Service Area Competitor Analysis

1. Service Area Competitor Analysis HCAD 5390

2. Market Fundamentals • Determine the appropriate market and define it as precisely as possible • Few organizations can serve the entire market, so … • Think in terms of segments of the market • Watch for new segments emerging and existing segments disappearing – constantly • Define segments and concentrate on a select few

3. Bases for Segmentation: Patients and Consumers • Patient demographics • Patient economics • Patient lifestyle • Patient sociocultural factors • Patient geographic location • Patient purchase/usage behavior

4. Bases for Segmentation: Organizations as Customers • Organization physical location • Organization economics • Organization purchase behavior • Organization infrastructure • Organization use of product or service

5. Segment Characteristics – Bases for Selection and Strategic Targeting • Total Competitor Sales from the Segment • Average Competitor Profits Earned in the Segment • Segment Value Chain Activities and Related Costs • Segment Distribution Channels • Competitive Intensity

6. Criteria for Selecting Suitable Market Segments • Definable in objective terms • Can distribute products/services to segment • Media channels for marketing to segment • Customers interested in buying firm’s products/services • Customers have money to buy firm’s products/services • Can sell products/services at prices that allow above-average profits • No conflict between new and existing customers • Room in segment for another competitor

7. Customer Fundamentals • Market is composed of individual customers • Must identify and describe them in detail • First determine who the real customers are • Learn what they value in the products/services the firm offers • Plan strategies to satisfy customer needs in one or more targeted segments

8. Customer Roles in Purchasing Health Care Services • Actual recipient of the services • One who decides that patient will receive the services • Other influencers of decision to seek and receive the services • One who decides who will provide the services • Actual provider of the services • Covers and pays for the services • Pays premiums for health insurance coverage

9. Sources of Customer Value • Performance of the product or service • Appearance of the product or service • Quality of the product or service • Setting in which it is purchased or consumed • Reputation of the seller of the product or service • Reputation of the product/service brand name • Demeanor of people selling the product/service • Service available before/during/after the purchase

10. Which Product or Service Attributes to Emphasize • Within segments, customers will have different value preferences • Identify and target attributes most widely preferred • Start with “threshold attributes” (bare minimum, taken for granted, not pay extra for) • “Critical success factors” (prefer one competitor over another and pay a premium) • Match resources/competencies to these factors – gain a competitive advantage

11. Learning Customer Value Preferences • Current customers prefer values in existing products or services – listen to what they say • General public opinion surveys • Patient satisfaction surveys • Customer complaints • Organization-sponsored market research • Patient or customer focus groups

12. Using Market/Customer Data in Strategic Decision-Making • Identify threshold product features • Identify “critical success factor” (CSF) features • How well do competitors deliver those features? • Compare resources and competencies to critical success factors • Sustainable competitive advantage possible? • Mobilize resources/competencies to deliver CSFs • Develop/acquire new resources/competencies • Target different market segments

13. Industry vs. Market Industry: • Group of organizations (usually for-profit) • Selling similar products and services to … • Similar markets and customers Market: • Group of customers (people or businesses) • Demand similar products and services to … • Satisfy similar needs Market is composed of customers who buy products and services from organizations in an industry

14. Understanding an Industry • Industry Value Chain Describes the structure of an industry. • Porter’s Five Forces Model Describes the forces that determine the profit potential of an industry.

15. Industry Value Chain Describes the structure of an industry: • Chain of sequential activities and organizations • Each adding value until finished good emerges • Most firms operate in part of the value chain • Each firm adds different amounts of value • Each firm captures different amounts of profit • Profit captured depends on bargaining power

16. Industry Value Chain for Artery Stent Implantation Employer ↓ Managed Care Organization ↓ Health Plan ↓ Integrated Delivery System ↓ Individual Practice Association ↓ Cardiology Group Practice ↓ Stent-Insertion Specialist ↓ Patient/Employee/Health Plan Member

17. Porter’s Five Forces Model Describes the forces that determine the profit potential of an industry: • Competitive intensity • Threat of entry by competitors from outside the industry • Availability of equivalent, substitute products • Bargaining power of buyers and customers • Bargaining power of suppliers and employees

18. Industry Environment • A set of factors that directly influences a company and its competitive actions and responses • Interaction among these factors determine an industry’s profit potential • Threat of new entrants • Power of suppliers • Power of buyers • Product substitutes • Intensity of rivalry

19. Analyzing Industry Environment • Opportunities and threats are competitive challenges arising for changes in industry conditions. • Analytic tools such as thefive forces model help managers formulate appropriate strategic responses.

20. Five Forces Model of Competition • Identify current and potential competitors and determine which firms serve them • Conduct competitive analysis • Recognize that suppliers and buyers can become competitors • Recognize that producers of potential substitutes may become competitors

21. Industry Force 1: Competitive Intensity Factors encouraging intensity of competition: • Large number of competitors • Slow industry growth • High fixed costs • Lack of differentiation • High strategic stakes • High exit barriers • High competitor diversity

22. Industry Force 2: Entry By Outside Competitors Barriers to entry by new, outside competitors: • Economies of scale • Product differentiation • Capital requirements • Switching costs • Access to distribution channels • Other cost disadvantages • Government policy

23. Industry Force 3: Equivalent, Substitute Products Availability of equivalent, substitute products that: • Perform the same function, or … • Customers believe perform same function • Offer more performance for same price • Offer same performance at lower price Compare alternative, Eastern medicine with conventional, Western medicine.

24. Industry Force 4: Bargaining Power of Buyers or Customers Buyers or customers have greater bargaining power when: • Customer’s purchases represent large share of seller’s sales. • Customer’s purchases from firm represent a large share of customer’s costs. • Items purchased are homogenous with few differentiating features. • Costs of switching from one vendor to another are low. • Buyer’s profit margins are low. • Buyer has plausible opportunities to integrate backward into the seller’s business. • Buyer has good knowledge of seller’s operating costs and deals with other buyers.

25. Industry Force 5: Bargaining Power of Suppliers or Employees • Concentrated supplier industry • No substitutes for supplier’s products • Buyer is not important customer of supplier • Supplier’s product is important input to buyer’s business • Supplier’s products are differentiated • Supplier’s products have high switching costs • Supplier can plausibly integrate forward

26. A Sixth Force?Government Policy • May constitute barrier to entry • Especially prominent in health care and biotech • Government entities play many health care roles: • Payers/customers (Medicare, Medicaid) • Providers (VA, IHS, city hospitals) • Funders (NIH) • Regulators (HIPAA, ERISA, Stark, fraud and abuse, antitrust, FDA)

27. Understanding Competitors • Which competitors to analyze? • Competitors in systems and networks • Narrowing the scope of competitor analysis • Individual competitor analysis • Strategic aspirations and commitments • Strategic capabilities • Forecasting competitor strategic behavior

28. Which Competitors to Analyze? • Existing, immediate competitors • Potential new competitors • Indirect competitors

29. Potential New Competitors • Expanding out of other geographic markets • Expanding similar, related product lines • Customers integrating backward • Suppliers integrating forward • Weak firm acquired by stronger firm • Invaded firms retaliate by invading back • Good fit with industry critical success factors

30. Competition With and Among Networks and Systems • Networks and systems are a major force in the health care industry • Integrated delivery systems, hospital networks, health plan networks, nursing home chains • Competing with a single organization or a large aggregation of organizations? • Different resources and competencies • Different strategic aspirations and intentions

31. Narrowing the Scope of Competitor Analysis • Insufficient resources to tackle all competitors • Focus on subsets of competitors • Concentrate on the greatest strategic threats • Organize the industry into strategic groups

32. High Prices Charged Low High Low R&D Spending Strategic Groups in the Pharmaceutical Industry

33. High Prices Charged Generic Group • Marion Labs • Carter Wallace • INC Pharmaceut’l Low High Low R&D Spending Strategic Groups in the Pharmaceutical Industry

34. High Proprietary Group • Merck • Pfizer • Eli Lilly Prices Charged Generic Group • Marion Labs • Carter Wallace • INC Pharmaceut’l Low High Low R&D Spending Strategic Groups in the Pharmaceutical Industry

35. Strategic Group Analysis • Cluster of businesses with similar characteristics, resources/competencies, and strategies • React to industry development in similar ways • Industry counterpart to market segments • Strategic groups of physician practices, hospitals, health plans, drug companies, or … • Defining characteristics of strategic groups of physician practices

36. Defining Strategic Groups:Physician Practices (I) • Clinical specialties • Delivery channels • Payer contracts and relationships • Market segments served • Quality of services provided • Acceptance of new technologies

37. Defining Strategic Groups:Physician Practices (II) • Reputation and customer loyalty • Nature and vigor of marketing efforts • Cost efficiency of operations • Level of patient service amenities • Level of fees and charges • Adequacy of capitalization

38. Individual Competitor Analysis:Strategic Aspirations and Commitments Explains the strategies a competitor would like to implement or is committed to implementing. • Motivations for strategic action • Strategic mindset • Strategic track record • Strategic managers’ background and history

39. Individual Competitor Analysis:Strategic Capabilities Explains a competitor’s strategic assets available for implementing strategies. • Internal value chain • Resources and competencies

40. Forecasting Competitor Strategic Behavior • Likelihood of any strategic move at all • Form of the strategic initiative • Methods of implementation • Resources and energy committed • Estimated chances of success • Nature and severity of threat posed • Competitor’s reaction to strategic attacks • Nature and intensity of that reaction

41. Competitive Intelligence Process and system for acquiring knowledge about competitors’ strategic intentions and capabilities • Formal and permanent intelligence-gathering system • Backed with sufficient personnel and other resources • One-time research in a turbulent industry is worthless • Designed to meet the expressed needs of strategy decision makers • Employing a systematic gathering, analyzing, and interpreting process

42. Sources of Competitive Intelligence Publicly Available Data • Media articles • Reports filed with public agencies • Speeches by top executives • Corporate PR announcements • Other corporate statements • Health care-specific websites

43. Sources of Competitive Intelligence cont’d Privately Gathered Commercial Data • Legal databases • Corporate documents and reports • Credit rating firms • Consulting firms • Market research firms • Trade associations • Think tank publications • Commercial industry newsletters • Investment banking research reports

44. Sources of Competitive Intelligence cont’d Original Field Research • Employees with knowledge of competitors • Suppliers who also serve competitors • Customers who also frequent competitors • Contracted surveys and research

45. Competitive Intelligence Process • Determine intelligence wants and needs of strategy decision makers • Identify best sources for desired competitor knowledge: • Publicly available data • Privately gathered commercial data • Original field research • Sort and organize data gathered • Analyze the data and draw conclusions • Translated into reports for strategy decision makers