Scott Frankum speaks on market maturity and how it may cause a sea change

 

Health Travel grows up

The health travel and medical tourism industry may be at a point of change; transitioning from a fragmented industry, driven by the energy of start-ups into formal growth and maturity.   This may seem self-evident or without consequence but the phenomenon of industry maturity may affect everyone in the business.  Industry structure is difficult to define in the early stages, but it can be analyzed through a field of study called the Structural Analysis of Industries, which can also underpin formal strategy studies.

You may not have heard of industry structure or competitive analysis but the study of these fields is as considered as the study of mathematics or economics.  Michael Porter1 invented the concept of the Structural Analysis of Industries; he is often referred to as the world’s leading expert on the competitive analysis of companies and countries2.

Portersays, “Maturity may force companies to confront, often for the first time, the need to choose a strategy.  It becomes a matter of survival.”  Decisions made at maturity determine the working, competitive and profitability environments of industries and businesses for years to come.

“Signals of maturity” in the market

In Porter’s view, the indicator of industry maturation is when customers shift from deciding whether to purchase a product at all to establishing brand preferences and making choices among brands.  The corollary is that speaking to differently oriented buyers and addressing competitive shifts requires countries and providers to re-invent their organizations and to choose from among three generic strategies: cost, differentiation and niche / focus.

Maturation is characterized by these events:

  •     A larger number of competitors.
  •     Slower growth.
  •     High fixed costs.
  •     Low switching costs, (easy for customers to change allegiance).
  •     Low levels of brand and product differentiation.
  •     High strategic stakes.
  •     Consolidation.
  •     High exit barriers, (the cost of abandoning the business).
  •     A diversity of rivals, (different cultures, histories and philosophies create market instability and higher rivalry).
  •     Irrational reaction to price competition.
  •     Resentment to changes in industry practices.
  •     Overemphasis on “creative”, “new” products rather than improving and aggressively selling existing ones.
  •     Clinging to “higher quality” as an excuse for not meeting the tactical marketing and pricing moves of competitors.
  •     Eroding quality differentials.

Sound familiar?  It does to me, especially in light of two recent consolidation announcements:

  • Malaysia’s Khazanah Holdings bought the balance of Singapore’s Parkway (Hospital) Holdings that it did not already own, for US$2.6 billion to block India’s Fortis Healthcare.
  • This week, Fortis Global Healthcare bought Quality Health Care Asia of Hong Kong to improve Fortis’s reach and scale.

A new term....”Alpha Healthcare”

In researching the Well Report, it seemed every country and hospital I contacted made similar marketing claims.  I knew there must be objective differences in care but ISQua “approved” accreditations were the only objective signifiers of high quality I could identify.  The sameness of marketing claims created triple negatives: confusion, disbelief and a pool of too many undifferentiated choices.

I needed a simple, clear, explainable term that:

  •     Differentiates the best competitors.
  •     Signals quality and desirability.
  •     Defines a data set for industry structure and competitive analysis.

I coined the term “Alpha Healthcare” to embody differentiation, quality and the basic requirements American medical travellers have in transparent transactions.  I defined Alpha Healthcare out of a very simple methodology by combining anecdotal information from industry experts with the crucial factors that emerged from focus groups and customer surveys.

Defining an Alpha Hospital

Location:

  •   Alpha Hospitals are healthcare providers in low-cost countries that have science and care delivery at parity with leading western hospitals.

Medicine:

  •     Cultivate reputation, prestige, knowledge and expertise through exclusive, hard-to-attain affiliations and accreditations.
  •     Work from internationally vetted medical guidelines.
  •     Attract the most qualified doctors and have current medical equipment.

Structure:

  • Typically, are private hospitals with powerful ownership groups that engender academic, media, business and community support.
  • Have organized support from national, regional and local governments.
  • Are close enough to large population centers and transportation hubs to draw local, regional, neighbouring country and international patients.
  • Draw patients from their home country's top 10% of domestic income earners.
  • Leverage information technology to control costs, maintain safety and improve care.
  • Exhibit increasing transparency.
  • Have new physical facilities that enable best-practice medicine.

Marketing:

  • Are keenly aware of what is necessary to build sustainable competitive advantage in medical excellence, healthcare delivery and medical travel.
  • Create product offerings and marketing outreach to attract international patients.
  • Are prepared for medical travellers.

Value:

  •     Are priced for their domestic markets.
  •     Create superior value-for-money.
  •     Have been building their offerings longer than new entrants have.
  •     Are desirable places to go for medical care.

 
True Alpha Countries, Centers and Hospitals spend years building the attributes of competitive advantage that create value for medical travellers.  The Alpha terminology makes it easier to categorize and distinguish countries and healthcare providers that are building quality from those that are seeking a short term solution to filling empty beds

Maturity opportunities and frameworks for analysis

Let’s look at an example from the toolbox that becomes available at industry maturity.  I chose this example because any insurance company considering a health tourism option for where to send patients in Asia will (or should!) have created a diagram similar to this.   It is almost as powerful with public data as it would be with real market data.

The X-axis is the price of a business class hotel in 6 Asian Alpha Countries (a stand-in/indicator for procedure pricing).  The Y-axis is a measure of U. S. awareness of health travel in the 6 countries (a stand-in/indicator for brand awareness).  The size of the circle is the number of Alpha Hospitals each country has (an estimate of capacity).

It isn’t apparent to me whether any Alpha Countries have declared their strategies.  Even so, this simple tool powers tactical moves that could improve positioning in regard to desirability as an insurance company partner.  India and Singapore could launch marketing / communications plans that trumpet their capacity to insurance companies.  Malaysia could launch a PR campaign aimed at brand awareness in the U. S.  Thailand could use the diagram as impetus for promotions that counteract changes in the Thai currency and value equation.  Korea could decide they need to add capacity to be competitive.  Taiwan could decide to stop a shotgun marketing approach and focus on Chinese language promotions because they don’t want to challenge India and Singapore directly.  This diagram gives a visual way to understand the industry effect of tactical moves.

Defining Alpha Healthcare powers industry analysis because it provides a language for differentiation, even where differentiation is not declared.

This is a diagram used often in structural analysis because it presents complex information simply and with clarity.  I use the same price of a business class hotel from the first graph as the Y-axis and differentiation as the x-axis.

The diagram depicts three things:

1)   I’m mixing metaphors but I have included three well-know retailers in the graph to illustrate Porter’s three generic strategies: Price = Walmart.  Differentiation = Hermes.  Focus / Niche = Target.

2)  The marketing claims of Asian Alpha Countries are still so similar that I believe most customers can only perceive healthcare in these countries as undifferentiated.   Thus, price is the main variable between competitors which creates high rivalry and can create destructive head-to-head price competition.   This situation is called a price stack and it is not ideal.

3)  Because I believe we are at maturity, it follows that I believe countries and companies will begin to move toward differentiated positions soon.  If I’m right, competitors will move out of the price stack and begin to cluster around the differentiated line.

If we’re at industry maturity, and I believe we are there, big changes are coming.  Strategy is a pattern of actions.  Now is the time to start thinking about yours.

1 Porter, M. (1980).  Strategy: Techniques for Analyzing Industries and Competitors.  New York: Simon & Schuster.

2 Harvard University, (2008). Harvard Professor Michael Porter Honoured by U. S. Department of Commerce. Boston: Harvard University Press Release.

FURTHER CONTENT PUBLISHED BY THIS AUTHOR

Starting with a strategy

Articles, 11 September, 2012

How to create a strategy for a destination

The Undeveloped Customer

Resources, 01 May, 2012

Scott Frankum: EMTC 2012

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