Services and Nonprofit Organization Marketing

Services and Nonprofit Organization marketing

Few HMOs have focused on service quality issues. However, change is beginning to happen. HMOs now cover nearly sixty-seven million Americans, and the competition is growing tougher. In saturated markets, offering low-cost care is no longer enough to give an HMO a competitive advantage. It must also distinguish itself as a provider of high-quality care. That goal, in turn, is contributing to major investments in the computerization of medical records. These new systems are critical both to help HMOs provide better care and to compile data to prove it. Technology is needed to help doctors diagnose and treat patients faster and more effectively by having patients’ medical records easily accessible on computer in the doctor’s office and at the hospital. It has been estimated that the health-care industry spent $15 billion on information technology in 1997. By the year 2001, such spending is expected to double.

Kaiser Permanente, the country’s largest HMO, is one of the trend’s leaders. Over the next five years the not-for-profit or-ganization plans to spend about $1 million for a national clinical-information system. Kaiser wants to electronically link its ten thousand doctors, as well as nurses and other care providers, in nineteen states. It eventually will keep medical records for all nine million of its members in a standard digital format. Kaiser’s CEO, David Lawrence, considers the pioneering system to be Kaiser’s key national priority. He states, “It will be the central nervous system for bringing together all the elements needed to take care of patients, and it will do so in ways currently unimaginable.”

Last year, Kaiser lost $270 million on revenues of $14.5 billion. Like a number of other HMOs, the company was caught by medical costs that increased faster than did its premiums. If Kaiser can prove that it is delivering better care, it can easily charge higher premiums. HMOs need to utilize technology to improve health care to remain competitive. Some of Kaiser’s biggest customers, including General Motors and Xerox, already are ranking health plans by cost and quality and giving employees financial incentives to choose the best. Within a few years, HMOs that cannot offer the advantages of systems like Kaiser’s will find it more difficult to win positive ratings.

Health information systems offer better quality care in any number of ways. For example, a computer that reminds doctors to prescribe aspirin for cardiac patients could avert heart attacks, keeping patients healthier and avoiding costly emergencies. One emergency-room doctor was about to give a heart-attack patient a heart drug called a beta blocker, but first he checked the man’s medical records on a computer terminal in the ER. It revealed that the patient was severely allergic to the drug. If that information had been hidden in a paper file at the doctor’s office, the patient probably would have died.

Kaiser plans to roll out the basic elements of its new system to all its regions by the year 2001. Nearly half of its thirteen regional centers already have started using some type of information system, and the ones in Cleveland, Ohio, and Portland, Oregon, provide glimpses of how the national system would probably work.1

How does a service, like health care, differ from goods (for example, cars, clothing, food items)? What kinds of service does Kaiser’s HMO offer its customers? How will the new information system help Kaiser provide better quality service to its customers?

Entrepreneurial Insights

This Oregon Hotelier Has Gone Way Out on a Limb for His Guests

Michael Garnier’s treehouse resort has finally gone legit. The forty-nine-year-old entrepreneur first opened his Out n’ About Treehouse Resort in Takilma, Oregon, in the early 1990s, offering to rent his five unusually well appointed treehouses to travelers seeking a woodsy alternative to a standard motel.

Guests could choose the “Swiss Family Complex,” with French doors, bunk beds, and a swinging bridge connecting the grownups’ section to the children’s unit; or the “Tree Room Schoolhouse Suite,” with a queen-sized bed, kitchenette, and a bathroom with an antique tub. Also available: the “Cabin,” the “Treepee,” and the “Peacock Perch,” with a twenty-foot banister staircase, described in the resort literature as a romantic getaway “best enjoyed by two.”

Mr. Garnier’s resort ran into trouble in 1992, however, when county officials decided it didn’t satisfy building codes. It kept operating anyway; and by 1994, authorities were threatening to tear it down when a compromise was reached: He could use his treehouses, but only with his friends.

Michael made friends quickly. Prospective guests simply had to join his “TreeMusketeers Club” and buy a T-shirt (or “tree-shirt” as he called it) for the same price as renting one of the treehouses. Then they enjoyed a “complimentary” treehouse stay. Over the years, Mr. Garnier says he hosted some five thousand TreeMusketeers.

County officials weren’t amused. Last year, they even threatened to hold Mr. Garnier in contempt of court, but he was undeterred. Now, after years of legal wrangling, Mr. Garnier’s treehouses are going above ground. According to Steve Rich, legal counsel for the county, Mr. Garnier has filed the necessary papers, and county officials have judged his structures safe—after all, they didn’t have any specific treehouse codes to begin with, says Mr. Rich.

SOURCE:From “This Oregon Hotelier Has Gone Way Out on a Limb for His Guests” by Jane Costello, The Wall Street Journal, October 7, 1998. Reprinted by permission of The Wall Street Journal, © 1998 Dow Jones & Company, Inc. All Rights Reserved Worldwide.

Global Perspectives

Just How Hard Should a U.S. Company Woo a Big Foreign Market?

Federal Express Corporation and United Parcel Service are both doing business in China, but each company is approaching this country differently. FedEx is following the same strategy it used in the United States in the 1970s and in Europe in the 1980s. While promoting itself with aggressive Western-style advertising, the company is spending a lot of money to acquire its own air routes, fly its own aircraft into and out of China and, in partnership with an aggressive local company, build a large network of purple and orange trucks and distribution centers. The company feels that their marketing formula is effective all over the world.

UPS, in contrast, hopes that Chinese customers will not even notice that it is made in America. Its advertising is understated and old-fashioned, even by Chinese standards. Its freight lands in China after being put into leased space in the underbellies of planes operated by a Hong Kong airline or other regional carrier. To deliver packages on the ground, UPS uses the traditional approach of foreign freight companies in China—piggybacking on the operations of a large, government-owned transportation company.

The two giant U.S. delivery companies illustrate two radically different approaches to questions faced by most companies doing business overseas: Do we partner with entrenched competitors or do we tackle them head-on? Do we risk the capital to build our own manufacturing and distribution systems or lease someone else’s? Who are our customers, the locals or our multinational accounts? The jury is still out for both FedEx and UPS—each claims its operations are growing and profitable, and each contends its approach is better.

The FedEx style annoys some companies that expect a certain tone in the formal face-to-face sales pitches in China. “I know they’re one of the biggest companies in the U.S.A., but that doesn’t matter here,” says Li Ping, an executive at Chinatex Cotton Yarns & Fabrics Import & Export Corporation in Beijing. “The personal relationship matters most here. You have to talk to customers and make them feel good . . . They haven’t sent anyone here; so we don’t do business with them.”

FedEx is not worried. Instead of courting the established Chinese business clique, it is focusing on mulitnational corporations with Chinese operations that already use FedEx elsewhere. It is also targeting expanding Chinese entrepreneurs who FedEx believes will readily adopt its position of cutting-edge manufacturing and delivery techniques. FedEx is spending millions of dollars to build a network much like the one it operates in the United States.

In contrast, UPS is doing as the Chinese do. Its marketing seeks to build relationships discreetly, on Chinese terms. In promoting itself, UPS emphasizes its global network and stability, virtues that ring true for many Chinese. It also nurtures a Chinese customer base outside China, sponsoring Chinese New Year celebrations in Toronto and Vancouver, where many recent immigrants live.28

Evaluate FedEx’s and UPS’s marketing strategies in China. Explain which approach you think is best, and why.

Ethics in Marketing

Brawl Erupts Over Do-Good Advertising

Nonprofit organizations, like the Ad Council and the Partnership for a Drug-Free America, are sparring with the major television networks over who gets to serve the public in prime-time television. The nonprofits say their ads are being squeezed out of coveted prime-time slots. These complaints have raised questions about whether broadcasters are shirking their federally mandated responsibility to serve the public interest. The networks, like NBC and ABC, produce their own public service ads featuring stars from their shows. “The More You Know” campaign showcases such actors as David Schwimmer of “Friends” talking about teacher recruitment. A recent spot features Jenna Elfman, star of the comedy “Dharma and Greg,” discussing the benefits of mentoring. Although such ads do not mention TV shows by name, critics complain that they do as much to promote the networks as they do worthy causes. The television networks say there is more than one way to do good.

Whatever their source, public service ads are being aired less frequently in prime time. In one month last year, the Big Four networks ran an average of only five seconds an hour of PSAs, down from twelve seconds in the same month of 1993, according to a study commissioned by the AAAA and the Association of National Advertisers. About 80% of PSAs on local and network TV run in the graveyard hours of 11 p.m. to 7 a.m., says Competitive Media Reporting, which tracks ad spending. Meanwhile, prime-time promotions of network TV shows last year consumed an average of just over twelve minutes an hour, a minute more than in 1993. Recent data show that NBC devoted all eleven seconds of its public service time during one recent prime-time hour to its own in-house public service ads.

Do in-house PSAs satisfy a broadcaster’s public service requirements? Federal law requires broadcast licensees to act in the public “interest, convenience, and necessity.” However, the rules do not spell out what that means. Nor do they mention public service advertising. To fulfill their public service mandate, TV stations have traditionally donated unsold time. However, there is no rule that requires how much time they give, or that requires them to give away the most expensive time. A thirty-second spot on a top-rated show like NBC’s “Seinfeld” can bring in as much as half a million dollars from a commercial sponsor.

The ad industry is fighting back. The Partnership for a Drug-Free America is abandoning its reliance on donated air time and hopes to buy time instead, as part of a White House plan to spend $175 million in public money each year to get anti-drug ads on television and other media. The Ad Council is taking another tack by negotiating with the networks to produce PSAs that would include plugs for the networks.32

Do you think it is ethical for the major TV networks to use public service time in the way described in this story? Why or why not? What else could the nonprofit organizations do to make sure their messages get to the public?

Closing 3

Try making up your own test questions and then quizzing yourself. What seem to be the major topics in these chapters? Try explaining them to friends who are not in the class. When you can clearly explain the concepts, you’re on the way to mastery!

marketing miscues

McDonald’s

Rarely has a dominant brand gone so wrong, seldom has a potent market leader wandered so far astray. McDonald’s, the world’s largest restaurant chain, has for decades set the standard for everything that matters in the fast-food business—innovative marketing, superior products, impeccable operations, devoted franchisees. It has been, quite simply, a jewel of a company. Thus industry experts, along with Wall Street, have watched in stunned fascination as the giant continues to stumble.

The ailment has been mostly contained in the United States, where business has been flatter than an all-beef patty. In market-share terms, McDonald’s has slipped slightly to 41.9 percent, while Burger King’s share has inched up a full point to 19.2 percent. Even more telling, average store sales have been down for nine of the past ten quarters, causing anger and panic among franchisees. Despite record revenues of $10.7 billion, the company hasn’t had a new product hit since the mid-1980s.

The company was pathetically slow to respond to the discounting craze in the late 1980s. A series of new product gaffes didn’t help: the flaky McPizza, the ill-conceived McLean burger, and the “adult” Arch Deluxe. Failing at innovation, McDonald’s went for market share the only way it knew how—by building thousands of new restaurants (approximately 850 in 1994, and 1,100 in 1995, 1,000 in 1996, and 1,100 in 1997), which proceeded to steal away customers and profits from existing franchises. Relations between McDonald’s and its operators got so bad that Gary Dodd, who chairs the U.S. franchisee board, told management, “It’s like you’re flying the plane, and we operators are in the back of a smoke-filled cabin with no idea what’s going on.”