This weeks focus will be on providing information regarding marketable objectives found within the strategic plan for Trinity Health (https://www.tr

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7 Managing Marketing Activities

Thomas Northcut/Digital Vision/Thinkstock

Marketing is too important to be left to the marketing department. —David Packard

Learning Outcomes

After reading this chapter, you should be able to do the following:

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 strategies throughout the planning levels. Name the three basic marketing strategies that can be used under the product/market approach to marketing strategy development, identify two other approaches to marketing strategy development, and list four factors in�luencing the strategy selection. Discuss how the four strategic elements of the marketing mix become marketing tactics for implementing the selected marketing strategy. Identify two basic types of organizational structures for managing marketing activities. Explain how ethical issues in marketing relate to marketing decisions, and provide examples of ethical issues facing healthcare providers.

Introduction This 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 and lays the groundwork for later chapters on the marketing process and its role in HCOs.

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7.1 What Is Marketing? The marketing of HCOs is a relatively recent phenomenon. It was as late as 1977 that the American Hospital Association held its �irst convocation on marketing. Much of the early marketing efforts by hospitals were aimed toward the recruitment and retention of physicians. Many physicians remained skeptical of marketing to patients and believed it was unprofessional. However, as healthcare has become more complex and expensive, HCOs and individual healthcare 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 the organization 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: Marketing directs those activities that involve the creation and distribution of products and services to identi�ied market segments. Several key words in this de�inition need further explanation. First, what is meant by the words marketing directs. This is a managerial perspective rather than a residual perspective, which is concerned only with what has to be done to get goods and services to customers. A managerial perspective is one that is proactive, customer oriented, and aligned with the �irm's overall strategy. 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�ic activities or functions. These functions constitute the work or substance of what marketing is all about. To be involved in marketing means to be involved in the planning, execution, and control of these activities.

Third, marketing involves both the creation and distribution of goods and services. Although the service is actually created by 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 goods and 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 good makes the rest of the marketing tasks easier to perform.

Finally, marketing's concern with customers, and meeting a need in the marketplace, is patient centered in an HCO. However, marketing is particularly concerned with customers preselected by management as the market segment(s) on which the organization will concentrate. Thus, speci�ic customers with their speci�ic needs become the focal point of marketing activities.

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7.2 The Marketing Concept The marketing concept is a business orientation that focuses on satisfying customers' needs at acceptable levels of revenue and costs. In for-pro�it organizations, 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 is achieving a balance between revenues and costs.

Organizations that have a true marketing orientation focus on addressing the needs and wants of one or more targeted segments of 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 three different 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 that objective, 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. Not pertinent means that objective has no relevance, pertinence, or connection with the orientation described. This table makes it clear that the service and selling orientations are internally driven. Put simply, managers using these orientations determine what they want to dictate to the market. The last orientation— marketing—contains the elements of an outside-in, market-driven, or customer-oriented philosophy, which stresses discovery of 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 deliver quality and customer satisfaction.

Table 7.1: Possible organizational orientations

Service orientation Selling orientation

Marketing orientation

Desire to capitalize on synergies and ef�iciencies in operating processes

Dominant Present Present

Attention to designing acceptable levels of quality services

Not Pertinent Present Present

Dedicated resources to stimulating interest and desire for increasing revenues

Not Pertinent Dominant Present

Focus on identifying and satisfying needs and wants of customers

Not Pertinent Not Pertinent Dominant

Considering the short- and long-term effects of 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. As service providers are human, the quality of service varies from patient to patient.

Traditional strategies in healthcare for overcoming these limitations include improving the appearance of physical facilities, projecting competence, and employing empathetic personnel (Stevens et al., 2006). However, these strategies have been shown to be inadequate, as healthcare has become more expensive and complex, from both the providers' and the patients' perspectives (Merlino & Raman, 2013).

According to Michael Porter and Thomas Lee, "the overarching goals for providers . . . must be improving value for patients, where value is de�ined as the health outcomes achieved that matter to patients relative to the cost of achieving those outcomes" (Porter & Lee, 2013, p. 52). The implied message for HCOs is not just to put together procedures to help patients navigate the system, but to fundamentally 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's actions 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 of customer 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 good citizen of its operating environment. In healthcare, meeting customer needs means being a patient-centered organization. Thus, everyone in an HCO is concerned with patient care, including nonmedical employees. In the U.S. economy, the marketing-orientation philosophy is exactly why organizations were given the right by society to own and use resources to produce goods and services. A �irm �inds economic justi�ication by making a pro�it or generating enough revenue to cover costs. Pro�it or breakeven for nonpro�it organizations rewards the stakeholders' investment in the organization and supports the continued 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 economic justi�ication has created tension for many healthcare providers. However, providers cannot just continue to increase fee-for-service. Many physicians lose money on Medicare and Medicaid patients but have been able to make up the difference from the uninsured and commercial insurance patients. With more patients 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 detect changes in consumer needs, or other related variables, that warrant the altering of their marketing activities. Revenues, in effect, become votes to help management judge the effectiveness of its efforts in meeting market needs compared to those of competitors; and pro�its or breakeven serve to judge the ef�iciency of management in this attempt. Putting the marketing-orientation philosophy into practice requires effective management of the marketing process.

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Connecting an organization's objectives and strategies ensures that the entire plan maintains consistency between current actions and the overall marketing strategy.

7.3 The Organizational Planning and Marketing Planning Connection The strategic planning process described in the �irst six chapters of this textbook has concentrated on the organization's overall strategic plan. The development of that overarching strategic plan precedes the development of the strategic marketing plan, as well as the annual or operating marketing plan. The strategic marketing plan contains the overall approaches to marketing within an HCO, and the annual or operating marketing plan spells out the details of what is to be done on a day-to-day, week-to-week, and month-to-month basis to translate the major strategies into speci�ic actions, responsibilities, and time schedules.

Both the strategic marketing and the annual operational marketing plans must be consistent with the organization's overall strategic plan. Although marketing plans are more detailed and cover only the marketing functions, the marketing planning process involves steps similar to the strategic planning process at the organization level. These steps usually involve including a detailed analysis of the company's situation, setting speci�ic objectives, developing strategy, 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 marketing plan and, �inally, its annual or operating marketing plan. This approach to planning ensures that consistency is maintained between what is done on a weekly or monthly basis and the organization's overall marketing strategy. The strategic marketing plan is devised from and in turn supports the organization's strategic plan.

Figure 7.1: Organizational and marketing plan relationships

Source: Loudon, D., Stevens, R., & Wrenn, B. (2005). Marketing management: Text and cases. The Haworth Press, Inc., p. 126.

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 leaders are 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 strategic marketing level, this organization'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 new generic competitors for Darvon, unless new patent-protected products can be introduced and physician prescribing habits changed so that an increasing number of prescriptions will be written for the new drug. This new product-entry strategy is an embodiment of the service leadership organization value discipline.

Figure 7.2: Eli Lilly Pharmaceutical Company

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In this industry-speci�ic example, the objectives and the strategies are consistent throughout the different levels.

Source: Stevens, R., Loudon, D., Wrenn, B., & Mans�ield, P. (2006). The marketing planning guide. The Haworth Press, Inc., p. 248.

At the operating level, one of several objectives deals with tactical implementation of the product line extension and aggressive pricing strategy. The objective here 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 change their prescribing to write for the new drug. Simultaneously, tactics include making detail calls to pharmacists to let them know that Darvon is now discounted 30%. 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 not some generic equivalent. While the pharmacists reduce their Darvon inventory, the objective effects a change: physicians prescribing to Darvocet. Hence, there is a consistency between objectives and strategies among the three levels, and within any particular level. It should also be noted that these objectives and strategies are only a sample of what would be set for sales volume, growth, share, percentage of prescriptions written for new versus old products, and so forth. Finally, it is important that objectives set in functional areas other than marketing (�inance, R&D, and so forth) support the overall organization strategy to pursue service leadership.

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Marketing activities, usually a blend of different elements, target the speci�ic market identi�ied by the organization.

7.4 Marketing Strategy Like management itself, marketing strategy development is both a science and an art, a product of both logic and creativity. The scienti�ic aspect deals with assembling and allocating the resources necessary to achieve a company's marketing objectives by emphasizing opportunities, costs, and time. The art of strategy is mainly concerned with the use of resources, including motivation of the workforce, sensitivity to the environment, and ability to readjust to the counterstrategies of competitors.

Marketing strategies provide direction for marketing efforts. Alternate strategies are courses of action managers evaluate before committing to the speci�ic course 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 a marketing 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 marketing mix aimed at satisfying the needs of that target market (discussed in detail in Chapters 9–11). The marketing strategy used by a company is the result of the blending together of various marketing elements. These elements, which are known as the four Ps of marketing, consist of (a) the product/service to be offered to buyers; (b) the distribution of products to various outlets, referred to as place; (c) the promotion or communications to prospective customers, using various promotional techniques; and (d) the price charged for the product or service. The term marketing mix describes these various elements. Therefore, marketing strategy development may be viewed as developing a marketing mix aimed at satisfying the needs of selected market segments 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 segments through blending the elements of the marketing mix into a cohesive strategy aimed at satisfying those speci�ic segments. An organization targeting several segments must develop an overall marketing program, which includes all of its marketing activities.

The development of alternate marketing strategies can be viewed in many ways, but three approaches will be discussed in this chapter. First, there is the overall way a �irm approaches the markets it is attempting to serve. Second, there is one �irm's strategy in relation to competitive strategies. The third approach deals with the position of a product or �irm in relation to competitive offerings.

Figure 7.3: The marketing mix and target markets

Product/Market-Oriented Strategies The product/market approach to strategy development is illustrated in Table 7.2. Three approaches can be used under this strategy development concept. Undifferentiated strategy basically offers one product aimed at all market segments. Even if differences in market segments are recognized, these differences are 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. As Henry 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 a concentrated strategy, soon begin to erode the market share of an undifferentiated strategist. For example, a hospital with an undifferentiated strategy advertises 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. As hospitals have become savvier in their marketing efforts, they have begun to develop different service features, such as heart health, newborn care, and behavioral health. These new marketing approaches are effective against the one-size-�its-all message that many hospitals initially adopted.

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Table 7.2a: Undifferentiated hospital marketing Image Image Image

Image Image Image

Image Image Image

Table 7.2b: Segmentation, or differentiated, hospital marketing Newborn care Cancer treatment Heart health

Sports medicine Digestive health Radiology

Neuroscience Rehabilitation Women's health

Table 7.2c: Concentrated, or focused, hospital marketing Behavioral health

A �irm using a segmentation marketing strategy recognizes differences in the needs of each market segment and responds by developing a unique marketing mix for each segment pursued. Of course, not all segments have to be pursued, but at least two are required to use the term segmentation strategy. When a company develops mixes aimed at different segments, it can also be referred to as a market segmentation strategy. A �irm using this approach usually offers a wide variety of products to meet the needs of customers in many segments.

Focused marketing strategies pinpoint one segment of the market and concentrate all their efforts on that one segment. A �inancial �irm specializing in mergers and acquisitions would use this strategy as would �irms specializing in �inancing new ventures. Firms using this strategy option develop a distinctive competence for doing one thing well. Focused marketing strategies are based on �inding growth segments with unique requirements the �irm can meet. The vision of Cancer Treatment Centers of America to be "the premier center for healing and hope" for cancer patients is an example of a focused marketing strategy based on unique end-user needs.

The basic difference between the segmentation marketing strategy and the focused marketing strategy is the number of segments the �irm attempts to serve. Firms following a focused strategy target their efforts on one segment only. The factors that in�luence the choice of a particular marketing strategy will be discussed in another section of this chapter.

Baylor Medical Center at McKinney in McKinney, Texas is following a segmentation marketing strategy. This full-service hospital offers advanced treatment for many 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's Research Hospital in Memphis, Tennessee treats children with cancer and other catastrophic diseases and seeks to advance cures for pediatric catastrophic diseases through research (St. Jude Children's Research Hospital, 2013). Brentwood Hospital in Shreveport, Louisiana is a psychiatric hospital that provides treatment for chemical dependency and other behavioral health disorders (Brentwood Hospital, 2013). A psychologist who accepts only cash-paying clients is also adopting a focused marketing strategy. By refusing to take insurance bene�its, the psychologist ensures that no record is kept by insurance companies to label the client or patient as mentally unstable.

Competitive Marketing Strategies Another approach to strategy development employs competitive marketing strategies currently used in the market. Table 7.3 classi�ies the strategies that may be 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 competitors in the industry. Table 7.3 identi�ies four market positions and some possible strategies for each (Kotler, 1980).

Table 7.3: Competitive marketing strategies

Market position Possible strategies

Market leader Firm acknowledged as the leader, with the largest market share of the relevant market.

1. Expand total market: Develop new uses, new users, or more usage by existing customers.

2. Protect market share: Use innovative marketing tactics or retaliate against challengers.

Market challenger Second, third, or fourth �irm in market share. May be quite large, though smaller in a relevant market than the market leader.

1. Direct attack strategy: Meet leader head-on with aggressive promotion and/or prices.

2. Backdoor strategy: Go around leader options through innovative strategy.

3. Guppy strategy: Increase market share by going after smaller �irms.

Market follower A �irm that chooses not to challenge the leader and is content with market conditions.

1. Copy leader: Match as closely as possible leader's strategy without directly challenging.

2. Coping strategy: Adjust to strategies of both leader and challenger without direct confrontation.

Market nicher A smaller �irm that operates in a geographic or client niche without directly clashing with competitors. Specialization is the key to its success.

1. Geographic niche: Specialize by offering quick response to customers.

2. Product niche: Offer products that are unique to the customers served.

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The activities and prices for a facility depend on the needs of its care recipients.

Market leaders are the recognized leaders that have the largest market share of the relevant market. Although their position of dominance may be widely recognized, their success may be constantly challenged by other �irms. The strategies that are used by market leaders focus on expanding their own control of the market while warding off or countering the activities of aggressive competitors. The market leader's strategy becomes the pivot around which other competitors adjust their own strategies.

Market challengers are the �irms that are constantly trying to increase their market share in head-on competition with the leader, attacking the leader at its weak points or merging with smaller competitors. Market challengers are usually large �irms in terms of revenues and pro�its, and they may be even more pro�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 can affect the strategies of other competitors. The New Coke, which was closer in taste to that of Pepsi than Classic Coke, was clearly a competitive strategy response.

Market followers and nichers adjust to the strategies of the market leader and challenger without making challenges. Nichers usually try to specialize geographically or by products offered, and basically avoid direct confrontation with other competitors. The followers simply copy the leader's strategy or adjust their strategy to cope with both the leader's and the challengers' strategies, without calling attention to their own activities. For example, The Cooper Institute 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 as a provider with any insurance company and does not accept Medicare (The Cooper Institute, 2013). Thus, competitive strategies must be considered in developing 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 a competitive advantage and provide long-run pro�itability.

Positioning Strategies Positioning 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 in the 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 as What kind of �irm are we? and What kind of �irm do we want to become? Such a strategy encourages the �irm to focus on what it does best relative to other competing �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 of service level and integration of care. For example, the positioning strategy of Northwest Hospital in Randallstown, Maryland is to highlight the variety of outpatient services it offers. Patients

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