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A guide to marketing your lab's services: laying the groundwork.

A guide to marketing your lab's services: Laying the groundwork

I owe my success to honesty and wisdom. Honesty means that when you promise a customer something, you'll go to any length to deliver it, no matter what the cost. Wisdom is never promising anything you can't deliver.

Promise and deliver--that's the world's shortest marketing lesson. Laboratories should abide by this creed if they want to market their services successfully to a larger clientele.

Suggestions in this article and the one that will follow next month rest on the success of a marketing program in use at our company. From its start as a hospital-based laboratory that moved off-site six years ago, the company has grown into Arizona's largest independent laboratory chain, with more than 210 employees. Our company's position continuously improves due to responsiveness to clients and entry into new markets.

When marketing programs fail, the reasons often can be traced to vague goals or lack of a sound marketing plan. You must have clear achievable goals, defined strategies, an action plan, financial analyses, and contingency plans if strategies do not work effectively.

Marketing goals fall into three categories: Don't lose existing clients, get more business from existing clients, and locate new clients. Limit your overall plan to 10 or 15 goals. Establish goals that can be reached--not pie in the sky hopes--and state each in a single sentence. If you can't say it in a sentence, the goal may not be comprehended by everyone. For example, a goal might be to increase revenues by $1 million.

Next, define strategies to help achieve each goal. Strategies also should be stated if possible in a single sentence. Break the goal into measurable strategy segments --for example, "The way we're going to increase revenues by $1 million is to set quotas for additional sales of $250,000 per sales representative, raise test fees by 5 per cent, expand the sales force, and reduce write-offs of bad debt.'

Establish a plan of action to narrow down the who, what, and when. You must spell out when the strategy will be implemented and identify the party who must see to it. The action plan for the goal of increasing revenues by $1 million is this straightforward: Sales quotas will be met by Dec. 31 and will be the responsibility of the salespeople, a 5 per cent fee increase will occur March 1 and be the responsibility of the marketing director, the sales force expansion will be completed by June 1 under supervision of the sales manager, and the finance manager should act to improve bad-debt write-offs by April 1.

Financial analysis of the cost of implementing strategies and reaching goals is essential. To complete your analyses, use pro forma income statements to demonstrate feasibility; perform a break-even analysis to estimate the point at which revenues will equal costs; and construct budgets to serve as the control mechanism. You can budget per goal, per group of goals, or for the total marketing plan.

Monitor the progress of strategies toward achieving goals by holding a quarterly review meeting, and form contingency plans that will maximize progress toward any goals that are not being met. Hold accountable those whose section of the plan is not meeting the target goals.

In addition to developing a comprehensive marketing plan, you must organize an effective marketing department and research the market carefully. The director of marketing should report to the chief executive officer. If the laboratory doesn't have a CEO, as in most hospital laboratory settings, the marketing director should report to whomever oversees the entire operation.

Avoid the mistake of having laboratory marketing report to the finance department. Marketing efforts might then be restrained because finance generally concentrates on controlling costs. It's also a mistake to have the marketing department report to the chief technologist or technical director of the laboratory. In this case, restraints on marketing would be based on operational reasons: "We can't handle the work; you're making us work too hard.'

The marketing department monitors competitors' activities, performs market research for strategies necessary to promote lab services, contributes to service design, and engages in public relations, advertising, and sales. If the sales force is large, the director of marketing supervises area sales managers, who in turn supervise sales representatives. Another essential employee in the department is a marketing assistant who can keep up with all the day-to-day paperwork.

Once the marketing department is organized, market research can begin. The aim, to gather information for decision making, can be accomplished by assessing patients, clients and prospects, the competition, and trends in laboratory service:

Patient satisfaction surveys. Are patients satisfied with your services and will they tell their physicians if they aren't? I can guarantee they will. Distribute questionnaires to patients when they visit your lab (see Figure I).

Client satisfaction surveys. Also ask your clients--physicians, other hospitals, etc.--to rate your services (Figure II). Try to find out through these surveys what it would take in terms of price, turnaround time, or other factors, to sell a prospective service. I recommend that you mail the questionnaires and ask clients to return them by mail. We got more candid responses that way than we did when our couriers distributed questionnaires and picked them up. Few clients ever complained about service when they dealt face to face with a company representative.

Competition assessment. Identify competitors and their strengths and weaknesses. Sales representatives can usually provide this information, but sometimes it helps to perform market surveys. Knowing what competitors have to offer should be a number one priority because the better their lab services are, the better your services must be.

A direct way to learn about the competition is to visit their laboratories --most organizations are eager to show off their place of business. In addition, contact their salespeople and have them try to sell you their services; then use some of the services so you can better evaluate competitors' operations.

Talk with customers of your competitors. If you hire individuals who formerly worked for competitors, interview them for information.

More oblique methods of gathering information include writing in for competitors' literature or picking it up at meetings and exhibits. Two laboratory chains are publicly held at present, and you can send for their annual reports and financial statements. Also review trade journals and attend trade shows to see what others are selling.

Business trends. Keep up with trends in your area of business. Reading journals like MLO and business and government publications can help you identify important regulatory and market changes. Talk to your own customers, vendors, and competitors, and attend as many laboratory and health care seminars, symposia, and conventions as you possibly can.

Once you have sized up the market and your competitors' operations, it's time to price your services. Be sure to price competitively --no other single factor will have as profound an impact on your marketing program as your pricing strategy.

First, compare your fees with fees for the 50 most common tests offered by your biggest competitor. This involves the following steps: 1) multiply your average volume for each of the 50 tests by your fee for each test; 2) take the same volume and multiply it by your competitor's fees for each test; 3) add up your column of revenue and your competitor's column of revenue, and calculate the percentage difference between the two totals.

Using this method, we found we were charging 4 per cent more than our main competition. If we chose to remain even with that firm, we would have had to reduce fees for all tests by 4 per cent across the board or discount some high-volume tests at a level that brought total pricing down by 4 per cent. As you will read in a moment, we did not choose either pricing option.

Next, determine your incremental costs--the variable cost of producing each additional test once volume reaches a level that covers fixed costs. To offer discounts and make bids to prospective accounts, you must know how low you can go and still make a profit.

Never let your list prices fall below those of the competition, or you will attract low-volume clients, who cost more to serve. Keep your fees slightly higher to avoid price wars. Instead, sell your services on the basis of quality. So in reference to my previous example, if you prices are 4 per cent above the competition's, leave your prices at that level; this is an ideal position for you.

Use a combination of discounts and special prices; this makes it difficult for competitors to figure out your pricing strategies. Always announce fee increases after competitors do, in order to avoid being singled out as the instigator.

Set a relationship between fees charged directly to patients and client fees to insure some form of price continuity. We use a formula of 30 per cent of our client fee for a test plus $5 to attain the patient price.

Bid to win. Why expend the effort of calculating proposed prices if you have no chance of landing an account? Bid up from your incremental costs to make sure you will test at a profit--if you find you cannot make a profit, don't bid. If you know you will be submitting higher prices than your competitors, cite reasons why your bid is worth considering.

Understand capitation rates, because many experts predict that health care will be paid on a capitated basis in the future. A capitation rate is a fixed fee per patient per month, regardless of how little or how much of your service the patient uses. In other words, your organization functions like an insurance company. If a laboratory performs tests for a health maintenance organization today, the payment it receives may be on a capitated basis.

To set appropriate captitation rates, you must take a number of factors into account. For example: What services are you going to provide, and what tests are included? What are the test usage rates of he patient population (older patients generally require more tests)? How many tests per year should you expect per plan member? What does your capitation plan consider a "test'? For example, would electrolytes count as one test or six tests? How are tests that you have to send out handled in the arrangement?

Computing capitation rates based on incremental costs is uncomplicated. Assume the incremental selling price is $5.28 (with a 10 per cent profit margin built in), and the plan has a young, healthy population that uses an average of only 1.7 tests per year. Multiply $5.28 by 1.7 and you get $8.98 worth of billable tests per year per enrollee. Because capitation rates are figured on a monthly basis, divide by 12--that works out to a $0.75 lab fee per month per enrollee.

The final stage in preparation for marketing your services involves planning a campaign to spread the word about your organization. Advertising, public relations, sales literature, sales aids, and promotional programs are the tools at your disposal.

Advertising includes familiar outlets such as the Yellow Pages. Size has an impact, so use larger ads for better pull. Get listed under multiple categories: toxicology, pathology, clinical laboratory, medical laboratory. Also advertise in directories for medical societies, health service organizations, and community service groups. Direct mail is another way to advertise effectively. It is economical, reaches a large audience, and is easily targeted to a select audience. You can mail out brochures and newletters.

Public relations is free advertising. Get your name in front of the populace. Join community business and trade organizations and support local charities. Issue press releases because health care news is popular. Speak at community and trade meetings. Offer tours of your facility to the public at large or to patients.

Sales literature should display your name, logo, colors, and marketing theme. All items should be carefully planned and printed professionally. You might even consider employing the services of an artist. Have brochures that describe your services. You should also have a test catalog that includes general information about your organization: profile and test listings, methodologies, reference values, test codes, specimen information, turnaround times, etc. Don't forget business cards, stationery, and sample requisition and report forms.

Sales aids are items that help open doors for salespeople. Examples of giveaways include plastic portfolios with your name and logo printed on them, calendars, pens, coffee mugs, telephone memo pads, and so on. You can also give a videotape of your operations to prospective customers.

A variety of promotional programs can be instituted to bring in new business. Reward employees with bonuses for finding new customers, thus making everyone in the laboratory a sales representative. Offer to let physicians in small hospitals or labs use your bulk purchasing power for supplies they require. Their budgets don't stretch too far, so they will appreciate it when you offset what you charge with savings on their other expenditures.

Have an employee phone physicians' offices in the area to find out who desires your services or literature. Start a "tech support' program, sending your employees to physicians' office labs to replace technicians who are ill or on vacation. This service can bring in extra money in addition to producing beneficial exposure.

In this article, we laid the groundwork for a sound marketing plan. In Part II next month, we will discuss the nuts and bolts of sales, auditing your operation, building your business image, and perhaps most important, catering to clients' needs, from turning out test results quickly to issuing your invoice.

Photo: Figure I Patient satisfaction questionnaire

Photo: Figure II Client satisfaction questionnaire
COPYRIGHT 1987 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1987 Gale, Cengage Learning. All rights reserved.

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Title Annotation:part 1
Author:Fantus, James
Publication:Medical Laboratory Observer
Date:Sep 1, 1987
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