Over the past few years, I’ve spent a lot of time speculating about the emergence of consumer segmentation in the US healthcare market.
As background, here are the three main conclusions drawn from previous posts:
- In Budget Boutique Hospitals? Will The Search for Value Lead to Market-Segmentation in American Healthcare I suggested that we are seeing signs that the US healthcare market has begun to segment itself on the basis of consumer expectations. It’s possible that we will begin to see the emergence of “skinny” low cost systems and full-frill centers with deep (if not broad) expertise.
With the Millennial generation we are seeing an emerging group of dissatisfied healthcare consumers who are prepared to forfeit unlimited access to the costliest doctors, experimental trials and brand-name versus formulary drugs– in exchange for more affordable rates.
2) In a followup post, Segmenting Healthcare into “Luxury” and “Value” Brands… Thoughts On Not Getting Stuck in the Middle I speculated that this segmentation is (much like the US economy as a whole) leading growth in demand for cervices catering to high-income and low-income segments of the population. This “middle squeeze” (Sears effect) exposes high cost/ low service systems.
It’s the same trends that have led to the simultaneous growth of both WalMart and Louis Vuitton into the world’s most valuable brands over the past decade, just as Sears and JC Penny slowly die.
3) Finally, in More Thoughts on Segmenting Healthcare: Who’ll Serve the “High End” of the Market? I wondered who would own the “full-frills” healthcare market.
In this era of segmentation, I’m left wondering who will cater to the high-end of the market. I’m not sure that most AMCs are going to be able to get their acts together to fill this market opportunity. Who will?
Today, I’m going to make the observation that responding to the needs of a consumer segment will likely be harder than it looks. Consumers are fickle, and their willingness to make trade-offs changes fast.
I look with some interest to health insurance companies which have jumped on the market segmentation bandwagon well in advance of health-delivery companies. The road has been bumpy for some of these folks: Whether it’s Oscar or any number of new consumer-facing plans, getting the benefits and network design right is challenging. It’s easy to assume that you know what consumers want, yet companies are finding it hard to find the right blend of network/ access/ customer service etc.
My thinking got a boost this week as I reflected on the Ritz-Carlton hotel chain. Most people recognize the Ritz as a global leader in luxury hotel services. They have developed a powerful brand, culture and service level.
What I didn’t know was that, in the 1990’s, the Ritz had begun to lose its way. The company assumed that it knew what buyers wanted, but it eventually became evident that the customers had changed even while the company hadn’t.
The story is detailed in The New Gold Standard: 5 Leadership Principles for Creating a Legendary Customer Experience Courtesy of the Ritz-Carlton Hotel Company. (The book has been on a short-list of important business books for some time and I’m always inspired when I re-read it).
In a chapter titled “Be Revevant” the book’s author, Joseph Michelli, writes that the Ritz began to find that stodgy luxury offerings weren’t what a new generation of empowered consumers were looking for.
A customer noted:
“I expect elegant. But I also expect that I have to enter into their world instead of their coming into mine.”
An employee noted that the traditional Ritz offering had become staid:
“Many of us began to wonder if, as a company, we were serving the needs of customers from another time, not the needs of today’s customer or the future customer.
What had happened was that the Ritz’s original customer segment was being replaced by an emerging customer segment who found their needs unmet. The hotel’s original customers had been a group demographers referred to as “classic status-seekers.” Unexpectedly, a larger group of customers were coming to the Ritz with different expectations than the traditionalists: these were the “discerning affluents.”
Research further identified three insights related to discerning affluents.
First among these is this group’s desire to leave its mark in the world and create a legacy, either through business or family.
Additionally, this group of customers pursues life with confidence, choosing its own paths and not following others.
Finally, discerning affluents seek to lead more interesting lives where they collect stories rich with detail.
This observation led to the Ritz restructuring their offerings to emphasize the individuality of locations and the availability of local “experiences” such as hikes and cooking demonstrations. The offering migrated from gild to “experience”
Leadership sought to retain the excellence of the guest experience while expanding it to meet the needs of discerning affluents, whose basic currency is found in the stories they collect. When you ask these people about their favorite luxury purchase, vacation travel is always No. 1. And when you ask them why they say that, it’s because of the memories they garner. It is as if, for these guests, money is less the currency than time. So when they spend it, they want to spend it on something that has meaning, relevance, and value to them.
In other words, consumer tastes, touchstones and values– their currency— had changed and the company hadn’t.
If you run a healthcare system, and believe (as I do) that segmentation is inevitable, it’s time to start considering your brand’s offering. How does it resonate with consumers? Most important: what’s your customer’s currency?
For some consumers cost drives all decisions. But I think that we are also beginning to find that consumers are multi-faceted and that, most important, currency differs between consumer demographics.
It seems to me that, in healthcare, we have been pretty broad when it comes to describing consumer’s healthcare expectations. We haven’t done much better than to wave broadly to the IHI’s triple aim as an aspirational goal for all.
And, while there is much to say about the merits of the triple aim, in this new era I’d offer that understanding your customers and their currency should be the first order of business for the successful healthcare delivery company.
Photo: Timothy Neesam, Flikr, cc license