nature of these four factors. A �irm's resources, for example, maylimit the company to a relatively low position in the market, and a niche strategy may be the only feasible alternative to follow. The �irm may even be aninnovator in terms of product ideas but not have the �inancial, 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 diversi�ication through funds generated by aspeci�ic product or product line, then the strategy used for the product must be one that generates maximum cash �low. If the �irm wants to harvest a product,then the marketing strategy must re�lect the need to generate short-term cash and eventual elimination through reduced research, promotion, and so forth.Also, the organization's value discipline provides a context within which the strategy should fall. For example, it would be inconsistent for a �irm whosebusiness is grounded in customer intimacy to pursue a strategy that re�lects a desire to be a low-cost, one-size-�its-all producer.
The distinctive competencies of the company have a direct bearing on the strategy selected. Distinctive skills and experience in marketing, production, or�inance in�luence strategy choice. These distinctive competencies are the basis of targeting marketing efforts and developing a competitive advantage.
Two additional factors that in�luence strategy selection are the product's life cycle stage and competitive strategies. The in�luence of competitive marketingstrategies was discussed earlier in this chapter (see Table 7.3). The �irm's or speci�ic product's stage in its life cycle also distinctly in�luences strategy. Forexample, a �irm whose market share has eroded over time because it failed to alter its marketing strategy may need to take an aggressive, turnaround strategystance. Repositioning the �irm by introducing new products or going after new markets would be pivotal for its turnaround strategy. Chapter 10 discusses theproductlifecycle in more detail.
As the product and its market go through cyclical stages, many alterations in the �irm's marketing strategy may become necessary to adjust to the growth ordecline in the size of the market and the entrance or departure of competitors. The evolving stages of the market require commensurate adjustments tomarketing strategy. Note the many strategy-element changes that may need to be made by a �irm to remain competitive in the market. The selected marketingstrategy must be given suf�icient time to be implemented and affect consumers, but an obviously ineffective strategy should be changed. Still, resistance tochange, in many companies, is a common phenomenon.
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7.5TransitionfromStrategytoTacticsOnce the marketing strategy is selected, speci�ic marketing activities—usually called marketingtactics—mustbecreatedtoimplementthemarketingstrategy.Turningthestrategicelements of the marketing mix into tactics is not an easy task and requires detailed knowledge 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/ServiceMoving from a product-positioning statement to a tangible product that delivers customer satisfaction in accordance with the positioning strategy and at apro�it to the company is not easily accomplished. Positioning involves determining how the �irm's product or service is perceived by the customer in relation tothe �irm's competition. Such a strategy encourages the HCO to focus on what it does best relative to competing HCOs and clearly de�ined 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 the product's design before the sale, but also the entire product use or consumption experiencein order to make the product as user-friendly as possible. Follow-up services must also be considered. For example, at Cleveland Clinic, it was found thatpatients who were ordered to have no food or drink before a procedure would go hungry all day, if the procedure was delayed, because staff failed to followup with the attending physician (Merlino & Raman, 2013).
Decisions about product quality, the provision of services, market-entry timing, scheduling, follow-up services, and many other issues must be made. All ofthese decisions should be in�luenced by how they affect the delivery of customer value and the correct tactical implementation of the selected marketingstrategy.
An HCO should never lose sight of its product strategy, which indicates where its competitive advantage lies when it engages in the myriad acts required of theexchange process with new, existing, or potential customers.
PlaceIn terms of distribution tactics, value is de�ined not simply by physical access to the service but also by quality of performance, including procedural follow-upsand medication. All of these functions play a role in implementing the positioning strategy and must be seen as parts of a whole strategy instead ofautonomous tasks. Likewise, accessibility—the type and number of locations—plays a major role in positioning the product in the minds of target-marketconsumers.
PromotionMany 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 of communication messages to target-audience members. These messages must be formulated to be the most effective means possible of presenting the essence of the positioning strategy topotential customers. Many examples exist of companies with a sound positioning strategy, which self-destructed at the implementation stage because thechosen advertising approach was totally unsuited to conveying the image they wished to project. Promotions, materials, special-event marketing, displays,collateral material, and all other forms of promotion should likewise be carefully designed to support the tactical implementation of the positioning strategy.Possible competitive reactions to promotional efforts should also be considered when choosing tactics. Coherence with marketing strategy is as important withstaff interactions as it is with the other promotional elements, training, and support materials; additionally, reward systems must be considered with theoverall strategy. Some special events, such as opening a new location, may require the services of event planners to ensure that all elements are coordinated. Ifthere is going to be a groundbreaking ceremony with the traditional "shovel picture," then someone has to bring a shovel.
Price/FeesImplementation issues with respect to pricing may pertain to fee mandates and third-party reimbursements and deductibles. Policies established in theseareas are, in essence, the implementation of a pricing plan that acknowledges the necessity of adjustments to price to �it market and cost conditions. Otherprice 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 by HCOs:
Collectingdeductiblesupfrontforsomeservices. This tactic may seem simple, but it is complicated by situations where patients have more than one formof insurance and the deductibles are large. It may be necessary to offer payment plans in some cases. The most important aspect of this priceadjustment is communicating to patients about the policy or the change in policy.Unbundlingofgoodsandservices.The fees for the service are maintained, but services that were previously included, such as X-rays, are now pricedseparately.Reducingdiscounts.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 determine how they willreact to a drop in price by major competitors. Several options, which include the following, are available:
Maintainprice.The market leader may decide to maintain its price without losing customers it wishes to retain. This strategy can be risky in somecircumstances, but it avoids giving the competitor con�idence that price changes will not be challenged.Raiseperceivedquality.Another option is to maintain price but improve the product's perceived value by strengthening the product, services, orcommunication messages.Reduceprice. A market leader might decide to lower its price in response to the competitor. This tactic is commonly motivated by a belief that buyersprimarily make their purchase decisions on the basis of price, and that a failure to lower a price will result in an unacceptable decline in market share.However, quality should be maintained, even if the price is lowered.Increasepriceandimprovequality.By establishing an elite image as the "best" in the market, a company believes it can better capture the share of themarket that comprises customers who are motivated by that image. Some �irms pursuing this strategy simultaneously launch a less expensive "�ightingbrand," 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 be clearly communicatedto patients to avoid misunderstanding.
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7.6OrganizationalDesignsforMarketingOrganizing marketing refers to the process of developing a structure to accommodate and assign responsibility for managing marketing activities. Organizingmay be de�ined 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 each other's way.
Organization design should produce a structure of task-and-authority relationships that enhance the �irm's ability to accomplish its stated marketingobjectives. The end result of the process is usually represented by an organizational chart that shows individuals' positions and their formal relationships ofauthority. When detailed job descriptions, which specify duties and responsibilities, are prepared for each position, the foundations for the managerial systemhave been laid. If current job descriptions do not list the development of strategic and annual marketing plans, the job description should be rewritten to statethe individual's responsibility toward that task. This, of course, does not mean that each manager would individually carry out all the activities necessary todevelop a plan, only that he or she is responsible 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 the organization. The nature of a�irm's organization greatly in�luences not only who will be responsible for marketing planning but also how much assistance the planner can expect fromothers in the organization.
Two basic types of organizational structures are (a) the lineorganization and (b) the lineandstafforganization. The distinction between these twoorganizations is the separation of planning from operating tasks in the line-and-staff approach. The line organization is the simplest organizational structureand will be described �irst.
In a line organization, authority �lows directly from the chief executive to the �irst subordinate, then to the second, and so forth. Few, if any, specialists arepresent in the line organization, and planning and operating activities are usually performed by the same individual. The chief executive might do all theplanning for all areas and maintain primary authority and responsibility for all areas. This type of organizational 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 sales supervisor anddistribution supervisor carry out the manager's plans through supervision of other employees. Although this type of organization may be successful for smallorganizations, its usefulness in larger, more complex situations is limited. Effectiveness of the line organization depends on division of effort, and this is exactlywhat staff positions provide. Staff personnel are added to help the line personnel perform the various functions carried on in an organization, especiallyplanning. A marketing manager in a line organization must not only develop plans but also carry them out. This means less time is available for planningbecause the manager is involved in the organization's operations. Good planning procedures can still be used under these conditions, especially if there areonly a few services and customers. However, the analysis section of the plan usually will not be as thorough simply because the manager has less time andfewer resources.
The line and staff organization, depicted in Figure 7.6, illustrates the addition of staff specialists to the organization. This approach permits separation ofplanning and operating activities, which in turn means more time and resources available for marketing planning.
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The marketing planning effort that results from this organizational design should be more thorough. Figure 7.6 shows the addition of staff positions at boththe headquarters and regional level. This makes staff specialists available to coordinate overall company efforts in their areas of specialization at theheadquarters level, and also takes into consideration regional differences that warrant additional specialization by geographical area. Of course, there aremany other ways for staff personnel to be specialized—by services, customer type, channel of distribution, and so forth. A wide variety of potentialorganizational structures can be adapted to a speci�ic organization's needs.
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7.7TheEthicalOrientationofMarketingDecisionsIn recent years, leaders have focused attention on creating an organizational environment with a high concern for ethics. Ethics are principles of right or goodconduct, or a body of such principles. Ethical issues in marketing can be categorized by type into one of two areas: issues pertaining to individual marketingdecisions and those related to collective marketing decisions. Ethical issues arising from individual marketing decisions are those that lead to unethicalpractices, although they may help the company. Ethical issues arising from collective marketing decisions result in no ethical infraction in and of themselves,but they do contribute to problems in combination with similar decisions over time or by other marketers. The adverse impact of packaging on theenvironment might be an example of such a collective marketing decision.
The American Marketing Association has developed ethical standards of behavior for its members through the use of a code of ethics, a portion of whichfollows. Not only are general areas covered, such as honesty and fairness, but speci�ic attention is devoted to the marketing mix variables.
Numerous ethical issues have surfaced in recent years that apply speci�ically to healthcare. Some, such as patient referrals, have been addressed throughlegislation. For example, physicians may not refer a patient to entities in which they or any family member have a �inancial interest.
Another issue is patient privacy. The Health Insurance Portability and Accountability Act (U.S. Department of Health & Human Services, 2014) addresses thisissue. Physicians and other care providers, as well as nonmedical personnel, are prohibited by this act from unlawfully disclosing patient information.
Other, more complex ethical issues also face healthcare providers. Examples include determining how long to maintain life-support systems for brain-deadpatients, determining how long to maintain a life-support system for a brain-dead patient who is pregnant with a viable fetus, deciding who should make end-of-life decisions for patients, and granting hospital privileges to physicians who perform abortions.
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 con�lict of interest without prior notice to all parties involved; and3. Establishing equitable fee schedules including the payment or receipt of usual, cus-tomary and/or legal compensation for
Participants in the marketing exchange process should be able to expect that
1. Products and services offered are safe and �it for their intended uses;2. Communications about offered services and services are not deceptive;3. All parties intend to discharge their obligations, �inancial and otherwise, in good faith; and4. 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;identi�ication of any service component substitution that might materially change the service or impact on the buyer's purchasedecision;identi�ication 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 in�luence over the reseller's choice to handle a service.
In the area of pricing:
not engaging in price �ixing;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.
Marketers should be aware of how their behavior may in�luence or impact the behavior of others in organizational relationships. Theyshould not demand, encourage or apply coercion to obtain unethical behavior in their relationships with others, such as employees,suppliers, or customers.
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The growth and impact of the Internet on marketing activities has prompted the American Marketing Association's development of a code of ethics dealingspeci�ically with the use of the Internet as a marketing tool. As shown in the following statements, the code focuses on privacy, ownership, and access toinfrastructure. These are the key areas of concern for ethical standards of conducting marketing or marketing research on the Internet.
Internet marketers must assess the risks and take responsibility for the consequences of their activities. Internet marketers' professionalconduct 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, if conducted 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, when appropriate.Organizational commitment to ethical Internet practices communicated to employees, customers and relevant stakeholders.
Information collected from customers should be con�idential and used only for expressed purposes. All data, especially con�identialcustomer data, should be safeguarded against unauthorized access. The expressed wishes of others should be respected with regard tothe receipt of unsolicited e-mail messages.
Information obtained from the Internet sources should be properly authorized and documented. Information ownership should besafeguarded and respected. Marketers should respect the integrity and ownership of computer and network systems.
Marketers should treat access to accounts, passwords, and other information as con�idential, and only examine or disclose content whenauthorized by a responsible party. The integrity of others' information systems should be respected with regard to placement ofinformation, advertising or messages.
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ChapterSummaryThis chapter introduced the concept of marketing and discussed how HCOs can design effective marketing programs. Additionally, basic marketing strategieswere described, along with the organizational structures necessary to put these strategies in place. Lastly, ethical decision-making, as it relates to healthcare,was discussed.
KeyPoints1. It is important to understand what marketing is. While there are many de�initions of marketing (including that of the AmericanMarketing
Association(https://www.ama.org/AboutAMA/Pages/De�inition-of-Marketing.aspx)), we will use this de�inition: Marketing directs those activities thatinvolve the creation and distribution of products and services to identi�ied market segments. Key to an understanding of this de�inition are thefollowing statements:
Marketing is a managerial function directed by executives.Marketing involves speci�ic 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 inmind is known as the marketingconcept. For-pro�it and not-for-pro�it institutions similarly need to satisfy customer needs and wants. The for-pro�itinstitution, however, needs to generate enough pro�it to attract investors, while the not-for-pro�it institution requires a positive cash �low to remainviable.
3. An HCO can follow three basic orientations in its organizational function. The �irst of these is a service orientation, where the dominant desire is tocapitalize on ef�iciency in the operating process. While this approach helps control costs, it does not address quality, revenues, customer needs andwants, or the �irm's bene�it to society. The second basic orientation that an HCO can follow in its organizational function is a selling orientation. Here, the dominant factor is to increaserevenues by stimulating interest in the product or service. Secondary factors include controlling costs and providing quality. However, sales of existingproducts or services are more important than actually addressing customer needs with speci�ically designed products and services. The most preferable of these three orientations is the marketing orientation. With this orientation in practice at an HCO, marketing costs arecontrolled, quality is addressed, and increasing revenues is important. The dominant factors, however, are identifying and addressing customer needswhile considering the effect of the HCO's product and services on both customers and society at large.
4. HCO executives �irst develop the �irm's overall strategic plan. Once this plan is in place, the strategic marketing plan is developed so that it conforms tothe strategic plan. Following the strategic marketing plan is the annual operational marketing plan. Annual operational marketing plans spell out thedetails of what is to be done, when, and by whom. By deciding on the overall strategic plan �irst, the HCO can ensure that the direction of the marketingefforts indicated in the strategic marketing plan and the activities directed by the annual operational marketing plan are consistent with the direction ofthe overall strategic plan.
5. Marketing strategies provide the direction to marketing efforts. Three basic marketing strategies are in use: undifferentiated strategy, segmentationstrategy, and focused marketing strategy. Undifferentiated strategy offers one or a few products or services aimed at all market segments. This type ofstrategy 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 services developed for eachsegment pursued. While not all segments will be pursued, at least two are required to be considered a segmentation strategy. Focused marketing strategies pinpoint one segment of the market and focus all efforts on that segment. An example is a hospital that specializes inemergency and acute care.
6. Marketing tactics are the activities required to implement the chosen strategy. Turning the strategic elements of the marketing mix into tactics is not aneasy task and requires detailed knowledge of each of the mix elements. Speci�ic product, place, promotion, and price decisions must be aligned with theoverall strategy and planned in great detail to avoid failures. Some special events, such as opening a new location, may require the services of eventplanners to ensure that all elements are coordinated.
7. Organizing marketing refers to the process of developing a structure to accommodate and assign responsibilities for managing marketing activities.Two basic organizational structures exist: (a) the line organization, and (b) the line and staff organization.
a. In a line organization, authority �lows from the chief executive to the �irst subordinate, then to the second and so forth. In a line organization, theperson responsible for planning marketing is also responsible for marketing operations.
b. A line and staff organization adds staff specialists to the organization. In this type of structure, planning is done by line employees and carriedout by staff specialists.
8. Ethics are principles of right or good conduct. In marketing, ethics can be broadly categorized into two areas: ethical issues connected to individualmarketing decisions and ethical issues pertaining to collective marketing decisions. Individual marketing decisions are those that—though they canbene�it the HCO—may lead to unethical practices. Collective marketing decisions do not result in an unethical act but may contribute to problems incombination with similar decisions by other HCOs. For example, bionic body parts are now available that replicate the part of the body they replace, aninvaluable aid to people who have been disabled through injury. However, does this present a challenge to ethical limits? Can it be right to replicate anentire human body?
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Understanding the needs andt f t t k t
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Understanding the needs and wants of target markets.
In HCOs, the service is actually created by the operating function, but marketers are involved to make sure the product or service meets patient needs.
Principles of right or good conduct, or a body of such principles.
A marketing strategy that concentrates on a marketing segment and competes with rivals based on a lower price or some other form of differentiation.
A form of organization that adds staff specialists to the organizational structure. This approach permits separation of planning and operating activities.
A form of organization in which authority �lows directly from the chief executive to the �irst subordinate, then to the second, and so forth. Few, if any,specialists or support staff are present in the line organization, resulting in planning and operating activities being performed by the same person.
A perspective that is proactive, customer oriented, and aligned with the �irm's overall strategy.
An aggregation, in healthcare, for example, of patients with similar characteristics, such as diabetics, heart patients, children, geriatrics, and so forth.
Directs those activities that involve the creation and distribution of products and services to identi�ied market segments.
A business orientation that focuses on satisfying customers' needs at acceptable levels of revenue and costs.
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A combination of the four strategic marketing elements—product, place (distribution), promotion, and price—to satisfy the needs of the market selected in themarketing strategy process.
A strategic plan for selecting a particular target market and then satisfying customers in that market through the marketing mix.
Speci�ic actions taken to execute a marketing strategy.
A plan that spells out the details of what is to be done on a day-to-day, week-to-week, or month-to-month basis to translate an organization's major strategiesinto speci�ic actions, responsibilities, and time schedules.
The placement of a �irm or a new product/service, relative to existing �irms or products, in the mind of the consumer.
The progression of a product through various stages from introduction to decline. The stages of the product life cycle are introduction, growth, maturity, anddecline.
A perspective that is reactive and only deals with needs as they arise.
A strategy that aggregates consumer groups with similar characteristics and common interests.
The overall approach to marketing within an HCO.
A plan that contains the organization's overall approaches to marketing. The strategic marketing plan is always aligned with the HCO's overall strategic plan.
A strategy that concentrates on producing a single product that is marketed to all customers.
CriticalThinkingQuestions1. 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?