Pricing strategy and quality balance in competitive healthcare markets

Competitive Advantage in Healthcare Through Competitive Pricing

The healthcare industry is just like any other service sector that needs uniqueness and control over costs to excel. Since the cost of conducting business is increasing, there is a need that the healthcare professionals should understand that cost plays a vital role in attracting physicians as well as the patients. The patients are increasingly getting control over the price than the provider. Organizations realize that the future of industry is becoming more challenging. Simply focusing on the bargaining power will not be enough. The organizations should also try to improve and link the quality to the price of product or service (Miller, 2011). The cost concern should be such that neither the company's revenues should be ignored and nor the client should be over charged. The future seems to be difficult in terms of lowering costs given the increasing energy prices that affect drug manufacturing. Also the legal constraints do not allow reducing labor costs thus the cost of healthcare will certainly go up in the future. The medical companies are thus advised to work on pricing of products and services such that the quality is associated with it. Thus, the client should agree and be willing to pay a certain price that is not loss for the company. Finally, the healthcare organizations should try to hire the right talent and not necessarily the best talent because hiring very commercial scientist might only be a cost for organization and such professionals would simply leave the organization once they find a better paying organization. Thus a cost concern should be effectively managed along with quality and service issues.

Introduction

Healthcare industry is no different than others when it comes to fierce market competition. Adopting supply chain management, hiring best talent, purchasing state of the art equipment and technology, aggressive market campaigns, fights and lawsuits for patents and the pricing strategy- everything takes place like it does in other industries. However, the clients of healthcare industry are ultimately a patient thus the healthcare receives subsidies from federal and state governments too. It makes business earlier in the industry. Yet the prices of drugs, pills, treatment and surgery are high enough that the patients prefer to get treatment only when severely needed and ignore ailments as much as possible. This indicates how healthcare awareness and pricing are important in healthcare industry. The medical, pharmaceutical and other healthcare organizations need to understand that the pricing plays a vital role in determining success of an organization if it is an integral part of organization's competitive advantage.

Health care industry

From big corporate giants to small local clinics, all constitute to the healthcare industry. The industry is a component of economic system of a country. The sector works by offering health care products and services including methods for treatment, prevention, cure, rehabilitation, and comforting. Provided the deteriorating health of the people throughout the world, the industry is growing at a very fast speed. The people are getting allergies and accidents are increasing too that leads to need for an efficient healthcare industry. While not only the rich are falling ill but poor and middle class too, this needs a price sensitive approach to conducting business in healthcare industry. The client end has today more control over the pricing than the companies. The companies need to take back this control which can be only done by communicating how price is linked to quality and cannot be reduce further. The healthcare industry can develop a competitive advantage in any of the areas like talented medical scientists, equipment, cost and pricing, technology etc.

Competition and Competitive Advantage

The competitive advantage of an organization helps it differentiate itself in the eyes if market and clients. Thus, the organization can attract revenues as well as relationships. The service industry benefits more from differentiation than any other. Since the health care industry is also a service-based sector, it can achieve differentiation in many ways. The company can then translate differentiation as a competitive advantage (Dayaratna, 2013). Cost is another competitive advantage for organizations. The relevant competitive advantages are discusses here:

Strategy: The healthcare industry competes for both clients and the funds. A strategy can serve as a competitive advantage when it is based on foresight, vision, market understanding and market relationships. A company can adopt talent acquisition or anything else as a strategy that can lead it to profit making.

Services: The service matters a lot to the doctors as well as patients. The quality of service is affiliated with the talent and equipment in an organization. Thus, a health care organization can focus on its services to have competitive advantage. The service can be improved by having quality labs, X-rays, dental instruments, beds, flexible timings etc. re appealing to patients. Offering free consultations is another way to gain patient popularity.

Cost: A company cannot sell a profit or service at lost. Thus the costs should be covered in the price. Such a price would include the cost of technology as well as the cost of research conducted on the product. The cost concern however should understand that cost-based competitive advantage needs the cost to be low (Craig, 2013). The customer should be motivated by the pricing of company and its sales should increase.

Workforce: The medical professionals are fought after in healthcare industry as if they are the most precious asset. This is true. The medical professionals have capabilities that can change the destiny of an organization. Thus, a company can make competitive strategy to acquire best talent from the market and align values to grow and expand.

Insurance

The insurance policies and organizations limit the individuals from acquiring health insurance. Thus the clients have fewer opportunities. The law requires that people can only have insurance in their own state and not anywhere else. Thus the client is left with less choice and control over decision. Also the insurance options are limited. Thus, there should either be state-free insurance- one that is not bound to the state (Jardin, 2013). Else the insurance organizations can be removed and the task can be assigned to the hospitals so that they can manage the insurance services. While the clients need to have more options in the insurance services, the insurance prices should also be made more competitive. Without doing so, the poor population will be deprived of insurance services. The insurance services should be comprehensive and offer multiple options to the clients.

Pricing in Healthcare and Relevance to Strategy

Strategy can be comprised of anything that helps to achieve goal. As discussed earlier that from people, to equipment to price, anything can help increase revenues of a company. Thus, price and pricing strategy is very important because the poor patients can only be attracted to a healthcare solution that is affordable. Otherwise, they would not be able to avail the medical services. Thus price is a key factor that determines the level of sales and the revenue growth.

Pricing is never irrelevant whether the professional considers it in IT, food or healthcare industry. People as well as their decisions are affected by prices. Craig (2013) explains why a professional must be concerned about pricing. The revenue cycle of the healthcare organizations affect their operations and well as performance. He says that the final interaction of the patient and his provider is exchange of money and product/service. Keeping this final act, it can be said that it is just like shopping. The patient is increasingly interested to 'shop' medical facilities based on pricing decisions. The patients want the hospital of the organization to be more transparent about the prices and do not overcharge them (Porter and Teisberg, 2013). Now, since new companies are entering the industry and competition is increasing, prices will drive the business in industry. Thus it is very important for professionals in the industry to understand and positively inculcate price strategy.

Competitive pricing

The pricing philosophy demands an organization to charge such a fee to the patient that he will willingly pay and the company will benefit from it. There are a few insurance companies, for example, in the healthcare industry that offers health insurance. These organizations leave less option for the patients and thus they have to pay the amount desired by these insurance companies. The industry should either drop provide healthcare insurance or encourage new entrants so that the competition increases and the customer has more choices.

The competition in any industry plays a vital role. A positive competition offers more choices to the customers since every organization tries to offer something better and at a reasonable price. The features of the goods and services are also improved to attract the customers. When the patient can choose between companies, each organization will be more careful in its strategy as well as operations (Udell, 1964). The cost as well as convenience serves as critically in healthcare industry as it does in Wal Mart. The closer a clinic or hospital is situated; more motivated a person feels to pay regular visits. Same is the case with the price of treatment that encourages paying visits to doctors. The clients feel power and control over their decisions when there is competitive pricing in the industry. The patients feel that they are benefitted by paying for the insurance or the medical services. The free market mechanism and consumer choices make the client capable to decide which organization to select for purchasing the good or service.

validating competitive advantages

Competitive advantage plays a vital role in determining the success of organizations. The sales person in a medical organization needs to communicate pricing as well as quality message in order to increase sales and thus revenues of organization. Like the movie Love and Other Drugs, it is the case in actual business life in healthcare industry that the companies face problems if they do not have a set competitive advantage. A company can lose its market if it does not rightly respond to the trends. For example, offering the right product and right price needs to be backed by a detailed homework. A company may not succeed if it operates without a competitive advantage. The price as competitive advantage is an effective policy. The competition in the industry demands that the prices should be responsive and the clients should be able to pay these prices.

To Be Competitive

A company can survive to be competitive if at first place it has a unique and distinct organizational feature and then it successfully maintains and upgrades it without letting it be copied. This can be done by first getting patents for the treatment methods and drugs that the company invented and then adding features to it with time. The patents to medicine and procedures are a classic example of developing competitive advantage. Yet it requires additional costs of research and development and acquiring patents. The research and development is often half the budget of pharmaceutical companies. They conduct research on a procedure and chemicals or years and may or may not get success after years. Thus, this huge cost ultimately translates into the price of product. Also a successfully developed product needs a patent so that the company gets rights to sell it. A company can thus be only effectively competitive on the basis of price if it can sell the goods at the price that can earn it enough revenues to maximize is profits without ignoring the rights of the clients. Thus, in order to be competitive, companies need to spend in a way that can be marketed tomorrow and maximize its wealth.

Future Competition

It might not be the right choice to enter attacking marketing campaigns regarding pricing. A company can associate its pricing with quality but it cannot afford to spend energies in price fights. Porter and Teisberg (2013) say that the increase in quality often decreases the cost through innovation. They say that since the consumer has less information in the healthcare industry, he can be manipulated and charged a higher price. The costs of goods often increase to support the superior quality of medical services but then it becomes zero-sum game for the organization since it cannot earn more because of improved features or quality. Porter agrees that the costs are moved from hands of the payer to the patient. Thus a physician has more control over it than the company. When a provider increases price, the client moves to a different provider and thus loss of one party becomes the gain of other.

The zero-sum game takes place when the bargaining power is worked upon rather than the struggle to offer better service. Porter and Teisberg (2013) thus emphasize that the future of healthcare cannot be made safe without developing a balance between price and better care. All the provider end factors that are plans, organizations, hospitals and physicians need to work on quality and justifying why pricing is justified. There is a limit to price cuts but not to enhancement in quality. Hence, the quality should be a concern in pricing rather focusing on the bargain power. Such a quality should be linked to the price. The marketers and professionals should encourage customer perception that organization offers best quality that is possible in the given range of price.

Contrasting views

There are two groups of people with respect to the pricing strategy. There is one group that feels that pricing strategy is effective as a competitive advantage while other feel that the pricing should not govern competitive strategy of a healthcare organization.

Pro: The advantages of pricing as competitive strategy are that it understands the psychology of the client that is attracted to the cost of a good. Every individual and every organization faces budget constraints at a lower or higher level. The price thus has a psychological effect on the clients (Stossel, Binkley, and McMenamin, 2007). Also in the competitive environment, price is one success determining factor for organizations.

Con: The price, if alone the component of competitive advantage, can cause a lower quality of good or service. The company needs to differentiate product not only on the basis of price. It should be one factor. If the price of the product or service is the only differentiation, it can easily be lost since any other organization can offer lower prices. While other unique attributes that cannot be copied easily, quality can serve as competitive strategy longer. On the other hand, price plus quality concern would be an even better choice.

Personal views

While I dream of a world where cost does not hinder the medical treatment of a person yet the world is limited by certain constraints and cost is one of them. Thus, I believe that the organization should be concerned about costs and can include it in its strategy as a part of competitive advantage. Not only Wal Mart can excel on the basis of pricing policy but healthcare companies can also attract clients telling them that the cost is affordable for them and offers best quality in the price range. The companies will face a tougher challenge in future and they should be prepared today for the challenges and competition of tomorrow.

Why Some would Disagree

There are people that a cost concern and pricing strategy cannot offer competitive advantage in the healthcare industry. The cost is bound to, in one way or the other, the perception that the organization might have compromised the high standards of quality. These people suggest that the cost of Research and Development should not be decrease only to maintain a price range. Rather, superior quality should be ensured even if the healthcare service becomes expensive.

Conclusion

The service industry and thus the healthcare organizations can attain competitive advantage through competitive prices. Such a price should not be too low that the organization or physician runs into losses. The price consideration should not be too aggressive rather it should be visionary so that it can be maintained for long and even in the times of economic recession. The cost should be controlled by rightly investing into talent acquisition, technology and equipment. The price policy should be accompanied by service and quality features. A company should train its salesmen to communicate the right message about the price and quality of brand so that the low price is not taken and inferior quality of service or goods.