Looking for revenue? Try tapping on your keyboard: new revenue for your organization may be just a few keystrokes away

Healthcare Financial Management, March, 2004 by Arthur Sturm, C., Jr.

During my career in healthcare marketing (since around the mid-1980s), I've been baffled by how aggressively healthcare organizations continually work to acquire new patients. Thousands of new patients every year, and millions of dollars spent to get them.

Then the following year, organizations go out and try to get more new patients. "What happened to the ones you got last year?" I would often ask, and I would get this standard response: "Once we get them, we keep them."

It's interesting that other industries have not made that assumption. In fact, if we look at the behavior of several highly successful companies, we'll see that they consider acquisition of customers to be just the beginning of a long-term relationship. Now, some healthcare providers are harnessing the same strategies to build more revenue at significantly lower costs.

Building Corporate Memory

The concept on the table bas many names, but fundamentally, it boils down to data mining. This term simply describes the way organizations can draw upon what database resource Solucient calls the "corporate memory" of patients' experiences to increase the number of transactions these patients have with the organization. To put it more simply, your own data can tell you who your best customers are, their financial value to the organization, and what they need from you in the future.

Retailers, banks, and car manufacturers are showing us the power of this approach. Here's one example: carmaker Saturn reports that 95 percent of its marketing budget is committed to acquisition. The remaining 5 percent is dedicated to encouraging customers to bring their cars to Saturn dealers for maintenance and repairs. That aftermarket accounts for 50 percent of dealers' profit.

In many ways, providers are being forced to adopt a data-mining approach. Hospitals' constrained financial resources and tight budgets make it necessary to consider new approaches to marketing that can achieve results. And increasingly, providers feel frustrated with the ability of hospital marketing departments to bring in patients, as well as with the high cost of that marketing.

Most marketers, regardless of industry, agree that customer acquisition is the most expensive strategy an organization can pursue. Retention, on the other hand, is far more efficient, usually more predictable, and ultimately more profitable.

Interestingly, data mining holds the key to both acquisition and retention. Let's look at how organizations can view data mining in light of their own strategies, competencies, and market demands.

Seeking the relationship. Buying external mailing lists is a fundamental way to mine data. You ascribe a certain set of variables--usually demo graphics such as age, gender, and income--and look for the individuals in the community who match those criteria. This approach is routinely referred to as direct mail. Average responses nationally are less than 1 percent.

Selecting the best relationships. Increasingly, providers are realizing that they indeed are not mass marketers. As is tree in other industries, in health care, the old 80/20 rule applies (80 percent of your business comes from 20 percent of your customers). The reality is that a limited portion of the population will drive the business.

The question, of course, is how can you identify that 20 percent? Mining your own data can set you on an active course, but will get you only part of the answer. By applying a segmentation model to your data, you get both a more robust view of the purchasers and an ability to project the size of the untapped universe. Segmentation programs commonly produce two to three times more results than broad-based programs.

Segmentation models go beyond demographics and round out the profile by adding educational levels, retail purchase behavior, media habits, even political preferences. Among the benefits of segmentation: you can eliminate those who don't fit the target population you are trying to attract. Segmentation also gives you a better ability to modify your messages so they are most appropriate for your desired customer.

Manage the relationships. OK, now that you've got 'em, what will you do with 'em? Often, you have them in a membership program of some sort (e.g., seniors' club, new moms' club); these are usually called "affinity programs." The affinity model has met with mixed acceptance by providers. The databases are usually small (fewer than 10,000 records) and hard to maintain, and they often serve as little more than proprietary mailing lists.

One provider, though, look time to mine the data, with surprising results. The provider discovered that members of its program for adults ages 50 and up used the provider's services at about a 14 percent higher rate than did nonmembers and were more disposed than nonmembers to use services such as a retail pharmacy.

The problem often cited with membership programs is that they end up being a series of data silos whose value decreases daily. Why? Most likely they were seen as mailing lists rather than as information to build a revenue strategy. "Members" should be considered loyal customers who are looking for ways to increase their loyalty through repeat purchases. Mining that data base will let you help them do that.