Medical tourism is becoming increasingly popular, and it is important to understand why consumers might seek medical care outside of their home countries. Consider Maria, a 68-year-old female who lives in the United States. Her doctor has recommended a hip replacement, but because it is not life-threatening she is put on a wait list for surgery. Medical tourism is an alternative for Maria, but she has never even considered the possibility of traveling to another country to seek medical care. How might you market medical tourism to patients like Maria? For this Discussion, you examine benefits and barriers to medical tourism and recommend marketing strategies for consumers.
To prepare:
Post a cohesive response to the following:
Analyze benefits of and barriers to medical tourism. Then, recommend marketing strategies to help consumers overcome potential barriers and seek medical care outside of their home countries. Defend or argue your recommendations. Support your response by identifying and explaining key points and/or examples presented in the Learning Resources.
MARKETING
HEALTH
SERVICES
AUPHA
Editorial Board
HAP
Frederick J. Wenzel
University of St. Thomas
G. Ross Baker, Ph.D.
University of Toronto
Sharon B. Buchbinder, R.N., Ph.D.
Towson University
Caryl Carpenter, Ph.D.
Widener University
Leonard Friedman, Ph.D.
Oregon State University
William C. McCaughrin, Ph.D.
Trinity University
Thomas McIlwain, Ph.D.
Medical University of South Carolina
Janet E. Porter, Ph.D.
University of North Carolina at Chapel Hill
Lydia Reed
AUPHA
Louis Rubino, Ph.D., FACHE
California State University–Northridge
Dennis G. Shea, Ph.D.
Pennsylvania State University
Dean G. Smith, Ph.D.
University of Michigan
Mary E. Stefl, Ph.D.
Trinity University
Linda E. Swayne, Ph.D.
University of North Carolina–Charlotte
Douglas S. Wakefield, Ph.D.
University of Iowa
MARKETING
HEALTH
SERVICES
Richard K. Thomas
Health Administration Press, Chicago
AUPHA Press, Arlington, VA
AUPHA
HAP
Your board, staff, or clients may also benefit from this book’s insight. For
more information on quantity discounts, contact the Health Administration
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This publication is intended to provide accurate and authoritative information in regard to the subject matter covered. It is sold, or otherwise provided, with the understanding that the publisher is not engaged in rendering
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The statements and opinions contained in this book are strictly those of
the author and do not represent the official positions of the American
College of Healthcare Executives, of the Foundation of the American
College of Healthcare Executives, or of the Association of University
Programs in Health Administration.
Copyright © 2005 by the Foundation of the American College of Healthcare
Executives. Printed in the United States of America. All rights reserved.
This book or parts thereof may not be reproduced in any form without
written permission of the publisher.
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Library of Congress Cataloging-in-Publication Data
Thomas, Richard K., 1944–
Marketing health services / Richard K. Thomas.
p. cm.
Includes bibliographical references and index.
ISBN 1-56793-234-7 (alk. paper)
1. Medical care—Marketing. I. Title.
RA410.56.T48 2004
362.1’068’8—dc22
2004059852
The paper used in this publication meets the minimum requirements of
American National Standard for Information Sciences—Permanence of
Paper for Printed Library Materials, ANSI Z39.48-1984. ∞
Acquisitions editor: Audrey Kaufman; Project manager: Jane C. Williams;
Cover designer: Trisha Lartz
Health Administration Press
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of the American College of
Healthcare Executives
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(312) 424-2800
Association of University Programs
in Health Administration
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Arlington, VA 22201
(703) 894-0940
CONTENTS IN BRIEF
Introduction………………………………………………………………………………..xi
Part I
Healthcare Marketing: History and Concepts
1
The History of Marketing in Healthcare………………………………..3
2
The Challenge of Healthcare Marketing ………………………………23
3
The Evolving Societal and Healthcare Context……………………..51
4
Basic Marketing Concepts ………………………………………………….77
5
Marketing and the Healthcare Organization…………………………99
Part II Understanding Healthcare Markets
6
The Nature of Healthcare Markets ……………………………………133
7
Healthcare Consumers and Consumer Behavior ………………….167
8
Healthcare Products and Services ……………………………………..197
9
Factors in Health Services Utilization ………………………………..223
Part III Healthcare Marketing Techniques
10
Marketing Strategies………………………………………………………..247
11
Promotions, Advertising, and Sales ……………………………………275
12
Emerging Marketing Techniques ………………………………………301
v
vi
Contents
Part IV Managing and Supporting the Marketing Effort
13
Managing and Evaluating the Marketing Process ………………..333
14
Marketing Research in Healthcare …………………………………….351
15
Marketing Planning…………………………………………………………377
16
Sources of Marketing Data……………………………………………….399
Part V The Future of Healthcare Marketing
17
Healthcare Marketing in the Twenty-First Century……………..427
Glossary …………………………………………………………………………………..441
Index……………………………………………………………………………………….457
About the Author ……………………………………………………………………..469
DETAILED CONTENTS
Introduction………………………………………………………………………………..xi
Part I
Healthcare Marketing: History and Concepts
1
The History of Marketing in Healthcare………………………………..3
The History of Marketing ……………………………………………………..3
Marketing in Healthcare………………………………………………………6
Evidence of the Acceptance of Marketing ……………………………….17
Case Study 1.1 An Early Attempt at Healthcare Marketing…………..21
2
The Challenge of Healthcare Marketing ………………………………23
Why Healthcare Is Different………………………………………………..23
Why No Healthcare Marketing? …………………………………………..34
Why Healthcare Marketing Is Different ………………………………..38
Developments Encouraging Healthcare Marketing ………………….42
Reasons to Do Healthcare Marketing…………………………………….45
Case Study 2.1 Marketing Up the Wrong Tree……………………………49
3
The Evolving Societal and Healthcare Context……………………..51
The Emergence of Healthcare as an Institution……………………….51
The Cultural Revolution and Healthcare ………………………………58
Changing Societal Context ………………………………………………….59
Healthcare Developments…………………………………………………….65
Case Study 3.1 Capturing an Emerging Market…………………………73
4
Basic Marketing Concepts ………………………………………………….77
Marketing Concepts……………………………………………………………77
Components of Marketing……………………………………………………79
Healthcare Products and Customers ……………………………………..85
The Four Ps of Marketing ……………………………………………………90
Other Marketing Processes …………………………………………………..94
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Detailed Contents
5
Marketing and the Healthcare Organization…………………………99
Factors Affecting the Adoption of Marketing ………………………….99
Healthcare Organizations and Marketing……………………………102
Stages of Healthcare Marketing ………………………………………….119
Case Study 5.1 Low-Intensity Marketing………………………………..129
Part II Understanding Healthcare Markets
6
The Nature of Healthcare Markets ……………………………………133
Marketing’s Context ………………………………………………………..133
Defining Markets …………………………………………………………….134
Delineating Geographic Market Areas…………………………………142
Profiling Healthcare Markets …………………………………………….146
From Mass Market to Micromarket……………………………………..151
The Effective Market ………………………………………………………..153
Evaluating Market Areas………………………………………………….155
The Changing Nature of Markets ……………………………………….157
Case Study 6.1 Determining the Effective Market ……………………161
Case Study 6.2 Is There Really a Market for It?……………………….165
7
Healthcare Consumers and Consumer Behavior ………………….167
The Healthcare Consumer …………………………………………………167
Why Healthcare Consumers Are Different ……………………………168
Why Healthcare Consumers Are Similar………………………………169
The Variety of Healthcare Customers …………………………………..170
Characteristics of Healthcare Customers ………………………………175
Consumer Attitudes …………………………………………………………181
Segmenting the Market for Healthcare Products ……………………185
Consumer Behavior ………………………………………………………….188
Consumer Decision Making……………………………………………….190
8
Healthcare Products and Services ……………………………………..197
Defining the Product ……………………………………………………….197
Ways to Conceptualize Products ………………………………………….201
Common Healthcare Products ……………………………………………208
9
Factors in Health Services Utilization ………………………………..223
Defining Demand ……………………………………………………………223
Factors Influencing Demand……………………………………………..231
The Elasticity of Health Services Demand …………………………….236
Measuring Health Services Utilization ………………………………..237
Predicting the Demand for Health Services ………………………….239
Case Study 9.1 Using Lifestyle Analysis to Predict the
Use of Behavioral Health Services……………………243
Detailed Contents
Part III Healthcare Marketing Techniques
10
Marketing Strategies………………………………………………………..247
Strategy Defined ……………………………………………………………..247
The Strategic Planning Context …………………………………………249
The Strategic Planning Process …………………………………………..249
Developing the Strategic Plan…………………………………………….257
Strategic Options……………………………………………………………..258
Strategy Development and the Four Ps …………………………………262
Branding as a Strategy……………………………………………………..267
Case Study 10.1 Strategy Development ………………………………….271
Case Study 10.2 Establishing a Brand …………………………………….273
11
Promotions, Advertising, and Sales ……………………………………275
Promotional Mix ……………………………………………………………..275
Promotional Categories …………………………………………………….275
Media Options…………………………………………………………………288
Integrated Marketing……………………………………………………….292
Case Study 11.1 Integrated Marketing …………………………………..297
12
Emerging Marketing Techniques ………………………………………301
Emerging Marketing Techniques ………………………………………..301
Limitations to Contemporary Marketing Techniques ……………..315
Case Study 12.1 A Concierge Plan ………………………………………..319
Case Study 12.2 Promoting Heart Health Using Customer
Relationship Management ……………………………323
Case Study 12.3 Effective Web Integration:
A Hospital Case Study …………………………………327
Part IV Managing and Supporting the Marketing Effort
13
Managing and Evaluating the Marketing Process ………………..333
From Marketing Plan to Marketing Campaign…………………….333
The Players in the Marketing Process……………………………………341
Components of a Marketing Department……………………………..344
The Marketing Budget ……………………………………………………..346
Marketing Management……………………………………………………348
14
Marketing Research in Healthcare …………………………………….351
The Scope of Marketing Research ………………………………………..351
Marketing Research and Healthcare Decision Making …………..356
Steps in the Marketing-Research Process ……………………………….357
Primary Data-Collection Methods ………………………………………363
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Detailed Contents
15
Marketing Planning…………………………………………………………377
The Nature of Marketing Planning…………………………………….377
The Marketing-Planning Process ………………………………………..379
Implementing the Marketing Plan ……………………………………..387
The Evaluation Plan ………………………………………………………..389
Case Study 15.1 Sample Goals, Objectives, and Activities …………393
Case Study 15.2 Marketing Planning for a New Program …………395
16
Sources of Marketing Data……………………………………………….399
The Data Challenge …………………………………………………………399
Data Dimensions …………………………………………………………….402
Data-Generation Methods …………………………………………………405
Sources of Data for Healthcare Marketing ……………………………415
Health Data and the Internet ……………………………………………419
Part V The Future of Healthcare Marketing
17
Healthcare Marketing in the Twenty-First Century……………..427
Where Healthcare Marketing Is Today…………………………………427
Where Healthcare Marketing Is Going ………………………………..429
Trends Affecting the Future of Healthcare Marketing ……………430
Healthcare Marketing: Seizing the Opportunity ……………………435
Glossary …………………………………………………………………………………..441
Index……………………………………………………………………………………….457
About the Author ……………………………………………………………………..469
INTRODUCTION
M
ost observers consider 1977 the “official” launch data of marketing as a component of healthcare. The first conference on healthcare marketing was sponsored by the American Hospital Association,
and the first book on the topic was published in 1977. While formal marketing activities became common early on among retail-oriented healthcare
organizations like health insurance, pharmaceuticals, and medical supplies,
health services providers had long resisted the incorporation of formal marketing activities into their operations. Of course, hospitals and other healthcare organizations had been doing “marketing” under the guise of public
relations, physician relationship development, community services, and other
activities, but few health professionals equated these with marketing. To
many, marketing meant advertising, and, until the 1970s, advertising on the
part of health services providers was considered inappropriate.
The formal recognition in the 1980s of marketing as an appropriate
activity for health services providers represented an important milestone
for healthcare. The acceptance of marketing by health professionals opened
the door for a variety of new activities on the part of healthcare organizations. This development led to the establishment of marketing budgets and
the creation of numerous new positions within the organizations, culminating with the establishment of the position of vice president for marketing in many organizations. This development opened healthcare up to an
influx of concepts and methods from other industries and helped to introduce modern business practices into the healthcare arena.
While most would agree that, after years of grudging acceptance, marketing has become reasonably well established as a legitimate healthcare function, the process has not been without its fits and starts. Healthcare has
demonstrated surges of interest in marketing, followed by periods of retrenchment when marketing, and marketers, were considered unnecessary and/or
inappropriate. Periods of prosperity for marketing have alternated with periods of neglect over the past 25 years. There have been periods of exuberant,
almost reckless, marketing frenzy and periods of retrenchment. There has
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Introduction
been ongoing tension between those who eagerly accepted marketing as a
function of the healthcare organization and those who doggedly resisted its
intrusion into their realm. With each revival of marketing in healthcare, new
wrinkles have been added that made the “new” marketing, if not better, at
least different from previous approaches.
Once the dam broke and marketing made its initial incursion into
healthcare, a stampede ensued as healthcare organizations, led by major
hospitals, established aggressive marketing campaigns. Urged forward by
marketers recruited from other industries, hospitals and other healthcare
organizations embarked on a whirlwind of marketing activity. The effectiveness of these initial marketing campaigns did not match their proponents’ enthusiasm, and it was soon realized that marketing healthcare was
not the same as marketing hamburgers. The approaches required for the
healthcare arena were not easily adapted from other industries, and much
of what was effective elsewhere was not necessarily effective in the healthcare industry. The evolution of marketing in healthcare is discussed in a
later section within the context of developments in the healthcare field.
Today, healthcare is still struggling to find the appropriate role for
marketing, and marketers continue to strive to find their niche within healthcare. The industry still suffers from a lack of standardization when it comes
to marketing, and this has not been helped by the fact that few graduate
programs offer coursework in healthcare marketing. Today, healthcare marketing appears poised to play a greater role in the new healthcare environment. But, as the chapters illustrate, this is likely to be a different kind
of marketing than that envisioned in the mid-1970s when the first marketing efforts were introduced into healthcare.
Before the 1980s, marketing campaigns targeting healthcare consumers were relatively rare. In fact, the marketing activity that existed was
primarily on the part of industry segments that were not involved in patient
care (e.g., pharmaceuticals and insurance) and whose targets were not
patients but other players in the healthcare arena (e.g., physicians and
employers). Healthcare organizations did not need to market their services.
The industry was product driven and most “producers” of services operated in semimonopolistic environments. There was an almost unlimited
flow of customers (patients), and revenues were essentially guaranteed by
third-party payers.
This situation began to change in the early 1980s. Along with a number of other significant changes in healthcare, competition was introduced
for the first time. Healthcare organizations began to realize that to survive
in this new world, they would have to adopt business practices long established in other industries. This involved, among other things, a shift from
a product orientation to a service orientation. For the first time, then, the
Introduction
market became a factor for the industry. These developments resulted in
the introduction of marketing as a legitimate function in healthcare.
By the mid-1980s, marketing departments had been established in
most of the large healthcare organizations. Once introduced to each other,
marketing and healthcare passed through a tentative getting-to-know-you
period. By the mid-1980s, however, it was a romance in full bloom with
the two being seen everywhere together. Healthcare organizations were
spending feverishly on their newfound consort, and marketers rushed to
take advantage of the sudden burst of interest. Those without formal departments started developing marketing functions through other mechanisms.
However, the introduction of marketing into healthcare resembled a shaky
romance.
Hospitals were among the first to embrace marketing as a part of
their operations. Other healthcare organizations followed their lead. As
new forces emerged in the industry, often led by entrepreneurs rather than
clinicians, the use of marketing techniques proliferated. Innovative healthcare programs, such as urgent care centers and freestanding diagnostic centers, began using marketing as a means of attracting patients from the
established sources of care.
Unfortunately, in the early years healthcare executives did not see
marketing for what it really was, and many expensive mistakes were made
by the organizations pioneering healthcare marketing. Healthcare organizations failed to do their market research homework, rushed headlong into
expensive media advertising, became obsessed with image rather than substance, and failed to evaluate their hastily contrived marketing initiatives.
Perhaps the gravest error of all was to equate advertising with marketing.
As a result of these mistakes, by the late 1980s healthcare organizations were slashing their marketing budgets, disbanding marketing staff,
and generally scaling back this relationship. Healthcare did not want to
break it off altogether, but it did not want to continue spending on initiatives with uncertain benefits.
Both parties—healthcare and marketing—could probably be blamed
for the shaky initial relationship. The marketers that healthcare imported
from other industries failed in their effort to convert existing marketing
techniques to healthcare uses. The first rule of marketing, of course, is to
know your market, and marketers did not. They were offering quick fixes
and short-run answers in an industry that required long-term initiatives.
By the early 1990s, healthcare executives realized that marketing did
not consist of spending truckloads of money on mass-media advertising.
Progressive healthcare organizations began to assess their marketing objectives in a more reasonable light. They began to try to understand the market, their customers, and their customers’ motivations.
xiii
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Introduction
Marketers, too, had learned some important lessons. Few marketing techniques could be transferred unmodified from other industries. The
messages and the methods had to be tailored to healthcare. Sensitive issues
that are not factors in other industries had to be addressed in healthcare.
Furthermore, marketers were faced with the unique situation in which certain consumers were “desirable” and others were not.
Today, healthcare marketers have a much better understanding of
the market and their customers. Fairly sophisticated market research techniques have been put into place. An appreciation for what works and does
not work in terms of marketing initiatives has evolved. New techniques
have been developed specifically for the healthcare market, and a core of
professional healthcare marketers have emerged.
The rest of this book will be devoted to the development of an understanding of marketing as a field and its application to healthcare. The chapters introduce the reader to the concepts, methods, and data used in
healthcare marketing, providing the information required for developing
an appreciation of the role of marketing in healthcare along with the tools
necessary to plan and implement marketing initiatives.
The book provides sound grounding in basic marketing concepts,
along with background on the factors that drive marketing approaches and
consumer behavior in healthcare. It presents nuts-and-bolts information
on the marketing process and its management. It also critiques the marketing techniques currently in use in healthcare and introduces emerging
techniques being adapted for healthcare.
The Audience
This book is designed primarily for use by students of healthcare administration and by those studying marketing (typically in MBA programs).
Under various guises (e.g., healthcare administration, hospital management, public administration), most programs offered for those with an
interest in healthcare administration include a component on healthcare
marketing. This text should provide the core of information necessary for
those courses.
Many business administration programs offer healthcare marketing
as a component of their marketing concentrations; this book should serve
that audience as well. It should also serve as a reference work for academicians involved in healthcare administration or marketing but who are
not directly involved in the healthcare marketing arena.
This book is also a useful reference work for practitioners in the field.
Healthcare administrators who require an understanding of the marketing
Introduction
process, health planners, and those directly involved in marketing activities are expected to benefit from its contents. Marketing firms and advertising agencies with an interest in healthcare should find the book useful
as an introduction to the unique aspects of healthcare marketing.
Organization of the Book
Designed to serve as a comprehensive guide for students in marketing and
healthcare administration, the text surveys the field of healthcare marketing, beginning with basic marketing concepts (as applied to healthcare)
and exploring all components of healthcare marketing.
Part I provides an overview of marketing and its applications to
healthcare. Chapter 1 addresses the history of marketing overall and its
recent experience within healthcare. Chapter 2 follows up on this discussion with a description of the unique aspects of healthcare that create challenges for marketers. The changing context of healthcare is
described in Chapter 3 to provide the marketer with an appreciation of
the volatile nature of the contemporary healthcare arena. Chapter 4 introduces and defines the basic marketing concepts that are used throughout the text, exposing the student to the language of marketing as a
prerequisite to further study. Chapter 5 describes the current status of
marketing in healthcare and identifies the contexts in which marketing
is presently taking place.
Part II introduces the reader to the nature of healthcare markets,
the consumers who populate them, and the factors that influence the demand
for health services. Chapter 6 provides an overview of the “market” for
health services and examines the ways in which healthcare differs from other
industries in this regard. Chapter 7 focuses on the nature of healthcare consumers and the variety of constituents healthcare organizations serve. It
notes the unique characteristics of the end users of health services and the
manner in which healthcare decision making differs from this process in
other industries. Chapter 8 addresses the notion of “product,” describing
healthcare products and services and distinguishing them from the products
and services that marketers generally promote. Chapter 9 introduces the
notions of healthcare “need,” “want,” and “utilization” and discusses the
factors that influence the demand for health services and the ultimate level
of utilization.
Part III focuses on the practical aspects of healthcare marketing,
describing marketing strategies and marketing techniques—both traditional
and cutting edge—as they relate to healthcare. Chapter 10 discusses the
notion of marketing strategies, describing the strategy-development process
xv
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Introduction
and indicating means of implementing strategies. Chapter 11 distinguishes
between public relations, advertising, and other traditional marketing
activities. Chapter 12 presents contemporary marketing techniques, often
adopted from other industries, and their potential contribution to healthcare marketing.
Part IV presents a practical guide to managing and supporting the
marketing process in healthcare. Just as the concept of marketing is relatively new in healthcare, so is the notion of “managing” the process. Chapter
13 provides an overview of the marketing process, tying together various
components discussed earlier in the text. It provides an overview of the
issues involved in managing and evaluating marketing initiatives. Part IV
also describes the various functions that are necessary to support the marketing effort, from the initial market research to technology-based approaches
to managing the customer base. Chapter 14 presents an overview of the
marketing research process, describing the uses of research by marketers
and reviewing basic research techniques with application of healthcare.
Chapter 15 introduces the reader to marketing planning. Notwithstanding
its late introduction in the book, marketing planning should be an early
and constant consideration in the marketing process. Chapter 16 examines
the categories of data that are used for marketing research and planning,
indicating the manner in which these data are generated and the sources
from which they can be obtained.
Part V includes a single chapter—Chapter 17—on the future of
healthcare marketing. The current status of the field is summarized and
prospects for the future are considered. The factors that are likely to influence the future course of marketing are considered, and speculation on the
future characteristics of healthcare marketing, and marketers, is offered.
PART
I
HEALTHCARE MARKETING:
HISTORY AND CONCEPTS
P
art I describes the overall context necessary for an understanding of
the field of marketing and its applications to healthcare. One cannot understand where the field is going unless one knows where it
has been, so the evolution of the field requires review. Ultimately, this section places healthcare marketing solidly within the frameworks of both the
healthcare industry and the marketing profession and provides insights into
what had been tried in the past.
Chapter 1 presents an overview of the history of marketing, ultimately focusing on its more recent history in the healthcare arena. It
describes the factors that led to a shift from a production orientation to a
service orientation in healthcare, with the concomitant growing awareness
of market demands. The stages in the development of healthcare marketing are outlined, and the changes that occurred in the field are noted at
each stage. The factors that have contributed to successive periods of healthcare marketing successes and setbacks during the past quarter of a century
are reviewed.
Chapter 2 addresses marketing within a context that was initially
resistant to any type of business principles in general and “formal” marketing in particular. The chapter describes the ways in which healthcare is
different from other industries and in which healthcare marketing is different from other types of marketing. The factors that have contributed to
the acceptance of marketing in healthcare are identified, along with the
contribution that marketing can make to the industry.
Chapter 3 reviews the developments that have occurred in healthcare in recent years and describes their implications for marketing. The
importance of the transformation experience by healthcare in the 1980s
for the emergence of marketing as a function within healthcare organizations is noted. The halting evolution of marketing as a legitimate healthcare endeavor is outlined.
1
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Marketing Health Services
Chapter 4 introduces the concepts basic to the marketing endeavor.
Key terms and concepts are defined, and the special treatment of these
notions in healthcare is reviewed. The application of the four Ps of marketing to healthcare is discussed. The challenge of adopting marketing concepts and techniques from other industries to healthcare is explored.
Chapter 5 examines the current status of marketing in healthcare,
identifying the types of organizations that are most actively involved in
promotional activities. The regard with which marketing is held in healthcare today is noted, and current trends in the application of marketing techniques in healthcare are reviewed.
CHAPTER
THE HISTORY OF MARKETING
IN HEALTHCARE
1
D
espite its short history, healthcare marketing has experienced many
twists and turns. Since the notion of marketing was introduced to
healthcare providers during the 1970s, the field has gone through various periods of growth, decline, retrenchment, and renewed growth. This
chapter reviews the history of marketing in the U.S. economy in general and
traces its evolution in healthcare over the last quarter of the twentieth century.
The History of Marketing
Marketing as we use the term today is a modern concept. It was first used
around 1910 to refer to what would be called sales today. It is a uniquely
American concept, and the English word “marketing” has been adopted by
other languages that lack a word for this concept.
Although the 1950s is considered to mark the beginning of the “marketing era” in the United States, the establishment of the marketing function within the U.S. economy took several decades, and marketers had to
overcome a number of factors that retarded its development. Many of these
factors reflected characteristics of the U.S. economy carried over from the
World War II period. In the 1950s, America was still in the Industrial Age,
and the U.S. economy was production oriented until well after the war.
Because essentially all aspects of the U.S. economy were geared to production, the prevailing mind-set emphasized the interests of the producer
over those of the consumer (as epitomized by Henry Ford’s maxim, “You
can paint it any color, so long as it’s black”). This production orientation
assumed that the producer knew a priori what the consumer needed. Products
were produced to the specification of the manufacturer, and then customers
were sought. A “here is our product, take it or leave it” approach characterized most industries during this period. The mind-set was that a good
product would sell itself; thus, there would be no need for marketing even
if the field had existed.
3
4
Marketing Health Services
During the postwar period, considerable product (i.e., brand) differentiation continued to exist. In the days before the standardization of
production, there was enough variation among products offered by different producers that the differences generally spoke for themselves (without benefit of marketing). Furthermore, until the prosperity of the 1950s,
the concept of consumer was poorly developed. The existence of a weak
consumer segment lacking consumer credit and an acquisitive mind-set was
not conducive to the development of the marketing enterprise.
Stage One: Product Differentiation and the Consumer Mentality
The postwar period witnessed the emergence of a wide variety of new products, particularly in the consumer-goods industries. Newly empowered consumers demanded a growing array of goods and services, even if existing
goods and ser vices had adequately ser ved previous generations. This
development contributed to the emergence of marketing for at least two
reasons. First, consumers had to be introduced to and educated about these
new goods and services. Second, new market entrants introduced a level
of competition unknown in the prewar period. This meant that mechanisms had to be developed to both make the public aware of a new product and to distinguish that product from those of competitors’ in the eyes
of potential customers.
Consumers had to be made aware of purchase opportunities and
then convinced to buy a certain brand. The standardization of existing
products that occurred during this period further contributed to the need
to convince newly empowered consumers to purchase a particular good or
service. Marketers gained a foothold in U.S. industry when they were
enlisted to highlight and, if necessary, “create” differences between similar products.
These developments resulted in a shift away from a seller’s market
to a buyer’s market. Once the consumer market began to be tapped, it was
realized that the demand for many types of goods was highly elastic. The
prewar mentality had emphasized the meeting of consumer needs and
assumed that a finite amount of goods and services could be purchased by
a population. With the increase in discretionary income and the introduction of consumer credit after World War II, consumers began to satisfy
wants. Fledgling marketers found out that they could not only influence
consumers’ decision-making processes but could even create demand for
certain goods and services.
The emergence of marketing was aided by changes in the cultural
aspects of U.S. society. The postwar period was marked by a growing emphasis on consumption and acquisition. The frugality of the Depression era
gave way to a degree of materialism that was shocking to older generations.
The availability of consumer credit and a mind-set that emphasized “keep-
The History of Marketing in Healthcare
ing up with the Joneses” generated a demand for a growing range of goods
and services. America had given rise to the first generation of citizens with
a consumer mentality.
By the 1970s, there was a growing emphasis on self-actualization in
American culture, often carried to the point of narcissism in the minds of
many observers. Not only were individuals coming to be identified in terms
of their material possessions, but the cultural environment encouraged people to “do their own thing.” This called for additional goods and services
and served to boost a fledgling market for consumer health services (e.g.,
psychotherapy, cosmetic surgery). A growing consumer market with expanding needs, coupled with a proliferation of products, created a fertile field
for the emergence of marketing.
Underlying these developments was the growing emphasis being
placed on change itself. Traditional societies (including the United States
until World War II) emphasized stability; the status quo; and, as the name
implies, tradition. A premium was placed on the old ways of doing things,
and impending change engendered skepticism, if not outright resistance.
Clearly, previous generations were oriented to the present (or even the
past) in terms of their cultural moorings. The prospect of change had always
threatened deep-seated convictions that had survived for generations.
By the 1970s, not only had change become accepted as inevitable as
society underwent major transformations, but change began to take on a positive connotation. Newly empowered consumers demanded a growing array
of goods and services. The future-oriented outlook emerging within U.S. society further underscored the importance of change in forging a path to a better future. Individuals began switching jobs, residences, and even spouses at a
rate that shocked their forefathers. It became a maxim that the American dream
involved the advancement of each generation over the previous one.
Stage Two: The Emerging Role of the Sales Representative
The second stage of marketing evolution focused on sales. Many U.S. producers had enjoyed regional monopolies (or at least oligopolies) since the
dawn of the Industrial Age. Under these conditions, sales representatives
took orders from what was essentially a captive audience. Marketing would
have been considered an unnecessary expense under this scenario. However,
as competition increased in most industries following World War II, these
regional monopolies disintegrated, especially with the increased mobility
available to sales forces.
The emphasis on sales characterizing the U.S. economy during the
last third of the twentieth century continued to reflect to a great extent the
production aspects of society. However, sales representatives eventually
served as a bridge between the production economy and the service economy as they developed and maintained relationships. Sales representatives
5
6
Marketing Health Services
progressed from their roles as “order takers” to become “consultants” to
their clients. This created a conduit for information to flow from customers
back to producers, thereby facilitating the emergence of a market orientation for U.S. business.
Stage Three: A Customer-Driven Approach
The third stage in the evolution of the field actually focused on marketing
per se. By the end of the twentieth century, the industrial economy had
given way to a service economy and the remaining production industries
became increasingly standardized. This shift from a product orientation to
a service orientation represented a sea change vis-à-vis marketing. Service
industries tend to be market driven, and U.S. corporations began abandoning their father-knows-best mind-set in favor of a market orientation.
For the first time, progressive managers in a wide range of industries sought
to determine what consumers wanted and then strove to fulfill those needs.
This opened the door for market research and the emergence of professional marketers to exploit consumer desires. These new market-driven
firms adopted an outside-in way of thinking that considers service delivery
from the point of view of the customer.
The emergence of a service economy had important implications for
both marketing and healthcare. Services are distinguished from products
because they are generally produced as they are consumed and cannot be
stored or taken away. For example, an x-ray machine is a product that is used
to provide a service (medical diagnostics); the service is provided as the patient
“consumes” it (by being subjected to the procedure). Unlike a tangible product, the standard of service may differ each time it is produced (e.g., one
radiologist may be more expert at interpreting x-rays than another).
The marketing of services is different from the marketing of products; this creates a challenge for marketers in any field. The development
of capabilities for marketing services occurred slowly as the United States
became a service-oriented economy. There are considerable differences
between marketing goods and marketing services, and a new mind-set and
new promotional approaches had to be developed. (See Chapter 2 for additional discussion of the challenge of marketing services.)
Marketing in Healthcare
Healthcare adopted marketing approaches well after most other industries,
and the marketing era was not considered to begin in healthcare until the
1980s. This does not mean that certain healthcare organizations in the
retail and supplier sectors had not been involved in marketing activities.
Pharmaceutical companies, consumer-product vendors, and health plans
The History of Marketing in Healthcare
have a long history of marketing activities; indeed, some of these organizations devote an inordinate proportion of their budgets to marketing.
These types of organizations are addressed throughout this book, although
the emphasis is on marketing on the part of healthcare providers.
While marketing was noticeably absent from the functions of most
healthcare providers until the 1980s, precursors to marketing had long
been established. Every hospital and many other healthcare organizations
had well-established public relations (PR) functions. PR involved disseminating information concerning the organization and announcing new
developments (e.g., additions to staff, purchase of equipment). The main
interface for PR staff was with the media. They disseminated press releases,
responded to requests for information, and served as the interface with the
press should some negative event occur.
Large provider organizations also typically had communication functions, although they were often carried out under the auspices of the PR
department. Communications staff would develop materials for dissemination to the public and the employees of the organization. Internal (and,
later, patient-oriented) newsletters and patient-education materials were
frequently developed by communications staff.
Some of the larger organizations (and certainly the major retail firms
and professional associations) established government-relations offices.
These staff members were responsible for tracking regulatory and legislative activities that might affect the organization. They served as the interface with government officials and provided lobbying efforts as appropriate.
The government-relations office frequently became involved in certificateof-need activities. This function has historically been critical for many healthcare organizations because of the constant pressure on not-for-profit
healthcare organizations to justify their tax-exempt status.
In addition to these formal precursors of marketing, healthcare organizations of all types were involved in informal marketing activities to a certain extent. This occurred when hospitals sponsored health education
seminars, held an open house for a new facility, or supported a community
event. Hospitals marketed by making their facilities available to the community for public meetings and by otherwise attempting to be good corporate citizens. Physicians marketed themselves through networking with
their colleagues at the country club or medical-society–sponsored events.
They sent letters of appreciation to referring physicians and provided services to high school athletic teams.
Ultimately, low-budget PR departments were transformed into multimillion-dollar marketing programs. This did not happen overnight, and
a number of developments had to occur before healthcare came to appreciate the relevance of marketing. Some of these developments are addressed
below, and others are discussed in Chapter 2. See Box 1.1.
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Box 1.1:
Pioneers in
Healthcare
Marketing
Although the 1970s marked the formal emergence of marketing in the
health services industry, few healthcare organizations—as organizations—had yet bought into marketing. True, the for-profits like
Columbia and HCA (Healthcare Corporation of America) had more
of a marketing orientation and may even have given an incentive to
their administrators to perform marketing activities. Despite the fact that Evanston
(Indiana) Hospital claimed a vice president of marketing in 1976, many professionals
would cite the publication of Philip Kotler’s Marketing for Non-Profits a few years later
as the advent of marketing in health services.
Interestingly, the emergence of marketing in healthcare was not driven at the corporate level. Ultimately, it came down to a handful of assertive and creative individuals
who took the initiative and, often against great odds, established marketing programs.
Organizations like the Mayo Clinic and the Cleveland Clinic developed permanent marketing programs, but the inroads marketing made were a result of the tenacity of a handful of true believers.
To the extent that marketing was incorporated into healthcare in the 1970s and
1980s, it was a result of the hard work of people, like Bernie Lachner in Evanston Hospital;
Kent Seltman at the Mayo Clinic; and William Gombeski at the Cleveland Clinic, rather
than any commitment on the part of their organizations. Seltman entered the healthcare
field in 1984, when marketing was in its infancy, and went on to develop innovative marketing programs at Loma Linda University Medical Center and the Mayo Clinic. Gombeski
guided the early development of marketing initiatives at the Cleveland Clinic and established the organization as a textbook example of successful marketing.
The Stages of Healthcare Marketing
The stages through which marketing has evolved can be viewed as they relate
to healthcare (Berkowitz 1996). Box 1.2 indicates the progression and its
implications for the hospital industry as an example. The stages through
which marketing has evolved within the healthcare setting are outlined below.
The 1950s
Although the 1950s was viewed as the marketing era outside healthcare,
marketing was essentially not on the radar screen in healthcare during this
period. True, the emerging pharmaceutical industry was beginning to market to physicians and the fledgling insurance industry was beginning to
market health plans. In the healthcare trenches, however, healthcare providers
The History of Marketing in Healthcare
9
Other pioneers included Ann Fyfe and Judith S. Neiman, who carried the marketing banner often in the face of strong resistance. Fyfe served as a top marketing and
strategy administrator for several healthcare systems. She served as a member of the
American Marketing Association’s board and assisted the association with the formation
of a healthcare section, the Academy of Health Services Marketing. Neiman served as the
executive director of the Society for Healthcare Strategy and Market Development of the
American Hospital Association. Among other marketing practitioners were pioneers like
Dan Beckham and Scott MacStravic. Beckham played an early role in the establishment
of organizations for healthcare marketing professionals.
MacStravic (1977) can trace his pioneering marketing activities to the mid-1970s
and is credited with the first book on healthcare marketing. MacStravic served as a marketing executive for hospitals and health systems all over the United States and pioneered
some of the early healthcare marketing initiatives.
In the academic arena Eric Berkowitz, a long-time professor of marketing at the
University of Massachusetts, built on the early work of Kotler to help establish healthcare marketing as a legitimate component of academic marketing. Berkowitz has published numerous books on healthcare marketing, including Essentials of Health Care
Marketing. Other academics who contributed to the establishment of healthcare marketing were Steve Brown and Roberta Clark.
This brief discussion cannot include all those who contributed to the development
of healthcare marketing as a separate field, but it does pay tribute to a few of the pioneers who, often in the face of great odds, advanced the cause of healthcare marketing
in its early days.
were light-years away from formal marketing activities. Hospitals and physicians for the most part considered marketing (i.e., advertising) to be inappropriate and even unethical. This did not preclude marketing on the part
of hospitals through free educational programs and PR activities, nor did
it prevent physicians from cozying up to potential referring physicians and
networking at the country club with their colleagues. These activities were
not considered to be marketing in the parlance of the day.
As the hospital industry came of age and large numbers of new facilities were established, the industry continued to reflect the production orientation that was waning throughout the rest of the U.S. economy. The
demand for physician and hospital services was considered inelastic, and
no attention was paid to the patient, much less the consumer. The empha-
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Marketing Health Services
Box 1.2:
The Evolution
of Marketing
Business Orientation
Manufacturer
Hospital
Production
Sales
Marketing
Produce quality product
Generate volume
Satisfy needs/wants
Deliver quality care
Fill hospital beds
Satisfy needs/wants
sis was on providing quality care, and most providers held monopolies or
oligopolies in their markets.
The 1960s
As the health services sector expanded during the 1960s, the role of PR
was enhanced. While the developments that would force hospitals and other
healthcare organizations to embrace marketing were at least a decade away,
the field of PR was flourishing. This relatively basic marketing function was
the healthcare organization’s primary means of keeping in touch with its
various publics.
The publics of this period were primarily the physicians who admitted or referred patients to a healthcare organization’s facilities and the
donors who made charitable contributions to the organization. Consumers
were not considered an important constituency because they did not directly
choose hospitals but were referred by their physicians. The use of media
to advance strategic marketing objectives had not evolved, and media relations in this era often consisted of answering reporters’ questions about
patient conditions.
Print was the medium of choice for communications throughout the
1960s, in spite of the increasingly influential role the electronic media were
playing for marketers in other industries. This was the era of polished annual
reports, informational brochures, and publications targeted to the community. Health communications became a well-developed function, and
hospitals continued to expand their PR function.
Some segments of the healthcare industry entered the sales stage
during this decade. Sales forces were established to solicit physicians on
the part of pharmaceutical companies and individuals on the part of insurance plans. Sales forces in the employ of healthcare providers, however,
were still a development for the future.
The 1970s
During the 1970s, hospitals felt a growing urgency to take their case to the
community. This was coupled with the growing conviction that, in the future,
healthcare organizations were going to have to be able to attract patients.
Legal restrictions on marketing were loosened, and many organizations
The History of Marketing in Healthcare
extended their PR functions to include a broader marketing mandate. Such
activity appeared to be particularly strong in parts of the country where
health maintenance organizations (HMOs) were emerging.
The 1970s witnessed the growing importance of the for-profit hospital sector. With few limits on reimbursement, both not-for-profit and forprofit hospitals expanded services. Continued high demand for health
services and the stable payment system created by Medicare made healthcare attractive to investor-owned companies. Numerous national for-profit
hospital and nursing home chains emerged during this period.
Much of the early interest in healthcare marketing was generated
from outside the industry, principally by academic marketers who saw an
opportunity to expand marketing’s scope into industries where it was rare.
Philip Kotler was an early proponent of healthcare marketing from this
perspective. Some early attempts at advertising health services were made,
and interest in market research was beginning to emerge. Official recognition of marketing came with a conference on the topic sponsored by the
American Hospital Association in 1977, and the movement was given impetus by rulings that allowed healthcare providers to advertise.
For hospitals, the sales era began in the mid-1970s with the changes
that occurred in reimbursement. Under cost-based reimbursement (a la
Medicare), competition with other hospitals was not a major concern.
Hospitals had ample patients, lengths of stay were not a concern, and occupancy rates were high. Hospitals treated patients and passed along the actual
costs, along with an appropriate profit margin, to third-party payers for
reimbursement. The first and top priority was to acquire as many patients
as possible. Traditionally, this goal was accomplished by attracting as many
physicians as possible to admit patients to the hospital. The hospital wanted
to maximize the number of patients that were admitted into the facility
when directed by their doctors. Hospitals tried to entice doctors to admit
to a particular facility, developed physician-relations programs to bond with
the providers, and offered other enticements to encourage physician loyalty (Berkowitz 1996).
When hospitals recognized that patients might play a role in the
hospital-selection decision, a second strategy for selling to the public
emerged. In the mid-1970s many hospitals adopted mass-advertising strategies to promote their programs, including the use of billboard displays and
television and radio commercials touting a particular service. The advertising goal was to encourage patients to use the hospital facilities when the
doctor presented a choice or to self-refer if necessary (Berkowitz 1996).
These developments reflected healthcare’s evolution to the sales stage.
Marketing as we know it today still had not taken root in hospitals
by the decade’s end. Competition for patients was increasing, and hospi-
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Marketing Health Services
tals and other providers turned to the familiar PR function for their promotional efforts. Communications efforts were beginning to be targeted
toward patients, and patient satisfaction research grew in importance. Even
so, marketing as a mechanism for managing the flow of services between
an organization and its customers was still not a recognized function in
most healthcare organizations.
The 1980s
If healthcare marketing was born in the 1970s, it came of age in the 1980s.
The healthcare industry had evolved from a seller’s market to a buyer’s
market, a change that was to have a profound effect on the marketing of
health services. Employers and consumers had become purchasers of healthcare, and the physician’s role in referring patients for hospital services was
beginning to diminish. The 1980s witnessed the continued growth of the
hospital industry, as centrally managed health systems (both for profit and
not for profit) expanded. The dramatic growth of megachains of hospitals
and other facilities was initiated during this period, and this development
was to have a profound effect on marketing.
Marketers had to begin looking at audiences in an entirely different
way, and the importance of consumers was heightened by the introduction
of the prospective payment system. Hospitals began to think of medical care
in terms of product or service lines, a development that was to have major
consequences for the marketing of health services. Hospitals realized that
marketing directly to consumers for services such as obstetrics, cosmetic surgery, and outpatient care could generate revenue and enhance market share.
Many providers became convinced that they could bring about shifts
in market share through marketing initiatives; like many movements in
healthcare, once a few hospitals started marketing many others followed
suit. However, many healthcare organizations felt that they were in a class
by themselves and thus did not need to advertise. Often, when they did
advertise, it was mainly in response to marketing initiatives by other
providers. Even when providers conceded that they did have competitors,
marketing was not necessarily their first response.
Although marketing was beginning to be accepted, healthcare suffered from a lack of professional marketing personnel. Many marketers during this period were not familiar with healthcare and had limited expertise
in transferring techniques from other industries to healthcare. There was
no way for healthcare administrators to link marketing efforts to return on
investment, and many saw marketing (especially advertising) as an expensive PR gimmick. Marketing was simply not considered an integral component of operations; at that time (and even today) marketers were
considered outsiders by other health professionals.
The History of Marketing in Healthcare
The rise of service-line marketing launched the great hospital advertising wars of the 1980s. Barely a blip on the healthcare marketing radar
screen a decade earlier, advertising’s growth during this decade was dramatic. In 1983, the year the prospective payment system was launched,
hospitals spent $50 million on advertising; in 1986 that figure had risen
to $500 million, a tenfold increase in three years. Once a medium of dubious respectability, advertising was now hailed as a marketing panacea for
hospitals (Berkowitz 1996).
The proliferation of hospital advertising was fueled by an increasingly competitive marketplace and a belief among marketing professionals
that advertising was the key to competitive success. Whatever the problem,
advertising was viewed as the solution. In fact, many marketing directors
defined their marketing programs in terms of the size of their advertising
budget.
However, much of the advertising of the mid- to late 1980s was ineffectual at best and disastrous at worst. Many of the campaigns involved poorly
conceived strategies and led to an enormous waste of dollars. Ad copy tended
to be institutionally focused, and healthcare marketing initiatives lacked the
impact of the advertising produced in other industries. This was due to a
great extent to the conservative, risk-averse culture of hospitals.
Although marketing involves a great deal more than advertising, certainly this was the activity that epitomized marketing for many in healthcare during this period. Marketers themselves contributed to the perpetuation
of this notion, and even today many healthcare executives equate marketing with advertising. Ultimately, this surge in advertising was both a blessing and a curse. The perception of marketing as advertising certainly helped
get the ball rolling. Advertising campaigns were something relatively concrete in which the organization could invest. Establishing advertising
budgets and developing advertising initiatives were the quickest ways to
get marketing incorporated into healthcare and gain some visibility for this
function. On the other hand, the lack of success of much healthcare advertising and the often negative fallout it generated were definitely setbacks
for healthcare marketing.
The perception of marketing as advertising ultimately had a serious
negative effect on healthcare marketing. After the initial rush generated by
seeing their billboard and television commercials, hospital administrators
began to question the expense and, more important, the effectiveness of
the marketing initiatives they were funding. Many health professionals and
consumers considered hospital advertising as distasteful at best.
Despite the misplaced emphasis on advertising, the explosion in healthcare advertising probably did more to establish marketing as a legitimate
force in the industry and attract the attention of both professionals and
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Marketing Health Services
consumers than any other development. At the same time, the reckless
advertising that characterized the 1970s and 1980s ultimately contributed
to the discrediting of marketing in the late 1980s. Even during the 1980s,
there was a great deal of residual resistance to marketing among health
professionals, especially physicians, as well as a public reaction to marketing expenditures in the face of rising costs for consumers.
Already skeptical about the merits of marketing, especially advertising, healthcare organizations faced serious financial retrenchment in the
1980s. In addition, managed care was becoming a factor, and many thought
this would obviate the need for marketing. Hospitals were looking for cuts
wherever they could find them, and marketing expenditures were easy targets. Budgets were cut, and marketing staff were laid off. While the marketing function was not entirely eliminated, it was often incorporated into
business development or strategic planning. In many places marketing went
underground, and dedicated marketing professionals kept the field alive.
In some healthcare organizations marketing essentially disappeared as a
corporate function and was never brought back. On the positive side, this
retrenchment allowed healthcare marketers to reassess the field and concentrate on developing the baseline data that could be used when a marketing revival inevitably occurred.
Consumer research grew in importance as the emphasis on the consumers of health services increased. While most hospitals had conducted
patient satisfaction research for some time, consumer research was virtually unknown until the 1970s. By the mid-1980s, two-thirds of hospitals
were conducting physician and consumer research. The latter was crucial
in developing advertising messages and monitoring the success of marketing programs (Berkowitz 1996).
The 1990s
As healthcare became market driven in the 1990s, the marketing function
grew in importance within healthcare organizations. The institutional
perspective that had long driven decision making gave way to market-driven
decision making. Hospital policies and procedures that had been established for the convenience of the hospital staff, not for the benefit of the
patient, were reexamined and looked at from the point of view of customers
and other external audiences. The popularity of guest-relations programs
during the 1990s solidified the transformation of patients into customers.
The 1990s represented a turning point in developing a real marketing perspective in healthcare. Every hospital was now trying to win the “hearts
and minds” battle for the healthcare consumer.
Changes in the marketplace created new paradigms for marketing
professionals. The rise of integrated delivery systems dictated a new approach
The History of Marketing in Healthcare
to institutional marketing. Whereas physicians were the dominant audience
in pre–managed-care marketing, suddenly purchasing groups (e.g., employers, business coalitions) increased in importance.
Although the integrated delivery systems movement ran out of steam,
advertising thrived in the mid-1990s, spurred by the massive wave of hospital mergers. Mergers and consolidations resulted in the creation of larger
organizations that had more resources and more sophisticated management. Executives entered the field from outside healthcare, bringing a more
businesslike atmosphere.
The marketing of the emerging megasystems demanded more than
advertising. PR achieved new status as the positioning tool of choice. To
gain credibility for newly merged health systems or reinforce positioning
for established ones, healthcare organizations turned to various print and
electronic media. The media-relations function became a strategic tool for
showcasing clinical centers of excellence or institutional programs. The rise
in healthcare media and the interactive technology of the Internet combined to create an informed consumer who was more empowered with information than at any other time in human history.
The consumer was rediscovered during this process, and the directto-consumer movement was an outgrowth of these developments. As consumers gained influence, marketing became increasingly integrated into
the operations of healthcare organizations. The consumers of the 1990s
were better educated and more assertive about their healthcare needs than
consumers of the previous generation. The emergence of the Internet as a
source of health information furthered the rise of consumerism. Newly
empowered consumers were taking on an increasingly influential (if informal) role in reshaping the U.S. healthcare system. Consumers were beginning to challenge physicians and their health plans armed with unprecedented
knowledge.
Accountability became a hallmark of the new consumerism and was
evidenced by the report cards issued on health plans and healthcare providers.
Increasingly, employer groups and consumers were beginning to demand
measurable clinical-outcomes data on providers and health plans. Empowered
consumers demanded information on the services and pricing of health
plans, hospitals, and physicians as they sought to make informed decisions.
The backlash against managed care and consumer’s rights legislation further improved the standing of the consumer. Indeed, the reaction to managed care has provided marketers with the challenge of damage control
and image building for managed care plans.
During the 1990s, health professionals developed a new perspective
on the role of marketing, aided by a new generation of healthcare administrators who were more business oriented. A more qualified corps of mar-
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Marketing Health Services
keting professionals, who brought ambitious but realistic expectations to
the industry, emerged. Pharmaceutical companies began advertising directly
to consumers, and this development made everyone in the industry more
aware of marketing. In addition, virtually everyone in healthcare was becoming more consumer sensitive, and data that allowed for a better understanding of the healthcare customer were becoming available.
Marketing research grew in importance during this decade. The need
for information on consumers, customers, competitors, and the market
demanded expansion of the research function. Patient and consumer research
was augmented, and newly developed technologies brought the research
capabilities of other industries to healthcare.
Business practices in general came to be more accepted in healthcare during this period, and marketing was an inevitable beneficiary.
Marketing was repackaged in a more professional guise, and the shift away
from advertising was noticeable. Marketing ended the decade as a more
mature discipline, emphasizing market research and sensitivity to the needs
of the consumer. Healthcare had finally reached the third stage in the evolution of the marketing function.
The Future of Healthcare Marketing
The marketing that characterizes healthcare today is different from that of
the early years in a number of ways. In the 1990s, the emphasis shifted
from sick people to well people in response to the emergence of managed
care and capitated payments. Patient satisfaction became a new focus, and
efforts at generating consumer data increased. The baby boomers who were
coming to dominate the healthcare landscape viewed marketing more as a
source of valuable information than as hucksterism and were disinclined to
utilize an organization that did not cater to their interests.
Image advertising was deemphasized in favor of targeted promotions for specific services, making for more content and less fluff. Techniques
from other industries, like customer relationship marketing, started being
explored. A new generation of healthcare administrators seem to be more
comfortable with marketing, considering this function an inherent aspect
of healthcare operations.
With the repackaging and maturation of marketing in the 1990s, the
field became more sophisticated overall. The market was in many ways more
competitive, and even the managed care environment held opportunities
for promotional activities. In addition, the mergers that occurred not only
created more potential marketing clout but often involved for-profit healthcare organizations that were inherently more marketing oriented.
A new cohort of healthcare administrators is certainly contributing
to a greater acceptance of business practices, including marketing. The
The History of Marketing in Healthcare
1990s witnessed a massive turnover in hospital administrators through
retirement, mergers, and downsizing. Many of these new administrators
have come from other, often more profit-oriented industries where marketing is considered a normal corporate function. These administrators are
instilling a marketing mind-set in keeping with the more strategic orientation they bring to the industry.
While some still focus primarily on advertising and sales, marketing executives today are expanding their toolbox with a renewed emphasis on research, measurement, planning, analysis, forecasting, targeting,
segmentation, and strategy. Reliable and effective public, media, and community relations; customer service; and reputation and relationship management are making a comeback, demonstrating the effectiveness of
carefully designed, low-cost methods in reaching audiences and swaying
public opinion.
Evidence of the Acceptance of Marketing
Today, what evidence exists that marketing has been accepted as a legitimate function by the healthcare industry? Beyond the traditional marketing-oriented sectors (e.g., pharmaceuticals, consumer products, health
plans), have healthcare organizations embraced marketing? A number of
indicators bear witness to this acceptance.
The healthcare industry has witnessed a continuous, if unsteady,
advance in the role and status of marketing over the past quarter century.
During the period following World War II the concept of marketing was
unknown in healthcare. The PR role was expanded over time, and communications and government-relations functions were added. By the late
1970s formal marketing activities were being initiated, and advertising on
the part of healthcare providers was becoming common. Even during the
1980s, however, marketing was still seen by many as an external function,
not something inherent to healthcare but a supportive service that was
called on when needed.
By the end of the 1980s marketing was being incorporated into the
structure of healthcare organizations. Marketing departments were being
established and marketing expenses factored into organizational budgets.
Marketers were being promoted to managers, directors, and ultimately vice
presidents. Marketing was moving from the periphery of the organization
to the boardroom. Marketers were transformed from technical resources
called on as needed to full partners in the corporate decision-making process.
The most progressive healthcare organizations developed a marketing mind-
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Marketing Health Services
set that ensured that marketing was a consideration with every initiative
and that marketers had input into the direction of the enterprise.
A sur vey of nearly 300 hospitals by the Society for Healthcare
Strategy and Market Development (SHSMD) found that in 2002 hospital marketing departments averaged 5.7 staff members with budgets of
$1.2 million (SHSMD 2002). Larger hospitals reported 10 or more staff
members and budgets in excess of $3 million. The majority of marketing
executives were at the director or manager level of the organization,
although nearly one-third of marketing managers held the title of vice
president or senior vice president (SHSMD 2002). Another SHSMD study
of 706 marketing, communications, and strategy staff reported in 2003
an average salary for marketing executives of $122,000. This compares
favorably to the compensation of healthcare executives in other departments (SHSMD 2003).
The importance of marketing for healthcare is also reflected in the
emergence of publications devoted to the topic. These include Marketing
Health Services, the healthcare publication of the American Marketing
Association, and Health Marketing Quarterly. Articles on healthcare marketing regularly appear in other marketing journals as well. Numerous
newsletters are devoted to healthcare marketing or some component of it
such as health communications or PR.
Associations devoted to healthcare marketing such as SHSMD, sponsored by the American Hospital Association, have been established. The
American Marketing Association has an active healthcare marketing constituency, and one of its eight special-interest groups is devoted to healthcare.
Textbooks on healthcare marketing began appearing in the 1980s,
and healthcare marketing courses are taught as part of many marketing curricula in U.S. universities. Courses on the topic are now standard in healthcare administration programs. Specialized training programs on various
aspects of healthcare marketing are offered by numerous universities and
other training programs.
These developments reflect both the growing importance of marketing in the healthcare arena and its changing role. The ways in which
marketing is being transformed as it matures within the healthcare industry will be discussed throughout this book. Case Study 1.1 demonstrates
the hard lessons learned from an early attempt at healthcare marketing.
Summary
Since the notion of marketing was introduced to healthcare providers during the 1970s, the field has gone through various periods of growth, decline,
retrenchment, and renewed growth. Although the 1950s is considered to
The History of Marketing in Healthcare
mark the beginning of the “marketing era” in the United States, the establishment of the marketing function within U.S. healthcare took several
decades.
During the post-World War II period, U.S. society underwent a number of changes that facilitated the growth of marketing. The healthcare
industry eventually progressed through the stages of production, sales, and
marketing, adopting many of the concepts and techniques of other industries along the way. Building on their experience in public relations and
communications, healthcare organizations expanded their range of marketing techniques to encompass a variety of different approaches.
Early in this process, marketing was often equated with advertising,
and, beginning in the 1980s, many healthcare organizations initiated major
advertising campaigns. The limitations (and costs) of traditional advertising were eventually realized, and healthcare organizations began developing a more balanced approach to marketing. Over time, direct sales
capabilities were added and technology-based marketing techniques were
adopted. A new generation of health professionals offered a more mature
approach to marketing as the twentieth century drew to a close.
Once marketing became accepted as an essential business function,
healthcare organizations allowed marketers an expanded role. During this
period of growth and development, marketing moved from the periphery
of the corporation (and its status as a necessary evil) to a core function for
determining the direction of the corporation. Marketers were given highlevel administrative positions and the opportunity to sit in the corporate
boardroom. By the beginning of the twenty-first century, marketing was
poised to have a major impact on the future direction of healthcare.
Discussion Questions
•
•
•
•
•
Why was marketing not considered important by healthcare professionals until the 1980s?
What factors mitigated against the introduction of marketing into
healthcare?
What factors ultimately forced the incorporation of marketing into
healthcare?
Why is today’s healthcare environment more hospitable to marketing and marketers than past environments?
In what ways have marketers become better prepared to address the
needs of healthcare?
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References
Berkowitz, E. N. 1996. Essentials of Health Care Marketing. Gaithersburg, MD:
Aspen.
MacStravic, R. E. S. 1977. Marketing Healthcare. Gaithersburg, MD: Aspen.
Society for Healthcare Strategy and Market Development. 2002. Marketing by
the Numbers. Chicago: American Hospital Association.
———. 2003. Salary, Compensation and Work Satisfaction Study. Chicago:
American Hospital Association.
Additional Resources
American Marketing Association. www.ama.org.
Health Marketing Quarterly, published by The Haworth Press.
Herzlinger, R. E. 1997. Market-Driven Health Care. Reading, MA: AddisonWesley.
Marketing Health Services, published by the American Marketing Association.
Society for Healthcare Strategy and Market Development. http://www.hospitalconnect.com/shsmd.
CASE STUDY
1.1
AN EARLY ATTEMPT AT HEALTHCARE
MARKETING
I
n the late 1970s healthcare providers engaged in little discussion of marketing. Indeed, early pioneers in the field of healthcare marketing were
just emerging. Ann Fyfe was an aggressive 28-year-old owner of a small
advertising agency in Colorado. Her clients included a western clothing
manufacturer, an irrigation system company, and an international food distributor. Fyfe subscribed to Philip Kotler’s marketing formula based on the
four Ps—product, price, place, and promotion (see Box 4.3 in Chapter 4),
an approach that had worked well for her in the past.
In 1978, Fyfe was enticed by a visionary CEO at a major hospital
in San Francisco to bring her marketing formula and suitcase of implementation strategies to a hospital setting. Fyfe jumped at the opportunity
to bring what appeared to be a virtually bulletproof system for generating
revenue into a field that seemed to be rich with possibility and amazingly
untouched by the whole notion of marketing.
Fyfe and her colleagues rolled up their sleeves and got to work. They
surveyed consumers using both qualitative and quantitative methods. They
found out what consumers wanted and what approaches they would respond
to. They designed innovative programs built around customer-friendly products. They established among others an executive physicals program called
Vital, an urgent care center in the hospital called CliniCare, and one of the
first sports-medicine programs in the United States.
In the area of promotions, no expense was spared. A sales force was
established, and a major ad agency was engaged to develop clever collateral
materials and radio spots. They used direct mail and radio for both public
service announcements and paid advertising. They also implemented a full
program of community services, from dinners for seniors to wellness programs at health clubs to educational seminars. The marketing initiative was
so impressive that it could boast Charles Schwab as the chair of the board’s
marketing committee and was considered newsworthy enough to be featured on the Today Show.
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Marketing Health Services
All of the hospital’s innovative programs had respectable returns on
investment despite (or maybe because of) the fact that they spared no
expense on promotions. Corporations were eager to offer a suite of health
services to their executives, consumers loved the urgent care clinic, and
sports medicine boomed along with the wellness craze of the 1970s.
Despite the apparent success of the hospital’s aggressive marketing
program, the process soon experienced an ironic twist. Within two years
of pulling off this marketing miracle, one that nearly every other U.S. hospital was eager to copy, Fyfe and the hospital’s CEO were summarily fired
by the physician-dominated hospital board.
As a fledgling healthcare marketer, no one had said anything to Fyfe
about physicians. She was busy listening to customers, and they loved what
the hospital was doing. However, the medical staff was an entirely different type of hospital customer. To some physicians, the hospital represented
direct competition in that physical exams and urgent care patients were
being diverted away from their practices. Most staff doctors, however, experienced a more visceral reaction: this slick marketing approach felt sleazy,
commercial, and inappropriate, and the culture of medicine was simply not
ready for it.
Meanwhile, hospitals everywhere were lining up to learn how to
replicate this organization’s dubious success. In response to overwhelming demand, Fyfe assisted the American Marketing Association in the formation of a healthcare section. She also formed and became president of
the Northern California Health Care Marketing Association. Fyfe received
one of the first Modern Healthcare “up and comer” awards and was presented with a cash prize by the HealthCare Forum for her article on
CliniCare. (Unfortunately, a hospital CEO in the audience at the award
ceremony actually stood up and reminded Fyfe’s enthusiastic fan club that
her activities had managed to get her CEO fired.)
Fyfe is still active in healthcare marketing and believes that she has
helped shape a profession and contributed to a more mature approach to
marketing. Over time her contributions have made healthcare organizations smarter about their business decisions, more cautious about advertising, and more sensitive to the needs of their customers. The experience
has made Fyfe smarter too. Today she works closely with her primary strategic partner in the marketing enterprise—the physician.
CHAPTER
THE CHALLENGE OF HEALTHCARE
MARKETING
2
T
he marketing of healthcare goods and services is not comparable to
the marketing that takes place in any other industry. For that reason,
healthcare marketing presents special challenges. The extent to which
healthcare is different from other industries, and the implications of this
for marketing, cannot be overemphasized. This situation requires a specialized approach to the marketing endeavor in healthcare, along with a
need to develop healthcare-specific techniques to complement marketing
techniques adopted from other industries.
The conditions that historically surrounded healthcare mitigated the
need for and interest in marketing for the majority of organizations involved
in patient care. The slow acceptance of marketing in healthcare described
in Chapter 1 reflects a number of characteristics of the healthcare industry
as well as the attributes of healthcare organizations, products and services,
professionals, and consumers. The historical challenges that have faced
healthcare marketing are described in the sections that follow, and the
developments that are now encouraging healthcare organizations to overcome these challenges are reviewed.
Why Healthcare Is Different
Even a cursory knowledge of U.S. healthcare would lead an observer to
note that healthcare is truly different from other institutions in American
society. Healthcare as an industry is set apart from the other sectors of
economy because of its unique characteristics. The characteristics of healthcare organizations stand in contrast to the characteristics of firms in other
industries, with healthcare providers in particular behaving in a manner
often inconsistent with that of organizations in other fields. Health professionals, especially clinicians, fall into a special category, and the fact that
clinicians—not administrators or businesspeople—make most of the decisions with regard to patient care creates a dynamic unique to healthcare.
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Marketing Health Services
The nature of healthcare goods and services sets them apart from the goods
and services offered in other industries. Furthermore, significant differences exist between healthcare consumers and the consumers of virtually
any other good or service. These differences are particularly apparent with
regard to the consumer decision-making process. Each of the factors that
makes healthcare different is discussed below.
The Healthcare Industry
The development of a marketing culture in any industry is predicated on
the existence of certain assumptions about that industry and the marketing enterprise. These assumptions include the existence of a rational market for the goods and services proffered by the organizations in that industry.
It is presumed that the market involves organized groups of sellers, informed
buyers, an orderly mechanism for carrying out transactions between sellers and buyers, and a straightforward process for transferring payment for
products between buyers and sellers.
The existence of a true market in an economic sense in healthcare
has been much debated. It could be argued that, to the extent that any
type of market for health services exists, it is not rational in the sense of
the markets for other goods and services. The operation of a market further assumes that consumers have adequate, if not perfect, knowledge concerning the available goods and services, that a rational system of pricing
exists, and that the laws of supply and demand operate.
Furthermore, the existence of a market is predicated on assumptions
about the motives and activities of buyers and sellers in the market. For
example, the assumption that buyers are driven primarily, if not exclusively,
by economic motives does not fit well with what we know about the behavior
of healthcare organizations. Another assumption from economic theory—
that buyers seek to maximize their benefits from the exchange—is also an
uncomfortable fit. Thus, a number of factors operate to prevent the buyers of health services from operating in the same manner as the buyers of
lawn services or accounting services.
The existence of a market also presumes that sellers compete for the
consumer’s resources and that this competition determines the price of the
goods and services offered. In healthcare, however, it is not unusual for
healthcare providers to maintain a monopoly over a particular service within
a particular market. It is even more common for oligopolies of healthcare
organizations to dominate a particular market. Thus, the buyer of health
services is frequently limited in her choice of medical personnel or facilities.
As an industry, healthcare also differs from other sectors of society
in terms of the diverse goals of its key organizations. The packaged goods
industry, for example, has the unitary goal of producing, marketing, and
The Challenge of Healthcare Marketing
distributing products directly to the consumer. The goals are straightforward whether the product is detergent, cereal, or office supplies. The intent
is to sell as many units as possible while extracting the maximum profit
from the transaction. This does not mean that retailers do not serve other
purposes. They provide employment and benefits for their employees and
profits for their shareholders, and they usually contribute to the community in the form of donations, sponsorship of events, and so on, but these
activities are secondary to their single-minded goal of selling consumer
products. The diffuse goals of most healthcare organizations distinguish
them from other firms.
Many healthcare organizations suffer from a lack of seller discretion.
In other industries, potential buyers who do not have the ability to pay or
who for some other reason are considered to be undesirable customers can
be refused service. Most healthcare organizations, on the other hand, are
obligated to accept clients even though the clients are unable to pay for
the services and are deemed “undesirable.” Hospitals are bound by law in
most cases to accept patients regardless of the patient’s ability to pay. While
providers may have some discretion in acceptance of patients with stable,
routine conditions, emergency departments essentially cannot turn away
any patient needing emergency care until the patient has at least been stabilized. While physician offices may require some payment on the front
end for those patients without insurance, there are ethical considerations
associated with turning a clearly symptomatic patient away.
This situation means that healthcare organizations often provide
services that are not profitable. In some cases, this reflects the fact that certain services (e.g., emergency rooms at hospitals) may be legally mandated
or otherwise controlled through regulation; in other situations, it reflects
the fact that hospitals, and to a lesser degree physicians, must offer the
comprehensive services required by the community to remain competitive.
Thus, the economic considerations that apply to other industries may be
moderated by factors unique to healthcare.
The healthcare industry also tends to be much less organized than
other industries in the United States. Often referred to as a nonsystem,
healthcare lacks the coordination and centralized (albeit often informal)
systems of control found in other industries. Even industries characterized
by cutthroat competition typically have a central clearinghouse of industry data and mechanisms for cooperating for the benefit of the industry
overall. In contrast, the healthcare industry is characterized by fragmentation, discontinuity, and a lack of coordination. It is also characterized by
a dismaying lack of information on the industry itself and on its key players. As a result, healthcare lacks the organization typically characteristic of
an established market.
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Marketing Health Services
Unlike other industries, healthcare lacks a straightforward means of
financing the purchase of goods and services, particularly for patient care
services. Consumers in other industries typically pay directly for the goods
and services they consume, either out of pocket or through some method
of credit. In healthcare, while some small portion of the cost may be paid
out of pocket by the consumer, the majority of the fees are likely to be paid
by a third party. This may be a private insurance plan or a governmentsponsored plan such as Medicare or Medicaid. The seller may have to deal
with thousands of different insurance plans, and the services may be paid
for using a combination of different payment mechanisms. Thus, it is not
unusual for an elderly patient to pay for a hospital visit with Medicare reimbursement, supplementary private insurance reimbursement, and out-ofpocket payments. This type of situation cannot be found in any other
industry and results in a much more complicated financial picture for healthcare than for other industries.
Finally, healthcare is different from other industries in that generally
accepted laws of supply and demand seldom apply. An increase in the supply of health services, for example, does not necessarily result in a decrease
in prices, nor does increased demand invariably drive up prices. Because the
demand for health services is relatively elastic, the normal rules do not apply.
For one thing, the availability (supply) of services dictates, to a certain extent,
the demand for these services. In fact, the historical maxim was, “A bed built
is a bed filled.” Pent-up demand for health services often surfaces when more
facilities become available. As a result, neither the increased supply of beds
nor the increase in demand has a significant effect on prices.
The factors that govern supply, demand, and price in healthcare are
complex and unique to this industry. The supply of health services is affected
by the vagaries of health professional training programs, restrictions brought
to bear by certificate-of-need processes and other regulations, and even
fads that affect the healthcare industry. The level of demand, arguably the
most problematic of the three governing factors, is typically not controlled
by the end user. Except for elective procedures for which the consumer
pays out of pocket, most of the decisions that affect the demand for health
services are made by gatekeepers such as physicians and health plans. Thus,
the level of demand is more often a function of such factors as insurance
plan provisions, availability of resources, and physician practice patterns
than the level of sickness within the population.
Healthcare Organizations
A number of characteristics set healthcare organizations apart from the sellers in other industries. Many healthcare organizations, particularly hospitals, still linger in the production stage of their evolution. Many such
The Challenge of Healthcare Marketing
organizations argue that their goal is the provision of high-quality medicine. They feel that by providing state-of-the-art technology and the physicians, nurses, and allied health personnel to support it, they will be able to
attract customers.
As with the early industrialists, many of these healthcare organizations
have historically maintained oligopolistic or even monopolistic control over their markets. Because of their dominance in the market or
arrangements with competitors, health ser vices providers have often
been able to ensure a steady flow of patients without having to solicit
them. Today, however, few organizations can command that type of
loyalty. Virtually all healthcare organizations face some competition,
and innovations like telemedicine have broadened the scope of wouldbe competitors.
Healthcare organizations tend to be multipurpose organizations.
While some purveyors of healthcare goods or services are single minded in
their intent, large healthcare organizations like hospitals are likely to pursue a number of goals simultaneously. Indeed, the main goal of an academic medical center may not be the provision of patient care at all; it may
be education, research, or community service, with direct patient care being
a secondary concern. Even large specialty practices are likely to be involved
in teaching and research, and, while they are not likely to neglect their core
activity, they often have a more diffuse orientation than organizations in
other industries.
Not-for-profit organizations have historically played a major role in
healthcare; even today, not-for-profits continue to control a large share of
the hospital-bed inventory. Although physician groups are usually incorporated as for-profit professional corporations, large numbers of community-based clinics, faith-based clinics, and government-supported programs
operate on a nonprofit basis. This not-for-profit orientation creates an environment much different from that characterizing other industries. The fact
that many health facilities and programs operate with government support
also creates a different dynamic. For some organizations the unpredictability
of government subsidy is an unsettling factor. For others the assurance of
government support allows them to operate perhaps less efficiently than
they would otherwise.
Another factor that sets healthcare organizations apart from their
counterparts in other industries is the emphasis placed on referral relationships. Hospitals depend on admissions from their medical staffs, and
their staff members in turn depend on referrals from other physicians.
Indeed, except in emergency situations, patients can only gain hospital
admission through a referral. Many specialists will not accept self-referred
patients but rely on other physicians to send them patients. The same types
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Marketing Health Services
of referral relationships exist with regard to other services (e.g., home
healthcare, nursing homes).
This situation has become more complicated in that health plans
may exert some level of influence over the referral process. Not only do
health plans determine which providers can be seen under a particular
coverage plan, they may require patients to be referred to specialists and
may even seek to authorize any such referrals. In no other industry do
parties who are not the end user exert such an influence on the process
(see Box 2.1).
Box 2.1:
The
Importance of
Referral
Relationships
Healthcare is distinguished from other industries because of its reliance
on referral relationships. Referral relationships as used here include any
mechanism for the steering of consumers by a third party into the distribution channels of a healthcare organization or any use of an intermediary to promote goods and services to healthcare consumers. The
importance of such relationships in healthcare is reflected by the fact
that the end users of health services frequently do not make the consumption decision
themselves. The purchase decision may be made by a physician, health plan, or some
other party. This means that the marketer is more likely to target physicians, provider
networks, health plans, and other gatekeepers that may influence the referral process
rather than the end user.
There are situations in which the end user is targeted in healthcare. A wide range
of consumer health products are marketed like a…
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