Health Care Marketing: Tools and Techniques Third Edition John L. Fortenberry, Jr., MBA, PhD (Public Administration and Public Policy), PhD (Business Administration) Health Administration Department Chair MHA Program Director James K. Elrod Professor of Health Administration and Professor of Marketing College of Business Louisiana State University in Shreveport Shreveport, Louisiana 9781449637255 World Headquarters Jones and Bartlett Publishers 40 Tall Pine Drive Sudbury, MA 01776 978-443-5000 info@jbpub.com www.jbpub.com Jones and Bartlett Publishers Canada 6339 Ormindale Way Mississauga, Ontario L5V 1J2 Canada Jones and Bartlett Publishers International Barb House, Barb Mews London W6 7PA United Kingdom Jones and Bartlett’s books and products are available through most bookstores and online booksellers. To contact Jones and Bartlett Publishers directly, call 800-832-0034, fax 978-443-8000, or visit our website www.jbpub.com. Substantial discounts on bulk quantities of Jones and Bartlett’s publications are available to corporations, professional associations, and other qualified organizations. For details and specific discount information, contact the special sales department at Jones and Bartlett via the above contact information or send an email to specialsales@jbpub.com. Copyright © 2010 by Jones and Bartlett Publishers, LLC All rights reserved. No part of the material protected by this copyright may be reproduced or utilized in any form, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without written permission from the copyright owner. This publication is designed to provide accurate and authoritative information in regard to the Subject Matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the service of a competent professional person should be sought. Production Credits Publisher: Michael Brown Production Director: Amy Rose Production Editor: Tracey Chapman Associate Editor: Katey Birtcher Editorial Assistant: Catie Heverling Marketing Manager: Sophie Fleck Manufacturing and Inventory Control Supervisor: Amy Bacus Composition: Publishers’ Design and Production Services, Inc. Cover Design: Brian Moore Cover Image: © Handy Widiyanto/ShutterStock, Inc. Printing and Binding: Malloy, Inc. Cover Printing: Malloy, Inc. Library of Congress Cataloging-in-Publication Data Fortenberry, John L. Health care marketing : tools and techniques / John L. Fortenberry, Jr. —3rd ed. p. ; cm. Rev. ed. of.: Marketing tools for healthcare executives / John L. Fortenberry, Jr., 2nd ed., c2005 Includes bibliographical references and index. ISBN-13: 978-0-7637-6327-5 (casebound) ISBN-10: 0-7637-6327-6 (casebound) 1. Medical care—Marketing. 2. Health services administration. I. Fortenberry, John L. Marketing tools for healthcare executives. II. Title. [DNLM: 1. Marketing of Health Services—methods. W 74.1 F737h 2009] RA410.56.F675 2009 362.1068’8—dc22 2008028575 6048 Printed in the United States of America 13 12 11 10 09 10 9 8 7 6 5 4 3 2 1 Front Matter Acknowledgments About the Author Preface New to This Edition Part One Product Development & Portfolio Analysis Tools CHAPTER 1 The Product Life Cycle CHAPTER 2 Booz, Allen & Hamilton’s New Product Process CHAPTER 3 George Day’s R-W-W Screen CHAPTER 4 Theodore Levitt’s Total Product Concept CHAPTER 5 The Boston Consulting Group’s Growth/Share Matrix CHAPTER 6 General Electric’s Strategic Business-Planning Grid CHAPTER 7 Igor Ansoff’s Product-Market Expansion Grid Part Two Branding & Identity Management Tools CHAPTER 8 Schmitt & Simonson’s Drivers of Identity Management CHAPTER 9 Calder & Reagan’s Brand Design Model CHAPTER 10 Martin Lindstrom’s 5-D Brand Sensogram CHAPTER 11 Lederer & Hill’s Brand Portfolio Molecule CHAPTER 12 Kevin Lane Keller’s Brand Report Card CHAPTER 13 David Taylor’s Brand Stretch Spectrum Part Three Target Marketing Tools CHAPTER 14 The Market-Product Grid CHAPTER 15 Kotler & Trias de Bes’ Lateral Marketing Strategy CHAPTER 16 Kim & Mauborgne’s Blue Ocean Strategy CHAPTER 17 Philip Kotler’s Segment-by-Segment Invasion Plan CHAPTER 18 The Perceptual Map CHAPTER 19 Ries & Trout’s Product Ladder Part Four Consumer Behavior & Product Promotions Tools CHAPTER 20 Abraham Maslow’s Hierarchy of Needs CHAPTER 21 Everett Rogers’ Diffusion of Innovations Model CHAPTER 22 The DAGMAR Marketing Communications Spectrum CHAPTER 23 Raphel & Raphel’s Loyalty Ladder CHAPTER 24 Bernd Schmitt’s CEM Framework CHAPTER 25 Osgood, Suci, & Tannenbaum’s Semantic Differential Part Five Environmental Analysis & Competitive Assessment Tools CHAPTER 26 The PEST Analysis CHAPTER 27 The SWOT Analysis CHAPTER 28 Michael Porter’s Five Forces Model CHAPTER 29 Lehmann & Winer’s Levels of Competition Model CHAPTER 30 Mintzberg & Van der Heyden’s Organigraph Part Six Marketing Managements Tools CHAPTER 31 Leonard Berry’s Success Sustainability Model CHAPTER 32 George Day’s Market Orientation Model CHAPTER 33 Blake & Mouton’s Sales Grid Part Seven Marketing Strategy & Planning Tools CHAPTER 34 Michael Porter’s Value Chain CHAPTER 35 Michael Porter’s Generic Strategies CHAPTER 36 Kaplan & Norton’s Balanced Scorecard CHAPTER 37 Kaplan & Norton’s Strategy Map CHAPTER 38 Ries & Trout’s Marketing Warfare Strategies CHAPTER 39 Philip Kotler’s Marketing Plan Back Matter Appendix An Introduction to Marketing GLOSSARY References Index Part One Product Development & Portfolio Analysis Tools CHAPTER 1 The Product Life Cycle CHAPTER 2 Booz, Allen & Hamilton’s New Product Process CHAPTER 3 George Day’s R-W-W Screen CHAPTER 4 Theodore Levitt’s Total Product Concept CHAPTER 5 The Boston Consulting Group’s Growth/Share Matrix CHAPTER 6 General Electric’s Strategic Business-Planning Grid CHAPTER 7 Igor Ansoff’s Product-Market Expansion Grid CHAPTER 1 The Product Life Cycle LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Recognize that all healthcare products possess limited life spans, necessitating appropriate product succession planning efforts. ■ Appreciate the value of the Product Life Cycle as a tool for product succession planning and related product management activities, including portfolio planning, strategy formulation, and forecasting. ■ Identify the four stages of the Product Life Cycle and understand methods for strategically and tactically managing products during each of these stages. ■ Utilize the Product Life Cycle in the healthcare industry to effect enhanced marketing outcomes. INTRODUCTION As with all living things, products have finite life spans. This is particularly evident in the healthcare industry where continuous innovation and change have become commonplace. Regardless of the particular healthcare component examined—medical technologies, pharmaceutical products, surgical techniques and procedures, durable medical equipment manufacturing, service delivery systems, and so on—innovation is pervasive. Rapid innovation, while beneficial to society, drives existing products into obsolescence very quickly, creating obvious challenges—logistical, financial, and otherwise—for marketers who are dually charged with managing current product offerings while actively seeking to develop new products that will succeed those entering decline. Not only do products possess limited life spans, but like their living counterparts, their life spans consist of a number of developmental stages, with each of these stages presenting its own unique array of opportunities and constraints. Products must be managed differently during the different stages of their life cycles, making it imperative for marketing managers to understand these stages and the appropriate strategies to be employed—a task facilitated by a model known as the Product Life Cycle. Illustrated in Figure 1-1, the Product Life Cycle consists of a vertical axis representing sales, a horizontal axis representing time, a curve illustrating sales growth in relation to time, and four stages of development: introduction, growth, maturity, and decline. These stages of development are defined as follows. STAGE 1: INTRODUCTION The introduction stage of the Product Life Cycle involves the initial presentation of a product in the market. During this stage, sales growth slowly begins to increase as the public begins to gain awareness of newly introduced product offerings through promotional efforts. Competitors are few or nonexistent at this point. Here, marketers are primarily concerned with developing innovative promotional strategies that will increase product awareness in the market. STAGE 2: GROWTH The growth stage of the Product Life Cycle is characterized by rapidly escalating sales, courtesy of increased product awareness. This rapid sales growth generates large amounts of cash, but it also attracts competitors to the market. This necessitates that organizations reinvest the resulting cash windfalls back into these products to fend off new entrants. During this stage, marketers shift their attention from building product awareness to building brand awareness. FIGURE 1-1 The Product Life Cycle STAGE 3: MATURITY During the maturity stage of the Product Life Cycle, sales growth levels off in what has now become an established market. Plateauing sales growth causes weaker competitors to exit the market, leaving their stronger counterparts who intensely compete for market dominance. At this point, products are the most lucrative for their organizations. Because mature offerings are established in the market, it is not necessary to reinvest the entirety of cash that these products generate. Here, marketers seek to increase market share by further differentiating their products from competitive offerings. STAGE 4: DECLINE During the decline stage of the Product Life Cycle, sales growth rapidly decreases, as well as the number of competitors in the marketplace. Falling consumer demand leads marketers to either eliminate these products or seek to extend the life spans of declining offerings through the discovery of new product uses or through product repositioning. FIGURE 1-2 Product Life Cycle Variants PRODUCT LIFE CYCLE VARIANTS Although typically illustrated as an S-shaped curve, the appearance of the Product Life Cycle varies based on the marketplace experiences of product offerings. Figure 1-2 illustrates six curves that could potentially develop. Figure 1-2A illustrates the life cycle of a product that witnessed a very lengthy ascent to maturity, possibly because the public was not ready or willing to quickly accept the new offering or perhaps because the entity had difficulties informing the public of the new product’s existence. Newly established medical clinics, pharmacies, dental offices, etc. seeking to enter established markets with established providers would likely face this type of life cycle scenario as they strive to develop a customer base. Figure 1-2B depicts the life cycle of a product that gained immediate acceptance followed by a period of enduring maturity. Such a curve would possibly develop upon the discovery of a medical breakthrough that was immediately welcomed by customers, such as the discovery of a therapeutic intervention for a previously untreatable illness. Figure 1-2C depicts the life cycle of a product that entered maturity, declined, reentered maturity, and reentered decline. This cyclical pattern would be representative of, for example, a medical therapy that experienced provider and patient interest and disinterest over time. Figure 1-2D illustrates the life cycle of a product that reentered the growth stage multiple times after reaching maturity. Such a curve would be representative of, for example, a pharmaceutical product that was found to be useful for purposes beyond its original scope, resulting in extended growth beyond its initial maturity stage. Figure 1-2E illustrates the life cycle of a product that experienced a period of rapid growth followed by an immediate decline. This type of curve would be representative of, for example, a pharmaceutical product that was suddenly pulled from the market due to newly discovered health concerns. This curve would also be illustrative of a home health agency that was forced to close because of reduced reimbursement rates. Figure 1-2F illustrates the life cycle of a product that failed after its introduction into the market. This unfortunate life cycle could possibly represent any of the multiple new product offerings that are introduced into the market but fail to achieve commercial success. These examples illustrate only a few of the many Product Life Cycle variants that could possibly develop. Obviously, there are no guarantees that products will move through any or all of the stages of development. Given the unpredictable nature of product and market dynamics, it stands to reason that Product Life Cycles cannot be predetermined. OPERATIONAL MATTERS Given that all products have limited lives, marketers must actively assemble and manage product portfolios that are formulated to achieve long-term growth and prosperity. The Product Life Cycle assists marketers in this endeavor, serving as a useful portfolio planning tool. Ideally, firms will have products at all stages of the Product Life Cycle. Established offerings provide excess amounts of cash that can be used to develop and grow new products that will ensure the future viability of organizations. By assembling balanced product portfolios, marketers position their organizations for consistent, enduring growth. In addition to its strength as a portfolio planning tool, the Product Life Cycle also serves as a guide for designing marketing strategies. Because different developmental stages require different marketing actions, the Product Life Cycle provides marketers with a decision-making tool for formulating marketing strategy. The Product Life Cycle can also be used, as Theodore Levitt suggested in his classic article entitled “Exploit the Product Life Cycle,” as a forecasting tool where marketers attempt to predict the Product Life Cycles of new and anticipated product offerings. Even though Product Life Cycles cannot be predetermined, marketing strategy can be improved by formulating potential life cycle scenarios. SUMMARY The Product Life Cycle provides marketers with an effective tool for portfolio planning, strategy formulation, and forecasting. It serves as a reminder of the limited life spans possessed by products and hence the necessity for product succession planning—an essential marketing task in the innovation-rich healthcare marketplace. The insights offered by the Product Life Cycle can greatly improve the marketing performance of organizations. EXERCISES 1. Define and comprehensively discuss the Product Life Cycle and its four associated stages, providing an illustration of this important marketing tool. Ensure that appropriate attention is directed toward the Product Life Cycle’s use in portfolio planning, strategy formulation, and forecasting. Share your thoughts regarding the tool’s implications and uses in the healthcare industry. 2. Contact a local healthcare entity (e.g., hospital, retail pharmacy, medical clinic) and arrange an informational interview with a marketing executive. Present the Product Life Cycle and request insights regarding the appearance of the particular curves for several of the entity’s product offerings. Does the given marketing department actively use the Product Life Cycle as a tool for portfolio planning, strategy formulation, and forecasting? What other tools does the marketing executive employ for such endeavors? Report your findings in detail. REFERENCE Levitt, Theodore. 1965. Exploit the product life cycle. Harvard Business Review (November–December): 81–94. CHAPTER 2 Booz, Allen & Hamilton’s New Product Process LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Recognize the importance of healthcare entities engaging in new product development as a means of ensuring enduring growth and prosperity. ■ Understand unique barriers to new product development that complicate associated initiatives in the healthcare industry. ■ Appreciate the value provided by Booz, Allen & Hamilton’s New Product Process, guiding new product development activities from strategy development and idea generation through to commercialization. INTRODUCTION Given that all products possess limited life spans, a fact that is especially evident in the innovation-rich healthcare marketplace, organizations must continually seek to develop new product offerings that will ensure long-term growth and prosperity. These new products, of course, do not automatically appear in the healthcare marketplace. Instead, new products result from labor intensive and expensive efforts that eventually lead to market entry. Market entry for new offerings is further complicated by the immense rules and regulations governing many healthcare goods and services. Pharmaceutical products and medical devices, for example, must successfully pass through the rigorous processes of the US Food and Drug Administration. Hospitals and nursing homes must, in many states, acquire certificates of need that authorize, among other things, the establishment of patient beds. Even if market entry is attained, there are no guarantees of commercial success, as indicated by the high incidence of new product failure. In addition to the effort, expense, and bureaucracy associated with new product development, healthcare entities face yet another concern. Every time new products are presented in the market, organizations place their reputations in jeopardy. New products that are poorly developed can be quite damaging to existing offerings, presenting yet another potential disaster and an incentive for institutions to work diligently to ensure new product success. MINIMIZING RISK Although risk is inherent in new product development, it can be lessened by adopting a systematic framework for managing new product activities. One such framework for managing new product activities is offered by the management consulting firm of Booz, Allen & Hamilton. Illustrated in Figure 21, Booz, Allen & Hamilton’s New Product Process divides new product development into seven sequential stages: new product strategy development, idea generation, screening and evaluation, business analysis, development, testing, and commercialization. These stages are explained as follows. STAGE 1: NEW PRODUCT STRATEGY DEVELOPMENT Booz, Allen & Hamilton’s New Product Process begins with the development of new product strategies. Here, marketers lay the foundation for the new product process by reviewing corporate objectives and identifying roles that new products might play in satisfying those objectives. This information clarifies the strategic business requirements for new products and provides a point of reference for subsequent new product development stages. FIGURE 2-1 Booz, Allen & Hamilton’s New Product Process From New Products Management for the 1980s by Booz, Allen & Hamilton. Copyright © 1982 by Booz, Allen & Hamilton. Reprinted by permission of Booz, Allen & Hamilton. STAGE 2: IDEA GENERATION During the idea generation stage, entities search for product ideas that are compatible with the goals and objectives determined in the preceding stage. The idea generation stage usually begins by conducting a self-assessment to determine the product categories that are of primary interest to given entities. When areas of interest have been determined, organizations scan the environment in search of growth opportunities that can be exploited. Ideas should actively be solicited from any potential idea source, including employees, customers, and vendors. The ultimate purpose of the idea generation stage is to produce a wealth of ideas. Here, every idea should be welcomed and initially considered on a “can do” basis. STAGE 3: SCREENING & EVALUATION The screening and evaluation stage involves the analysis of all of the ideas gathered during the idea generation stage to determine which discoveries should be further investigated. Here, each idea should be envisioned as a product in the market where it can be evaluated on its potential contribution to given entities. Through screening and evaluation, organizations seek to narrow down the number of ideas generated during the preceding stage by focusing only on those that offer the greatest potential. FIGURE 2-2 Mortality of New Product Ideas From Management of New Products by Booz, Allen & Hamilton. Copyright © 1968 by Booz, Allen & Hamilton. Reprinted by permission of Booz, Allen & Hamilton. FIGURE 2-3 Cumulative New Product Expenditures From Management of New Products by Booz, Allen & Hamilton. Copyright © 1968 by Booz, Allen & Hamilton. Reprinted by permission of Booz, Allen & Hamilton. During this stage, new product ideas decrease; however, the expenses associated with new product development increase—a trend that continues through the remaining stages of the new product process, as indicated in Figures 2-2 and 2-3, respectively. Organizations can only afford to develop those ideas that possess the greatest potential for success in the market. The most promising ideas move to the business analysis stage, and all others are eliminated. STAGE 4: BUSINESS ANALYSIS During the business analysis stage, the most promising product ideas are subjected to intense scrutiny to determine their potential for translation into commercially successful offerings. Here, hypothetical business plans are formulated for these offerings, which identify product attributes, barriers to entry, current and potential competitors, target markets, market growth information, financial projections, promotional methods, and so on in an effort to formulate preliminary business recommendations. Successful product ideas graduate to the development stage. STAGE 5: DEVELOPMENT During the development stage, product ideas that have successfully met the scrutiny forwarded during prior stages are translated into actual product offerings. For goods, development involves the actual physical assembly of the offerings. For services, development involves the assembly of all components required for the services to be offered, such as office space, equipment, operating permits, and personnel. During this stage, product offerings may go through many alterations—a usual occurrence when on-paper ideas are translated into real-world offerings. Alterations continue through the remaining stages of the new product process as goods and services are readied for the market. STAGE 6: TESTING Testing seeks to validate earlier business projections associated with new offerings through commercial experimentation. Here, new products are readied for commercialization by conducting trials to determine marketplace suitability, with the nature of the testing being dependent on the characteristics of the particular products under development and the markets sought. Because of their tangibility, goods are particularly well suited for laboratory testing, as well as test marketing—a practice where marketers directly or indirectly seek consumer feedback regarding their new products. Durable medical equipment manufacturers, for example, subject their products to intensive laboratory testing to ensure that their offerings meet designated quality standards. These firms might also test market their products by providing individuals with wheelchairs, hospital beds, and other items in exchange for their comments regarding the utility and comfort of the particular product offerings. Of course, one of the most notable examples of new product testing in health care involves the highly regulated and expensive clinical trial process that pharmaceutical firms undergo in pursuit of FDA approval for their new offerings. These firms are also actively engaged in test marketing. They might, for example, test market a newly developed pain reliever in several major cities to assess consumer demand, making adjustments as needed prior to the product’s national introduction. Like their tangible counterparts, services can also be tested and test marketed, albeit in a different manner. Certainly, prior to its grand opening, a medical clinic would undergo an intensive battery of tests to ensure that equipment is working properly, that necessary supplies are available, that employees understand their duties and responsibilities, etc. The medical clinic might even decide to test market its services by assembling a group of consumers to receive service offerings and provide feedback. The clinic might, for example, offer free physical examinations to individuals in exchange for their comments and opinions regarding the clinic’s accessibility, decor, practitioner skill and concern, customer service, and so on. The feedback generated through testing provides marketers with yet another opportunity to ready their products for entry into the marketplace. After any necessary alterations have been made, products are ready for commercialization. STAGE 7: COMMERCIALIZATION Commercialization involves the full-scale market introduction of newly developed products. As new products enter the market, ongoing customer feedback should actively be sought to ensure that products meet and, ideally, exceed customer expectations. Any new product “bugs” that are identified should quickly be remedied. Aside from ensuring a trouble-free marketplace introduction, marketers must carefully monitor competitor reactions to their new product offerings, taking steps when necessary to counteract competitive responses. RISK & FAILURE Table 2-1 Causes of New Product Failure 1. Market/marketing failure Small size of the potential market No clear product differentiation Poor positioning Misunderstanding of customer needs Lack of channel support Competitive response 2. Financial failure Low return on investment 3. Timing failure Late in the market Too early—market not yet developed 4. Technical failure Product did not work Bad design 5. Organizational failure Poor fit with the organizational culture Lack of organizational support 6. Environmental failure Government regulations Macroeconomic factors From “Managing New Product Development for Strategic Competitive Advantage” by Dipak Jain in Kellogg on Marketing, edited by Dawn Iacobucci. Copyright © 2001 by John Wiley & Sons, Inc. Reprinted with permission of John Wiley & Sons, Inc. Risk is an inherent part of new product development where new product failures routinely outnumber successes. These failures are caused by a variety of factors, as illustrated in Table 2-1. New product difficulties are prevalent across all industries but are further amplified in the intensely regulated healthcare marketplace where oversight bodies demand that innovators ensure the efficacy of their healthcare goods and services and, oftentimes, demonstrate that a community need exists for given healthcare offerings. These healthcare industry-specific aspects greatly increase the costs of new product development and hence the associated risks. Despite these risks, healthcare entities must engage in the new product process if they wish to endure and prosper. Only through the adoption of a systematic framework for managing new product activities can marketers minimize associated risks and increase their chances of developing new goods and services that achieve commercial success. SUMMARY Booz, Allen & Hamilton’s New Product Process serves as a useful guide for new product development. Its seven sequential stages—new product strategy development, idea generation, screening and evaluation, business analysis, development, testing, and commercialization—provide invaluable guidance to healthcare marketers seeking to develop new products in a comprehensive and orderly fashion. EXERCISES 1. Provide a detailed account profiling Booz, Allen & Hamilton’s New Product Process, identifying and explaining each of its seven steps, accompanied by an appropriate illustration. Discuss the rigors of new product development as they impact general industry and offer insights regarding how and why these burdens are magnified in the healthcare industry. Share your thoughts on the degree to which modern healthcare organizations follow a systematic new product development process, such as that offered by Booz, Allen & Hamilton. 2. Contact an area healthcare establishment (e.g., medical center, nursing home, cosmetic surgery clinic) and arrange an informational interview with a member of the executive team to learn about their new product development practices. Specifically request information about the trials and tribulations associated with any recent or historic product launches. Present Booz, Allen & Hamilton’s New Product Process to the executive and ask about the degree to which his or her organization follows such a process. Report your findings in detail. REFERENCES Booz, Allen & Hamilton. 1968. Management of new products. New York: Booz, Allen & Hamilton. ———. 1982. New products management for the 1980s. New York: Booz, Allen & Hamilton. Jain, Dipak. 2001. Managing new product development for strategic competitive advantage. In Kellogg on marketing, ed. Dawn Iacobucci. New York: Wiley. CHAPTER 3 George Day’s R-W-W Screen LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Understand that new product development in the healthcare industry involves the assumption of risk but offers the potential for reward. ■ Realize that the increasingly competitive nature of the health-care marketplace mandates that healthcare entities engage in new product development to increase the likelihood of survival, growth, and prosperity. ■ Recognize that, as new product development represents a mandatory pursuit, reduction of risk becomes the prevailing consideration. ■ Appreciate George Day’s R-W-W Screen as a tool for reducing the risk associated with new product development, increasing the likelihood of successful new product endeavors. INTRODUCTION New product development in the healthcare industry is a process teeming with risk but also reward. The risk is associated with the huge investments of time and money required to launch new offerings. Difficulties are magnified in the healthcare industry because such offerings are heavily scrutinized by myriad regulatory bodies, adding an intensive layer of bureaucracy to the process. Of course, when new products are fielded, institutions place their reputations on the line, representing yet another risk. The risk associated with new product development certainly represents a deterrent to engagement in this process, but only through the development and launch of new and improved offerings can institutions position themselves for enduring marketplace success, yielding associated rewards. Given this, new product development should be viewed as a mandatory pursuit. Reduction of risk becomes the prevailing consideration. While there are no guarantees that new products will be successful in the healthcare marketplace, there are techniques that can be employed to reduce associated risk and increase the likelihood of success. One such technique, offered by George Day, is known as the R-W-W Screen. Presented in Figure 3-1, Day’s R-W-W Screen essentially consists of three primary questions, each containing an array of more specific questions, which are to be addressed in any new product venture. The R-W-W descriptor is derived from the first letter of key words in the set of primary questions: (1) Is it Real? (2) Can we Win? and (3) Is it Worth doing? These three questions and associated inquiries are explained as follows. IS IT REAL? The “Is it real?” inquiry pertains to market and product viability, calling on evaluators to answer two second-level questions (“Is the market real?” and “Is the product real?”) and a series of related inquiries flowing from each. As for the market, evaluators must assess whether it is of adequate size and whether targeted customers want or need the offering and have the means and desire to purchase the product. For example, highly specialized medical services offered in rural communities might indeed fill a marketplace want or need, and patients may very well have the means and desire to effect purchase, but the population may simply be too small to support such services. Of course, there are circumstances where populations in such rural locales might be capable of supporting these services. Only through prudent market research can such determinations be made. As for the product, assessments must determine if the given offering is well conceptualized, can actually be produced, and is capable of satisfying customers. A hospital venturing into, say, cardiac medicine clearly is faced with myriad decisions associated with offering services in that particular area of medicine. Highly trained personnel must be acquired, along with specialized medical equipment, and, in some jurisdictions, the support of regulatory bodies must be obtained. Even if the provision of cardiac services is feasible, one still must investigate whether the offering will be capable of meeting and ideally exceeding customer wants and needs. FIGURE 3-1 George Day’s R-W-W Screen Reprinted by permission of Harvard Business Review. Screening for Success. From “Is It Real? Can We Win? Is It Worth Doing?” by George S. Day, December 2007. Copyright © 2007 by the Harvard Business School Publishing Corporation; all rights reserved. CAN WE WIN? The “Can we win?” inquiry pertains to product and company competitiveness, calling on evaluators to answer two second-tier questions (“Can the product be competitive?” and “Can our company be competitive?”) and associated inquiries. As for product competitiveness, assessments must ascertain whether new offerings have a sustainable competitive advantage over other offerings and what, if any, response will be forwarded by competitors with the launch of the potential new offering. A healthcare product without a competitive advantage will struggle for market share, and even if the offering has an initial edge, if it is not sustainable, any gains generated will be lost to more savvy rivals. Therefore, it is imperative that healthcare products incorporate a sustainable competitive advantage that will distinguish them from current and potential offerings. Of course, regardless of advantage, competitive responses to new offerings must be envisioned, with the operative task being the incorporation of appropriate defenses into new products. As for company competitiveness, evaluators must investigate the availability of resources and presence of qualified managers. Behind every healthcare product stands the organization that produces and provides the offering. A poorly resourced healthcare entity is sure to encounter difficulties even if its new product development efforts yield a successful launch. With such a launch, one would expect obvious market demand to attract competitors. If those competitors possess superior resources, opportunities abound for them to capture market share. Of course, management officials must be astute observers of the marketplace, being ready, willing, and able to act on any potential opportunity while avoiding or eliminating threats. IS IT WORTH DOING? The “Is it worth doing?” inquiry pertains to risk/return and strategic appropriateness, calling on evaluators to answer two second-tier questions (“Will the product be profitable at an acceptable risk?” and “Does launching the product make strategic sense?”) and a series of related inquiries flowing from each. As for risk/return, evaluators must determine if returns will be greater than costs and whether risks are acceptable. Quite obviously, if a healthcare offering is not anticipated to generate adequate financial returns, it would not make business sense to proceed with development of the product. However, there are situations in the healthcare industry where entities are compelled to offer services that are not profitable but are necessary to fulfill their given missions. In such cases, financial considerations would only be part of the formula for determining given return on investment, further demonstrating that healthcare marketers intensively must understand their products and associated roles within and outside of their particular organizations. Of course, risk is ever present in new product development, but such risk must not exceed a tolerable level. As for strategic appropriateness, assessments must determine if products are suited for the overall growth strategy of given healthcare organizations and whether top management will offer support. New healthcare offerings must be viewed in the context of the existing offerings held by given entities and must make sense as new additions within associated product portfolios. They, too, must be championed by top-level healthcare executives because new product pursuits require ongoing attention and resources that can only be provided by executive ranks. OPERATIONAL MATTERS Implementation of Day’s R-W-W Screen simply involves asking each of the questions indicated in Figure 3-1 and answering the inquiries intelligently and honestly. Clearly, the instance of any definite “no” answer for questions in the first and second columns of the diagram is grounds for immediate termination of the idea, and the instance of a definite “no” answer in third column inquiries strongly signals that development should not be pursued. Because the information needed to address the inquiries identified in Day’s R-W-W Screen is intensive, and the impact of new products affects multiple units within healthcare organizations, it is advised that interdisciplinary teams be created to assess each inquiry. Such teams must endeavor to avoid viewing the instrument as an obstacle to overcome, something that can occur when team members are especially passionate about new product ideas and look for ways to circumvent barriers that suggest idea termination. It is absolutely imperative that inquiries identified in Day’s R-W-W Screen be addressed in a completely objective fashion. It is important to realize that Day’s R-W-W Screen should be used on multiple occasions throughout the stages of product development. This repeated use is essential because initial conceptions of products often change as they work their way through the various developmental processes, sometimes emerging as manifestations far removed from initial designs. Deployment of Day’s R-W-W Screen across the multiple stages of product development ensures that new product efforts remain worthwhile pursuits. SUMMARY George Day’s R-W-W Screen provides much needed guidance to health-care marketers in their endeavors to determine the viability of new product ideas. Importantly, this tool can be utilized to minimize the risk associated with new product development, increasing the likelihood that new goods and services will launch productively and achieve sustained success in the healthcare marketplace. EXERCISES 1. Provide a detailed account profiling George Day’s R-W-W Screen, identifying and explaining its components, purposes, methods of implementation, and practical applications, accompanied by an appropriate illustration. Preface your discussion by offering an overview of the risk and return associated with new product development in the healthcare industry. Share your thoughts regarding the tool’s implications and uses in the healthcare marketplace. 2. Conduct a review of trade journals, Web sites, and other sources in an effort to identify articles that describe various healthcare product failures. From these accounts, identify and describe the mistakes that were made which led to failure. Could the use of George Day’s R-W-W Screen have prevented these mistakes/failures? If so, how? REFERENCE Day, George S. 2007. Is it real? Can we win? Is it worth doing? Managing risk and reward in an innovation portfolio. Harvard Business Review (December): 110–120 CHAPTER 4 Theodore Levitt’s Total Product Concept LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Recognize that healthcare products consist of multiple levels of attributes, ideally assembled in such a manner to attract and retain the patronage of target audiences. ■ Understand that, given ever-increasing customer expectations, product attributes must continually be enhanced and improved to meet and exceed the wants and needs of target audiences. ■ Realize the value of Theodore Levitt’s Total Product Concept as an aid in developing these multiple levels of attributes to increase the likelihood that associated healthcare offerings continually will meet and exceed customer wants and needs. INTRODUCTION Products are much more than one-dimensional items. Instead, they represent complex bundles of attributes that are purchased and consumed by customers to satisfy wants and needs. The success of goods and services in the marketplace is largely based on the skillful assembly of associated product attributes in a manner that will attract and retain customers. Therefore, marketers must possess a thorough understanding of the multidimensional nature of products. The Total Product Concept, which was formulated by Theodore Levitt, illustrates the multidimensional nature of products and provides guidance to marketers seeking to develop goods and services that meet and exceed the expectations of customers. Presented in Figure 4-1, Levitt’s Total Product Concept depicts four product levels—generic, expected, augmented, and potential—which are illustrated by four concentric circles. As products move from inner levels to outer levels, they become increasingly complex and offer marketers enhanced opportunities to differentiate goods and services from competitive offerings. The four product levels are defined as follows. FIGURE 4-1 Levitt’s Total Product Concept From The Marketing Imagination, New, expanded ed. by Theodore Levitt. Copyright © 1986 by The Free Press. Adapted and reprinted by permission of Harvard Business Review. The Total Product Concept. From “Marketing Success through Differentiation—of Anything” by Theodore Levitt, January–February 1980. Copyright © 1980 by the Harvard Business School Publishing Corporation; all rights reserved. THE GENERIC PRODUCT The generic product, which could also be referred to as the core product, is an offering in its most basic and rudimentary form. At this level, competitive products are virtually indistinguishable from one another as they represent only core offerings and nothing more. Customers expect more than base offerings. THE EXPECTED PRODUCT The expected product consists of the generic product along with features that allow it to be distinguished from competitive offerings. Expected products add branding, product features, product quality, packaging, and like elements to generic products to create offerings that can easily be recognized by customers. At this level, goods and services meet the minimum expectations of customers. In essence, these offerings represent what customers expect to receive. THE AUGMENTED PRODUCT The augmented product consists of the expected product plus additional features that extend beyond the expectations of customers. Product augmentations vary based on the nature of given offerings, but typical examples include personalized service, warranties and guarantees, extended service plans, and financial assistance. Augmentations allow marketers to further differentiate their products from competitive offerings. The differentiation offered by specific augmentations may decline over time as consumers become accustomed to the enhancements and come to expect these additions, necessitating that marketers discover new ways to augment their products. THE POTENTIAL PRODUCT The potential product represents all things that can potentially be incorporated into offerings to attract and retain customers. Whereas augmented products represent everything that is currently being done to attract and retain customers, potential products represent everything that might be done. As current augmentations become expected by customers, marketers must formulate future methods to augment, and thus differentiate, their products. The potential product level identifies these future augmentations. OPERATIONAL MATTERS To assess products using Levitt’s Total Product Concept, marketers simply (1) identify the product to be evaluated, (2) construct the Total Product Concept diagram, as illustrated in Figure 4-1, (3) identify and/or formulate the generic, expected, augmented, and potential components for the product under evaluation, and (4) place the identified components on the diagram accordingly. The resulting Total Product Concept diagram is then analyzed to gain product insights. Figure 4-2 identifies an example of Levitt’s Total Product Concept applied to a hospital’s labor and delivery unit. The core offering provided by the unit is its ability to deliver babies. This generic offering is transformed into an expected product through a variety of additions; for example, labor and delivery classes, private patient rooms, skilled healthcare providers, and superior technology. The labor and delivery unit hopes to further differentiate itself from its competitors through a series of augmentations; namely, newborn gift packs, labor/delivery/recovery (LDR) rooms, infant care classes, and related enhancements. Future differentiation could occur through renovations, upgraded technology, personal care assistants, and so on. Figure 4-3 identifies an example of Levitt’s Total Product Concept applied to an assisted living center. The center’s generic product consists of the shelter and assistance that it offers to occupants. This base offering is transformed into the expected product through various features; namely, private occupant rooms, round-the-clock security, daily meals, weekly laundry service, and related amenities. Augmentations include weekly excursions to area attractions, access to transportation, private dining facilities, and so on. Future differentiation opportunities exist through overnight accommodations for guests, enhanced room amenities, personal care assistants assigned to each occupant, and related product upgrades. Clearly, Levitt’s Total Product Concept reminds marketers that products represent complex bundles of attributes that must skillfully be assembled to satisfy customers. It also serves as an excellent product planning and analysis tool for the level-by-level dissection of current, and even proposed, products. Through this dissection, marketers can identify and, if necessary, enhance those attributes that differentiate products from competitive offerings. They also can formulate strategies for the future differentiation of goods and services. These points of differentiation are especially useful in the development of effective promotional campaigns. FIGURE 4-2 A Labor & Delivery Unit’s Total Product Concept Constructed using design methodologies in Levitt, Theodore. “Marketing Success through Differentiation—of Anything.” Harvard Business Review (January-February) 1980: 83–91. FIGURE 4-3 An Assisted Living Center’s Total Product Concept Constructed using design methodologies in Levitt, Theodore. “Marketing Success through Differentiation—of Anything.” Harvard Business Review (January-February) 1980: 83–91. SUMMARY Levitt’s Total Product Concept clearly illustrates the multidimensional nature of products. By understanding the product levels identified in the Total Product Concept, marketers are better prepared to assemble the multiple attributes of goods and services in a manner that will attract and retain customers. EXERCISES 1. Provide a comprehensive overview of Theodore Levitt’s Total Product Concept, explaining its purpose, components, uses, and benefits, accompanied by an associated illustration. Be sure to indicate how the model focuses not only on current product manifestations but also on future perspectives of product offerings. Share your views regarding how this instrument can be used to effect better product management outcomes in the healthcare industry. 2. Place yourself in the position of a healthcare entrepreneur seeking to investigate opportunities for a new product offering of your choice in your local market. Using Theodore Levitt’s Total Product Concept, develop an associated diagram for the given offering, identifying attributes pertaining to each level indicated in the model. Provide a narrative to accompany this diagram, discussing your thought processes for assembling the product in the manner illustrated. REFERENCES Levitt, Theodore. 1980. Marketing success through differentiation—of anything. Harvard Business Review (January-February): 83–91. ———. 1986. The marketing imagination. Exp. ed. New York: The Free Press. CHAPTER 5 The Boston Consulting Group’s Growth/Share Matrix LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Understand the importance of assembling balanced product portfolios as a means of ensuring extended success in the healthcare marketplace. ■ Realize the value of The Boston Consulting Group’s Growth/Share Matrix as a device for assessing the product portfolios of healthcare entities. ■ Effect prudent product management decisions on the basis of the growth and market share characteristics of given health-care goods and services, as determined by the positioning of such offerings in The Boston Consulting Group’s Growth/Share Matrix. INTRODUCTION Successful healthcare entities must strive to assemble balanced product portfolios that will ensure longterm growth and prosperity. Because all products have defined life spans, it is necessary to plan for the future by developing new products that will eventually succeed mature offerings. Successful, established products generate large amounts of cash, while new, developing products rarely generate any revenue. It is with the excess cash generated by established offerings that new products emerge and gain market share in their high-growth environments. The successful assembly of a balanced product portfolio requires that marketers maintain a keen awareness of the characteristics of the products they are responsible for managing. This awareness is attained, in part, by conducting a portfolio analysis. Through such an analysis, marketers comprehensively review their product offerings in an effort to identify strengths and weaknesses, making alterations and enhancements as necessary. To analyze product portfolios, marketers often rely on The Boston Consulting Group’s Growth/Share Matrix. Illustrated in Figure 5-1, the Growth/Share Matrix evaluates products based on market growth and market share characteristics. FIGURE 5-1 The Boston Consulting Group’s Growth/Share Matrix Taken from “The Product Portfolio” (1970) by Bruce D. Henderson in The Boston Consulting Group on Strategy, edited by Carl W. Stern and Michael S. Deimler. Copyright © 2006 by The Boston Consulting Group, Inc. Reprinted with permission of The Boston Consulting Group, Inc. Market growth is a measure of a market’s momentum or lack thereof, while market share is a measure of an entity’s portion of the total sales generated by a given product in a given market. The Growth/Share Matrix consists of a vertical axis representing market growth (high and low), a horizontal axis representing market share (high and low), and four cells identified as cash cows, stars, question marks, and dogs. These four cells are explained as follows. CASH COWS (LOW GROWTH, HIGH MARKET SHARE) A cash cow is a product that possesses a strong market position in a low growth market. Cash cows generate large amounts of cash, typically in excess of that required to maintain market share. Hence, cash cows are very profitable. The sizeable revenues that they generate can be used to develop other goods and services in associated portfolios. STARS (HIGH GROWTH, HIGH MARKET SHARE) A star is a product that possesses a significant share of a rapidly growing market. Although stars generate large amounts of cash, the cash must be reinvested to maintain market share in their high growth environments. If stars maintain their market positions, they will eventually become cash cows when market growth levels off along with the associated reinvestment requirements. QUESTION MARKS (HIGH GROWTH, LOW MARKET SHARE) A question mark is a product that has a weak market position in an environment of rapid growth. Although the market is quite attractive, the market share possessed by these product offerings is not. If question marks maintain their market positions, they will eventually become dogs. However, if market share can be increased, question marks can become stars and eventually cash cows. Increasing market share, however, requires significant investment, which must come from other sources, most notably cash cows, because question marks cannot independently generate the necessary cash. DOGS (LOW GROWTH, LOW MARKET SHARE) A dog is a product that possesses a weak market position in an environment of little growth. Dogs are generally cash drains on entities, and even when they do show an accounting profit, the profit must be reinvested to maintain market share. Unless compensating factors exist, dogs should ideally be divested, freeing resources to be directed toward more profitable pursuits. MARKET DYNAMICS Because market growth eventually slows down, all products will eventually become either cash cows or dogs. This fact necessitates that marketers diligently pursue market leadership positions for all of their products during periods of growth. Leadership positions will pay dividends when growth slows and reinvestment requirements become minimal. OPERATIONAL MATTERS To assess products using The Boston Consulting Group’s Growth/Share Matrix, marketers simply (1) identify the offerings they wish to evaluate, (2) construct the Growth/Share Matrix, as illustrated in Figure 5-1, (3) gather product-related growth/share data, and (4) plot each product on the Growth/Share Matrix using circles, with larger circles representing products with larger shares of the market. This visual representation is then analyzed to determine the strengths and weaknesses associated with given product portfolios. If additional detail is desired, marketers can forecast the market positions of products at some point in the future and plot these predictions on the Growth/Share Matrix using contrasting circles. Figure 5-2 identifies a Growth/Share Matrix (current and forecasted) that was developed for a rural medical center. The eight white circles identify the medical center’s eight product offerings designated by departmental unit. These units include the medical center’s nursing home, surgery department, emergency department, occupational health clinic, assisted living center, home health agency, primary care clinic, and wellness center. The eight shaded circles represent the market share estimates for these products in 5 years. A review of this diagram indicates that the medical center currently has three cash cows, one star, two question marks, and two dogs. FIGURE 5-2 A Rural Medical Center’s Growth/Share Matrix Constructed using design methodologies in Henderson, Bruce D. “The Product Portfolio” (1970). In The Boston Consulting Group on Strategy: Classic Concepts and New Perspectives, 2nd ed., edited by Carl W. Stern and Michael S. Deimler. New York: Wiley, 2006. Overall, the current and forecasted portfolios of this facility appear to be very strong. The medical center is fortunate to have three cash cows generating revenues that can be used to fund other product offerings. With continued investment, its star can be converted into a cash cow as its market matures. The question marks must carefully be evaluated to determine each unit’s potential contribution. If the 5year forecast is accurate, it appears that the assisted living center represents a worthwhile investment because it is anticipated to become a star. However, the home health agency is expected to lose market share and drift into the dog quadrant. The home health agency, along with the two dogs (i.e., the primary care clinic and wellness center), should be divested unless compensating factors exist. Figure 5-3 identifies a Growth/Share Matrix (current and forecasted) that was developed for a home health agency with operations in five different geographic locations: Washington County, Adams County, Jefferson County, Madison County, and Lincoln County. Currently, the agency possesses one cash cow, one star, no question marks, and three dogs. Washington and Adams markets are clearly beneficial and are expected to remain so in the future. The Jefferson, Madison, and Lincoln markets, however, represent portfolio liabilities. Obviously, the home health agency would do well to exit these markets and concentrate exclusively on the prosperous Washington and Adams markets, unless compensating factors exist, of course. FIGURE 5-3 A Home Health Agency’s Growth/Share Matrix Constructed using design methodologies in Henderson, Bruce D. “The Product Portfolio” (1970). In The Boston Consulting Group on Strategy: Classic Concepts and New Perspectives, 2nd ed., edited by Carl W. Stern and Michael S. Deimler. New York: Wiley, 2006. SUMMARY The Boston Consulting Group’s Growth/Share Matrix provides marketers with a simple, yet highly effective, portfolio analysis tool. Notably, the matrix assists marketers in their endeavors to assemble balanced product portfolios. Given the importance of assembling such portfolios, progressive marketers will find The Boston Consulting Group’s Growth/Share Matrix to be an invaluable resource that greatly improves marketing efforts. EXERCISES 1. Define and comprehensively discuss The Boston Consulting Group’s Growth/Share Matrix, providing insights regarding its uses, features, methods of interpretation, and value, accompanied by an appropriate illustration. Be sure to include in your discussion an overview of the instrument’s importance as a strategic marketing device in the healthcare industry. 2. Contact a retail pharmacy in your local market and request permission to walk through the aisles noting various product categories. Next, arrange a meeting with the store manager, explain The Boston Consulting Group’s Growth/Share Matrix, ask for insights as to how each of the noted categories would be presented in the matrix, and prepare an associated illustration. Lastly, prepare a narrative discussing your experiences. REFERENCES Henderson, Bruce D. 1998. The product portfolio (1970). In Perspectives on strategy from The Boston Consulting Group, ed. Carl W. Stern and George Stalk Jr. New York: Wiley. ———. 2006. The product portfolio (1970). In The Boston Consulting Group on strategy: Classic concepts and new perspectives, 2nd ed., ed. Carl W. Stern and Michael S. Deimler. New York: Wiley. CHAPTER 6 General Electric’s Strategic Business-Planning Grid LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Recognize the necessity for portfolio planning endeavors in the healthcare industry to ensure productive marketing operations. ■ Understand General Electric’s Strategic Business-Planning Grid and its role in assessing the product portfolios of healthcare entities. ■ Formulate effective product management strategies and tactics based on the market attractiveness and business strength characteristics of given healthcare offerings and their resulting locations in General Electric’s Strategic Business-Planning Grid. INTRODUCTION Portfolio analysis, a rigorous endeavor entailing the comprehensive review of the goods and services offered by given entities, is an essential marketing management activity. The reason for this is obvious: Marketers must thoroughly understand their products if they are to successfully manage them. The particular portfolio analysis tool used by marketers is dependent on the specific issues at hand and the level of analytical detail desired. Some portfolio analysis tools are very basic, while others are more sophisticated. One of the more elaborate portfolio analysis tools is known as the Strategic BusinessPlanning Grid, an evaluative device introduced by General Electric. Illustrated in Figure 6-1, General Electric’s Strategic Business-Planning Grid evaluates products based on industry attractiveness—here termed market attractiveness, which is more appropriate for the healthcare industry—and business strength. Market attractiveness is a measure of a particular market’s desirable attributes. Business strength is a measure of organization/product prowess, or lack thereof, in a particular market. FIGURE 6-1 General Electric’s Strategic Business-Planning Grid Adapted from Kotler, Philip and Gary Armstrong, Principles of Marketing, 9th Edition, © 2001, Pg. 55. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ. General Electric’s Strategic Business-Planning Grid consists of a vertical axis representing market attractiveness (high, medium, and low), a horizontal axis representing business strength (strong, average, and weak), and nine cells divided into three zones (1, 2, and 3) differentiated by color. Zone 1 encompasses the three cells located in the upper left corner of the grid. Products falling within these cells represent offerings that should receive further investment for growth. Zone 2 includes the three cells running diagonally from the upper right to lower left corners of the grid. For products falling within these cells, investment should be maintained. Zone 3 encompasses the three cells located in the lower right corner of the grid. Products falling within these cells represent drains on portfolios and should be harvested or divested, unless compensating factors exist. The strength of General Electric’s Strategic Business-Planning Grid rests with the fact that its axes are designed to incorporate multiple factors associated with attractiveness and strength. This multifactor feature allows marketers to develop axes that incorporate variables that are deemed most relevant to their particular operations. The result is a customized evaluative tool. Variables that are commonly used to compose the attractiveness axis include market size, market growth, profitability, and number of competitors. Variables that are commonly used to compose the strength axis include technological innovation, institutional capabilities, personnel, and distribution channels. The particular variables selected to compose each axis are completely up to the evaluating marketers. The only requirement is that the selected variables appropriately relate to market attractiveness and business strength. OPERATIONAL MATTERS To assess products using General Electric’s Strategic Business-Planning Grid, marketers (1) identify the product offerings they wish to evaluate, (2) construct the Strategic Business-Planning Grid, as illustrated in Figure 6-1, (3) determine the variables that will compose the attractiveness and strength axes, weighting variables as deemed appropriate if increased detail is desired, (4) gather relevant product and market data, and (5) plot each product on the diagram using circles (which indicate market size, with larger circles indicating larger markets) and slices within each circle (which indicate the market share of given offerings). This visual representation is then analyzed to determine the strengths and weaknesses associated with given product portfolios. If additional detail is desired, marketers can use arrows to indicate anticipated attractiveness-strength characteristics at some point in the future. Figure 6-2 identifies a Strategic Business-Planning Grid (with forecast arrows) that was developed for a pharmaceutical retailer. Here, the retailer evaluated its seven retail pharmacies—Georgetown, Colony, Northtown, Meadowbrook, Riverview, Midtown, and Oakdale—based on market attractiveness (defined by market size and market growth) and business strength (defined by store location and product line). FIGURE 6-2 A Pharmaceutical Retailer’s GE Grid Constructed using design methodologies in Kotler, Philip, and Gary Armstrong. Principles of Marketing. 9th ed. Upper Saddle River, NJ: Prentice Hall, 2001. A review of the grid indicates that the retailer currently has two Zone 1 offerings (i.e., Georgetown and Colony), three Zone 2 offerings (i.e., Northtown, Meadowbrook, and Riverview), and two Zone 3 offerings (i.e., Midtown and Oakdale). Of the establishments identified in Zone 1, Georgetown is most favorably situated, with Colony closely following. Given the combination of market attractiveness and business strength characteristics, the retailer would be wise to further invest in these locations in an effort to build these positions, especially given the positive 5-year forecast, as indicated by the diagram’s arrows. Northtown, Meadowbrook, and Riverview are situated in Zone 2. These establishments deliver neither superior nor inferior performance; however, the 5-year forecast indicates positive attractivenessstrength characteristics. Given their placement in Zone 2, coupled with the positive forecast, the retailer would be wise to maintain its level of investment in these locations. Midtown and Oakdale are situated in Zone 3. These offerings possess inferior attractiveness-strength characteristics that are not expected to improve in the future. Unless compensating factors exist, these locations should be eliminated from the retailer’s portfolio. SUMMARY General Electric’s Strategic Business-Planning Grid provides marketers with a useful evaluative tool that can shed significant light on the product portfolios of healthcare entities. With its ability to incorporate multiple variables into its attractiveness and strength axes, the grid offers marketers a truly flexible device that can be customized to address almost any situation. Progressive marketers will undoubtedly find General Electric’s Strategic Business-Planning Grid to be very useful in their endeavors to successfully manage product portfolios. EXERCISES 1. Define and comprehensively discuss General Electric’s Strategic Business-Planning Grid, its three associated zones, and methodology associated with placing products in the diagram. A diagram of the grid should be included to add value to your narrative. Be sure to include in your discussion details pertaining to how the particular axes are formulated and the advantages associated with such. Share your thoughts regarding the tool’s implications and uses in the healthcare industry. 2. Compare and contrast General Electric’s Strategic Business-Planning Grid with The Boston Consulting Group’s Growth/Share Matrix. Discuss the strengths and weaknesses of these two instruments. Share your thoughts on the particular tool you believe to be most appropriate for use in the healthcare industry, providing justifications for your designated position. REFERENCE Kotler, Philip, and Gary Armstrong. 2001. Principles of marketing. 9th ed. Upper Saddle River, NJ: Prentice Hall. CHAPTER 6 General Electric’s Strategic Business-Planning Grid LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Recognize the necessity for portfolio planning endeavors in the healthcare industry to ensure productive marketing operations. ■ Understand General Electric’s Strategic Business-Planning Grid and its role in assessing the product portfolios of healthcare entities. ■ Formulate effective product management strategies and tactics based on the market attractiveness and business strength characteristics of given healthcare offerings and their resulting locations in General Electric’s Strategic Business-Planning Grid. INTRODUCTION Portfolio analysis, a rigorous endeavor entailing the comprehensive review of the goods and services offered by given entities, is an essential marketing management activity. The reason for this is obvious: Marketers must thoroughly understand their products if they are to successfully manage them. The particular portfolio analysis tool used by marketers is dependent on the specific issues at hand and the level of analytical detail desired. Some portfolio analysis tools are very basic, while others are more sophisticated. One of the more elaborate portfolio analysis tools is known as the Strategic BusinessPlanning Grid, an evaluative device introduced by General Electric. Illustrated in Figure 6-1, General Electric’s Strategic Business-Planning Grid evaluates products based on industry attractiveness—here termed market attractiveness, which is more appropriate for the healthcare industry—and business strength. Market attractiveness is a measure of a particular market’s desirable attributes. Business strength is a measure of organization/product prowess, or lack thereof, in a particular market. FIGURE 6-1 General Electric’s Strategic Business-Planning Grid Adapted from Kotler, Philip and Gary Armstrong, Principles of Marketing, 9th Edition, © 2001, Pg. 55. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ. General Electric’s Strategic Business-Planning Grid consists of a vertical axis representing market attractiveness (high, medium, and low), a horizontal axis representing business strength (strong, average, and weak), and nine cells divided into three zones (1, 2, and 3) differentiated by color. Zone 1 encompasses the three cells located in the upper left corner of the grid. Products falling within these cells represent offerings that should receive further investment for growth. Zone 2 includes the three cells running diagonally from the upper right to lower left corners of the grid. For products falling within these cells, investment should be maintained. Zone 3 encompasses the three cells located in the lower right corner of the grid. Products falling within these cells represent drains on portfolios and should be harvested or divested, unless compensating factors exist. The strength of General Electric’s Strategic Business-Planning Grid rests with the fact that its axes are designed to incorporate multiple factors associated with attractiveness and strength. This multifactor feature allows marketers to develop axes that incorporate variables that are deemed most relevant to their particular operations. The result is a customized evaluative tool. Variables that are commonly used to compose the attractiveness axis include market size, market growth, profitability, and number of competitors. Variables that are commonly used to compose the strength axis include technological innovation, institutional capabilities, personnel, and distribution channels. The particular variables selected to compose each axis are completely up to the evaluating marketers. The only requirement is that the selected variables appropriately relate to market attractiveness and business strength. OPERATIONAL MATTERS To assess products using General Electric’s Strategic Business-Planning Grid, marketers (1) identify the product offerings they wish to evaluate, (2) construct the Strategic Business-Planning Grid, as illustrated in Figure 6-1, (3) determine the variables that will compose the attractiveness and strength axes, weighting variables as deemed appropriate if increased detail is desired, (4) gather relevant product and market data, and (5) plot each product on the diagram using circles (which indicate market size, with larger circles indicating larger markets) and slices within each circle (which indicate the market share of given offerings). This visual representation is then analyzed to determine the strengths and weaknesses associated with given product portfolios. If additional detail is desired, marketers can use arrows to indicate anticipated attractiveness-strength characteristics at some point in the future. Figure 6-2 identifies a Strategic Business-Planning Grid (with forecast arrows) that was developed for a pharmaceutical retailer. Here, the retailer evaluated its seven retail pharmacies—Georgetown, Colony, Northtown, Meadowbrook, Riverview, Midtown, and Oakdale—based on market attractiveness (defined by market size and market growth) and business strength (defined by store location and product line). FIGURE 6-2 A Pharmaceutical Retailer’s GE Grid Constructed using design methodologies in Kotler, Philip, and Gary Armstrong. Principles of Marketing. 9th ed. Upper Saddle River, NJ: Prentice Hall, 2001. A review of the grid indicates that the retailer currently has two Zone 1 offerings (i.e., Georgetown and Colony), three Zone 2 offerings (i.e., Northtown, Meadowbrook, and Riverview), and two Zone 3 offerings (i.e., Midtown and Oakdale). Of the establishments identified in Zone 1, Georgetown is most favorably situated, with Colony closely following. Given the combination of market attractiveness and business strength characteristics, the retailer would be wise to further invest in these locations in an effort to build these positions, especially given the positive 5-year forecast, as indicated by the diagram’s arrows. Northtown, Meadowbrook, and Riverview are situated in Zone 2. These establishments deliver neither superior nor inferior performance; however, the 5-year forecast indicates positive attractivenessstrength characteristics. Given their placement in Zone 2, coupled with the positive forecast, the retailer would be wise to maintain its level of investment in these locations. Midtown and Oakdale are situated in Zone 3. These offerings possess inferior attractiveness-strength characteristics that are not expected to improve in the future. Unless compensating factors exist, these locations should be eliminated from the retailer’s portfolio. SUMMARY General Electric’s Strategic Business-Planning Grid provides marketers with a useful evaluative tool that can shed significant light on the product portfolios of healthcare entities. With its ability to incorporate multiple variables into its attractiveness and strength axes, the grid offers marketers a truly flexible device that can be customized to address almost any situation. Progressive marketers will undoubtedly find General Electric’s Strategic Business-Planning Grid to be very useful in their endeavors to successfully manage product portfolios. EXERCISES 1. Define and comprehensively discuss General Electric’s Strategic Business-Planning Grid, its three associated zones, and methodology associated with placing products in the diagram. A diagram of the grid should be included to add value to your narrative. Be sure to include in your discussion details pertaining to how the particular axes are formulated and the advantages associated with such. Share your thoughts regarding the tool’s implications and uses in the healthcare industry. 2. Compare and contrast General Electric’s Strategic Business-Planning Grid with The Boston Consulting Group’s Growth/Share Matrix. Discuss the strengths and weaknesses of these two instruments. Share your thoughts on the particular tool you believe to be most appropriate for use in the healthcare industry, providing justifications for your designated position. REFERENCE Kotler, Philip, and Gary Armstrong. 2001. Principles of marketing. 9th ed. Upper Saddle River, NJ: Prentice Hall. CHAPTER 8 Schmitt & Simonson’s Drivers of Identity Management LEARNING OBJECTIVES After examining this chapter, readers will have the ability to: ■ Understand the critical pursuit of identity management and its role in helping healthcare entities build strong, recognizable brands. ■ Realize the importance of establishing brands and other elements of identity as a means of differentiating given products from competitive offerings in the marketplace. ■ Appreciate the value and guidance offered by Schmitt and Simonson’s Drivers of Identity Management as a tool for informing healthcare marketers of the circumstances that necessitate addressing elements of identity within their given institutions. INTRODUCTION Healthcare marketers must continually be concerned with how their organizations and related product offerings are perceived by target audiences. Customer perceptions are, at least in part, influenced by the efforts of marketers to create desirable identities for given product offerings. Identity is achieved through branding activities, with such activities generating logos, product names, slogans, jingles, product packaging, building signage, and related identity vehicles for the purpose of conveying desired images to target audiences. Branding activities assist customers in identifying goods and services in the marketplace, importantly helping them to distinguish such products from competitive offerings. Attending to these activities is often termed identity management—one of the most important responsibilities of healthcare marketers. FIGURE 8-1 Schmitt & Simonson’s Drivers of Identity Management Reprinted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from MARKETING AESTHETICS by Bernd Schmitt and Alex Simonson. Copyright © 1997 by Bernd Schmitt and Alex Simonson. All rights reserved. Given the importance of identity management activities, it is helpful for healthcare marketers to possess an understanding of the primary forces that drive such efforts. To assist marketers in achieving this understanding, Bernd Schmitt and Alex Simonson identified nine drivers of identity management, which are illustrated in Figure 8-1. These nine drivers—change in corporate structure, low loyalty or losing share, outdated image, inconsistent image, new products and product extensions, new competitors, changing customers, entry into new markets, and greater resources—are defined as follows. CHANGE IN CORPORATE STRUCTURE Alterations in the corporate structures of establishments are quite common across all industries, including the healthcare industry. Mergers and acquisitions, for example, occur for any number of reasons, but both are prefaced by beliefs that combined, rather than singular, efforts will yield enhanced benefits for the organizations under examination. Any time two or more healthcare organizations combine to form a single establishment, identity management issues must be addressed. Possibly the most pressing identity management issue associated with mergers and acquisitions is the determination of an appropriate name for the newly combined entity. Should the two healthcare organizations be allowed to carry their existing, separate identities (e.g., Ridgewood Medical Center and Valley Medical Center)? Should the two establishments agree to accept one name over the other (e.g., Ridgewood Medical Center)? Should the entities select some sort of a hybrid name (e.g., Ridgewood Valley Medical Center)? These questions may or may not be easy to answer depending on the particular circumstances associated with given transactions. Factors to consider include the strength, or lack thereof, of given brand names, the real or anticipated preferences of target markets, and so on—issues that must thoroughly be investigated prior to making such determinations. As with mergers and acquisitions, spin-offs elicit an equally intensive need for identity management activities. Clearly, changes in the corporate structures of healthcare entities serve as drivers of identity management. LOW LOYALTY OR LOSING SHARE Customer loyalty is an essential ingredient for marketing success. Loyalty not only delivers the benefits associated with customer retention but also results in such customers echoing their support to members of their social circles through the very powerful communications medium of word-of-mouth publicity. Customer loyalty bolsters market share, increasing the likelihood of growth and prosperity. Naturally, low customer loyalty and market share attrition are causes of concern for any healthcare marketer, and such occurrences may, at least in part, be the result of identity problems. Valuable identities are the result of brand characteristics that are attractive to target audiences and strategically well managed. Healthcare establishments must ensure that they possess such identities. OUTDATED IMAGE Brand imagery, with the passage of time, is subject to stagnation in the eyes of customers. Healthcare entities, in the interest of being current, often select progressive logos and related visual references. This modern symbolism is quite appropriate in such a technology-oriented industry and is highly relevant upon initiation. Unfortunately, however, these designs can rapidly become outdated, requiring periodic alterations to remain current. Even more traditional imagery, which typically possesses a longer life span, is not immune to stagnation, necessitating updates over time. Simply stated, diminished imagery equates with diminished identity and thus serves as a driver of identity management. INCONSISTENT IMAGE Consistency in the imagery associated with identity is a must. Ideally, logos, building signage, promotional materials, and so on should be coordinated to achieve a consistent, orderly appearance. Unfortunately, such consistency is not always the case. Inconsistent imagery is confusing to customers, resulting in difficulties in identifying given establishments and their product offerings. It also typically conveys the impression of disorder—a disastrous image for any organization, but especially for healthcare establishments, which are entrusted with the personal health of individuals. NEW PRODUCTS & PRODUCT EXTENSIONS When new products and product extensions are introduced into the marketplace, identity creation decisions are required. Such decisions range from being very simple to being very complex, depending on the nature of the new offering and its placement within a given product portfolio. A pharmaceutical manufacturer, for example, would face a simple identity creation decision with the introduction of an extra-strength version of an existing pain reliever. Such identity creation simplicity, however, would not be possible in a situation involving an entirely different pharmaceutical product resulting from a recent discovery. Likewise, a medical center would not encounter a very rigorous identity creation decision if it decided to simply enhance its existing array of maternity services. If, instead, the medical center decided to enter a completely different arena, say, occupational health services, the identity creation decision would be much more difficult. Regardless of the level of difficulty involved in creating effective identities, new products and product extensions clearly hasten the identity management process. NEW COMPETITORS Identity management is one of many activities that healthcare marketers must engage in when new competitors enter the market. Among other things, new competitors bring their new identities into the marketplace, and these identities might impact consumer perceptions of existing ones in the given environment. Such competitive entry minimally calls for healthcare marketers to review their existing identity management efforts and may call for the alteration and enhancement of given identities. Ultimately, healthcare marketers would like for their identities, rather than those of their competitors, to be viewed most favorably by consumers, making the introduction of new competitors into the marketplace a driver of identity management. CHANGING CUSTOMERS Customers, their wants and needs, their tastes and preferences, their perceptions, and their environments are constantly changing. In an effort to stay relevant in the minds of customers, the identities of establishments and their product offerings must change in tandem with changing customers. On an ongoing basis, healthcare marketers must study their desired customer populations and objectively analyze their identity management efforts, seeking to view such efforts from the perspective of target audiences. By doing this, healthcare marketers stay abreast of changing customer characteristics, allowing them to alter identities accordingly to meet the current expectations of target markets. ENTRY INTO NEW MARKETS Whenever healthcare entities enter new markets, identity management efforts must carefully be evaluated. Here, healthcare marketers must determine whether to use existing identities, related identities, or entirely new identities in these new markets. Because different markets quite frequently possess different characteristics, existing identity schemes may not be transferable to new settings. This necessitates that healthcare marketers carefully investigate identity management issues associated with newly targeted markets and design their identities accordingly. GREATER RESOURCES Burgeoning resources afford healthcare marketers with more identity options (e.g., more appealing facility signage, more elaborate product packaging, enhanced marketing communications initiatives) which are worthy of exploration in attempts to build customer perceptions regarding given product offerings. Whenever an infusion of resources occurs (e.g., more prosperous economic periods), healthcare marketers must comprehensively review their identity management efforts to determine the most productive methods for utilizing these funds to effect the greatest identity gains in the marketplace. SUMMARY Because marketing success requires effective identity management efforts, healthcare marketers must ensure that they are aware of the circumstances and events that drive such endeavors. The typology offered by Schmitt and Simonson effectively portrays the forces that drive identity management, reminding healthcare marketers of their important responsibilities. EXERCISES 1. Provide a detailed overview of Schmitt and Simonson’s Drivers of Identity Management, noting facets regarding its purpose, use, and value in healthcare organizations. Share your thoughts and ideas regarding the degree to which modern healthcare organizations actively engage in routine endeavors to ensure appropriate identities. 2. Select a healthcare organization in your local market and study its logo and other elements of brand identity. Using guidance provided by Schmitt and Simonson’s Drivers of Identity Management regarding inconsistent image, prepare a report detailing the degree to which you believe the chosen facility’s logo and associated branding elements convey an image of consistency and order. If you believe that changes are necessary, what do you recommend? If you believe that changes are not necessary, why do you consider this to be the case? REFERENCE Schmitt, Bernd, and Alex Simonson. 1997. Marketing aesthetics: The strategic management of brands, identity, and image. New York: The Free Press.
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