Essentials of Health Care Marketing 2 nd Ed. Eric Berkowitz Chapter 10 Distribution

Chapter 10 Learning Objectives 1.Understand the concept of channel structure and the alternative channels available. 2.Know the varying levels of distribution intensity and the considerations in implementing each alternative. 3.Understand the concept of vertical marketing systems and their application in health care 4.Describe the nature of channel leadership and the source of channel power 5.Recognize the application of retailing in health care strategy.

Introduction Channel of distribution – the path a product takes as it travels from the manufacturer to the consumer. Key decisions: –How the product should be distributed –Who within the channel should perform specific functions –How much coverage of the market is needed –How the channel can be controlled

Learning Objective 1 Alternative channels of Distribution –Direct channel – Producer directly to consumer –Indirect channel – intermediaries Producer – wholesaler – retailer - consumer

Learning Objective 1 Functions in the channel – utilities –Place –Time –Possession –Form

Learning Objective 1 Functional shifting –The movement of different functions between the producer of a product or service and its intermediaries or the consumer –Function must be shifted if an intermediary is eliminated

Learning Objective 1 Channel Management –Degree of distribution required –Gaining channel cooperation –Dealing with conflict Organization must decide how available the product will be to customers Are intermediaries necessary? –If so, then there is potential for conflict

Learning Objective 2 Intensity of Distribution –Channel intensity will determine how available the product is to the ultimate consumer –Must consider the consumer’s expenditure of effort in external search –Intensive –Selective –Exclusive

Learning Objective 2 Intensive Distribution – product available in a large number of outlets –Primary care groups Multiple satellite facilities, extended hours Exclusive Distribution – product or service is offered in a highly restricted number of outlets –Highly specialized medical services Selective Distribution – hybrid –Has increased in health care

Learning Objective 3 Vertical Marketing Systems –Channels in which intermediaries are integrated so their functions are performed at the most efficient place within the channel. –Driven by: Production cost savings Transaction cost savings/improved coordination of services Overcoming market imperfections Management and internal factors Environmental changes

Learning Objective 3 Forward vertical integration – operations are acquired or developed that are closer to the final buyer Backward integration – acquiring operations that are closer to production 3 common forms –Corporate, administered, contractual

Learning Objective 3 Corporate integration –Combines both the production and distribution of a product/service under one corporate ownership Administered –Coordination between channel members, but there is not common ownership Contractual –Cooperative – agreements between channel members on the same level –Franchise – contract that links manufacturing and distribution

Learning Objective 4 Channel Leadership –Channel Commander – dictates or controls the activities of the other members of the channel Can be manufacturer when its product is very popular Can be wholesaler if product is to be distributed to a large number of manufacturers or retailers Can be retailer when it has a strong image or extensive market coverage

Learning Objective 4 Channel Leadership –Sources of power Coercive Economic Reward Referent expertise

Learning Objective 5 Retailing Concepts –Retail position matrix Based on the breadth of the retailer’s product line and the value added (high – low) Four quadrants –See figure 9-5, page 275

Learning Objective 5 Retail position matrix –Position must be chosen that offers an identity in the market relative to competitors. –Five steps Strategic Direction Current Positioning Competitive Positioning Alternative Evaluation Plan Development

Learning Objective 5 Retail mix –Goods and services –Distribution of services –Communication strategies

Learning Objective 5 The wheel of retailing – describes the process of how new retail forms enter the market and how they evolve over time Figure 10-8, p. 288 –Position 1 – entry – low price, margin, status –Position 2 – higher prices, margins; broader services –Position 3 – higher prices, margin; full service –Position 4 – New outlet enters the market

Summary The channel of distribution is the path a product takes as it moves from producer to end user, or the path a patient takes as he or she moves through the health care system to the appropriate level of care. Within the channel of distribution, intermediaries provide value in the form of utility. In establishing the channel of distribution, organizations must decide the level of intensity of service delivery.

Summary continued In order to control the channel of distribution and obtain greater efficiencies, organizations can integrate either forward or backward. The growing formation of integrated delivery systems in health care is a vertical integration strategy. In any distribution channel, there is often a single entity or leader who can dictate or control policies with its intermediaries. There are several sources of power available to any distribution channel member. –Economic power, rewards, referent power, coercion, or expertise.

Summary continued Organizations can be positioned perceptually in terms of the breadth of their product line and the perceived value-added. Health care organizations have a retail mix that includes their pricing policies, distribution, services, and communication tactics. In service industries, new market entrants tend to start as low margin, low status. As they mature and grow, this low-entry position is left open to new retail forms.