Owning the Other P’s of Marketing — Part Two

In last week’s post, we explored two of the “other” P’s of marketing – Place and Product – that health system marketers are now starting to drive. This week, we look at Price, and how determining the actual value of your organization’s brand can be a first step to more strategically leveraging price.

Price: Understanding how brand drives price

Most experts agree that there is a provable connection between powerful brands and pricing power. Simply put, the stronger a brand, the more pricing power a brand has. Examples of this phenomenon include Apple, Tesla, or Perrier, where these companies can command a higher price than similar products due to the strong preference and loyalty consumers have for these brands.

While pricing in healthcare is certainly more complex than with other industries, the pricing power of brands is still in play in our world. When consumers perceive a health system brand to be demonstrably superior to other choices they may have, they will travel further distances, deal with more difficult experiences, and otherwise incur a higher “price” to receive care at that system, including, in some cases, actually paying more money for the care itself. The price and cost of care at destination healthcare brands such as Cleveland Clinic, Mayo Clinic, or Johns Hopkins can be higher than any other health systems, yet they do not actively leverage a higher price with consumers in the way Apple, Tesla, or Perrier do. That’s primarily because the price of healthcare is only borne by consumers in a limited way, and is driven in most cases by the patient’s insurance coverage. Even then, who pays the price of care is convoluted by insurance variables such as deductibles, co-pays and co-insurance.

So where does pricing power play a role here? Whether it’s explicitly leveraged or not, pricing power impacts the negotiations health systems have with insurance plans. While payors may never admit it, there is almost undeniably a brand impact on payor/provider negotiations. The stronger the brand, the more valued it is by employers and consumers, the less “replaceable” a brand is in a given market, the stronger negotiating power that health system has with payors. Sometimes this is accomplished by being the 500-pound gorilla in the market, where a health system owns 60, 70 or 80% of market share. In this case, we’re talking about the pricing power of monopolies, which is why payors scream about these situations and government regulators work to prevent these situations in the first place. Even without dominant “must have” market share, provider brands can play a significant role in influencing the payment rates – prices – they negotiate from payors.

The trick, of course, is determining the value of that pricing power, and while we have yet to see anyone do this in a quantitative way, it may start by just understanding the value of a health system’s brand to start with. The financial value of that brand. There are many ways to do this, though it is definitely easier for publicly traded health systems who can measure brand value in terms of market capitalization or stock value over time. Brand value can also be measured as the primary asset on the balance sheet – typically referred to as “goodwill” – during a merger or acquisition. Organizations typically only determine the true value of goodwill during such a transaction, but why wait? In a 2017 post, noted healthcare expert and friend of ReviveHealth Paul Keckley called out the increasing importance of brand, including the importance of brand valuation:

“Boards should insist a brand value measurement be done independently and annually so as to protect the integrity of the process and protect brand value.”

No matter how you go about it, consider how you, as a marketer, can help your organization determine the financial value of your brand. Knowing this key financial strength can be the first step in helping you understand the impact of your brand on payor negotiations, and, ultimately, on the “price” you’re able to set because of them.

April 19, 2018
How does your hospital show up across Promotion, Place, Price, and Product?
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