Where do we go from here? Round 1 of competitive bidding is in place and we are facing Round 2. After what seems a lifetime of study, trial programs and launches by CMS, it is finally a reality that we in the industry need to accept; now it is time to develop a growth strategy around this “trend.”
There are five key elements of a marketing strategy: 1) target markets; 2) products/services; 3) distribution; 4) pricing; and 5) promotion. The “marketing strategy” is itself part of a larger “business strategy,” which is comprised of the marketing strategy, operations strategy and financial strategy.
Regardless of your company's situation with current or future competitive bidding, it's time to reexamine your marketing and business strategies. We will look at each of these elements, but first, let's take the pulse of your business.
Step 1: Take Your Business Pulse
Pull out your key financial information and examine it, then answer these questions:
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What was our net revenue growth over the last three years? Will it continue? If not, why not? Did we lose market share in competitive bidding — or will we? Are there other factors affecting our revenue growth?
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What should be the plan for growth over the next three years? Can we grow at market rate? (It was at 10 percent before competitive bidding; I expect the number to flatten in the low single digits over the next few years. Remember, the bulge of baby boomers hits in 2012, so demand will be up and pricing will be compressed. It will take more widgets sold to equate to previous revenue, unless, of course, you find a new revenue source.)
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Now take a look at where your net revenue is derived. Break it out like this:
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Net revenue by payer type;
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Net revenue by customer type; and
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Net revenue by product/service line.
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You can get fancy and analyze this further (e.g. sleep apnea, managed care, pulmonologists).
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If you can't get this exact information out of your system (which is obviously ideal), then estimate it. And take a look at it by sales territory if you have more than one territory in your business.
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From where exactly is the net revenue being derived?
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Once this information is completed, stand back and see what you have. Does your current strategy work? Will it continue to work to get you the growth you wish to see in your business?
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If the answer is yes, then continue it.
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If the answer is no, then continue to Step 2.
Step 2: Write Down Your Current Marketing Strategy
Marketing and business planning can be simple. It can be done on a sheet of paper that is bullet-pointed. Or, you can be as detailed as you wish. It isn't the writing that is important, it is the strategic thinking.
- Target Market(s)
To whom do you promote your services? Physicians, discharge personnel, hospitals, skilled nursing facilities, assisted living facilities, managed care organizations, others? Write down the percentage of your net revenue over the last three years from each of these target markets.
- Products/Services
Write down the percentage of your total net revenue from each product/service line, e.g. standard wheelchairs, power wheelchairs, sleep apnea, etc.
- Distribution Strategy
Do you just do home care delivery? Then you are at 100 percent home care distribution. Do you have a retail business? Do you use common carriers? Record your distribution strategy.
- Pricing Strategy
If you are 100 percent Medicare, then your pricing strategy is 100 percent Medicare rates. If you have a capitation deal (and let's hope you don't!) then include this. If you sell retail, write down that pricing strategy. Record the percentage of your net revenue derived from each pricing strategy.
- Promotional Strategy
Most HME firms are 100 percent field sales-focused for promotion. Some use telesales, some do a little public relations. Record the strategy.
Now you have your marketing strategy recorded. Head to Step 3.
Step 3: Record Your Business Strategy
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Marketing Strategy - Copy Step 2.
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Operational Strategy - Write down the answers to these questions:
- Number of buildings/sites and geographic service areas?
- Number of employees?
- Status of accreditation?
- Status of policies and procedures?
- Information management summary?
Also write out a general operational summary for your company. How exactly do you do business?
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Financial Strategy - Gather this information:
- Previous year's profit and loss statement (accrual, cash basis);
- Year-to-date monthly profit and loss statements;
- Year-end balance sheet and current balance sheet; and
- Cash flow analysis for the previous year and cash flow analysis for next 12 months.
Now summarize your financial position.
Step 4: Summarize Your Current Plan — Is It Working or Not?
This is the key part of any growth strategy. I like HME companies to write down their strategy so management can see it on paper. Sometimes it takes a strategic planning session, sometimes it takes help from a consultant. In the end, the owners and managers have to answer the question, “Is this plan going to cut it to meet our growth objectives?”
If the answer is yes, do more of it! If the answer is no, continue to Step 5.
Step 5: Four Options for Growth
There really are only four ways that you can grow your business. The nice part about this is that it is simple to understand; it is the implementation that can be more complex.
Once you have your strategy set down in writing, then you can figure out how to grow your business.
- Penetration - Same Products/Services and Same Customers
Here's an example from one provider:
“We have been selling primarily oxygen and wheelchairs (our major products) to primary care physicians (in the Medicare segment 40 percent and the managed care segment 60 percent). We are going to lose our Medicare segment and/or the pricing is going to crash due to competitive bidding. But we still like this strategy, and we have only penetrated 10 percent of the market. That gives us 90 percent of the market we can go after, so market development makes sense for us. What do we do?”
This business needs to focus on ramping up its promotional efforts. If your company is like this one, maybe you need more field sales folks producing more revenue with this strategy. Maybe the current sales team needs training (actually, sales reps need continual training) both from a product/service standpoint as well as a selling skills one.
Training investments should pay back over and over. Keep your sales team trained. It retains the sales team as well as earning your company more revenue.
If, however, you deduce that you have 70 percent market share in a small geographic area with your products and customers, then market development really doesn't make sense. Your strategy is one of beating your head against the wall, and you may have false expectations that if you just keep at it, you can get 100 percent market share. Generally, that doesn't happen.
Penetration is the least expensive and the least risky strategy because your firm is already set up to handle your current products and customers. Work on this one first, and maximize it before moving to the next one.
- Product Development - New Products/Services and Same Customers
This is the next growth strategy to consider if penetration strategies have been maximized.
The next easiest strategy is to sell new things to your current customers. Your operational and financial teams know how to serve these customers and your sales teams has relationships with these customers, so bring them something new.
Find out what they need. Try HME lines first. Once these are maximized in a market — or you need something else to give your company a competitive advantage that will make you different from others — then look outside of the traditional HME lines. There are literally thousands of products and services you could offer.
What you need to make this strategy work is first to talk to your current customers and assess their needs. This is Market Research 101. Sales teams are the worst at this process, so either have your management team tackle the project or hire an outside firm to give you an assessment. Don't make a decision on a random sample of one, such as “Dr. Brown says he needs a new information system so let's get into the information system business.” Make rational decisions that make sense for your market.
I recently watched an interesting special on McDonalds about the chain's new test kitchens. The company's growth has slowed, and they know they need to get different foods and new products into their franchises as their penetration strategy has stalled.
Management has hired great chefs to come up with recipes, and then they test the recipes in key franchises. They use market research services to see how those products might fare. Mostly, the company has been successful with its new products, but they've also had some big bombs. When asked how they could possibly bomb with all of the market research they conduct, the answer was that it can be hard to predict what people will buy, even with the best market research in the world.
The lesson here is that market research is both an art and a science. Conduct it well and do it formally. Just because a referral source tells you they like your idea for a new product line doesn't necessarily mean they will refer to you once you have it in place.
- Market (Customer) Development - Same Products/Services with New Customers
From an operational standpoint, it is always easier to keep your current products and services in place rather than adding new ones. As you need new policies, new procedures and training for operations and sales personnel.
Adding new customers (new customer types) takes an investment. For example, currently you are calling mostly on primary care docs and now you decide to target hospital discharge personnel. Those referral sources have different interests and require different types of handling. But if you don't make the investment, you may blow it.
If your company is thinking about getting into managed care, for instance, this means a new customer. It requires new delivery of products and services, and pricing is, well, let's say, different than Medicare models. I do believe that there are a lot of creative risk-sharing pricing structures that make sense in managed care. (That, however, is a separate subject.)
Whatever new customers you go after, this strategy requires new policies and procedures, new manufacturer agreements and operational, billing and sales training as well as a new incentive plan for your sales team. Find as many new customers as you can with this strategy and maximize it before you go on to diversification.
- Diversification - New Products/Services and New Customers
This is by far the last strategy to consider. It requires the most work and it is the riskiest.
Let's say, for example, you are in the Medicare oxygen business selling to pulmonologists and primary care physicians. You decide that neither of the first three growth strategies will work, so you are going to go into the home health business and sell to managed care organizations, or you are going to go into the infusion therapy business and sell to infectious disease physicians. This is diversification — very risky because your firm knows nothing about the product line or the customers.
If this winds up as your only option, then “buy” the knowledge. Recruit the top person you can find to run this business, hire reps who know the business and get your operational and financial teams trained to handle this business.
Step 6: Summarize Your New Marketing and Business Strategy, and Present It to Your Team
The last step in the process is to summarize your new marketing and business strategy. Repeat Steps 2 and 3. Again, make it simple: Use bullet points on a Word document or summarize your information in a PowerPoint or Keynote presentation.
You don't need a detailed, long summary to make it work. You do, however, need to be able to present this change in direction to your management team and, ideally, to your staff. Include timeframes in your presentation and external policies and procedures, training and any other support needed to make the implementation work.
Marketing is about changing with the dynamics in a particular market. The dynamics in the HME market have changed again. Savvy providers will shift to make their businesses work and continue to be successful in what I expect will be an ever-changing marketplace.
Alison Cherney is president of Cherney & Assoc. Inc., a Brentwood, Tenn.-based marketing and sales consulting company that provides strategic planning, sales management and sales training services. You can reach her through www.cherneyandassociates.com.
