Retaining patients, physicians, vendors, and partners is a the best and cheapest way to build a medical practice, hospital market, or health related service customer base. Bedrock principle, right? Not so fast say Timothy Keiningham (global chief strategy officer at Ipsos Loyalty) and Lerzan Aksoy (professor of marketing at Fordham University) in the Harvard Business Online Conversation Starters column - When Customer Loyalty Is a Bad Thing - which appeared on May 7, 2009. This short piece examines some aspects of customer loyalty that can suboptimize or sink business to customer or business to business enterprises. It struck me that some of these red flags could be useful to health care leaders as well.
Profitable and Unprofitable Loyalty
Keiningham and Aksoy sum up the dilemma: "The fly in the ointment is that typically only 20% of a firm's customers are actually profitable. And many -- often most -- of a company's profitable customers are not loyal." They are talking about retail or business service customers, of course. And their question is, justifiably, why value loyalty from the 80% who drag on the business? More to the point, why use marketing tactics (price reductions, contract concessions) to retain those customers and vendors who do not add value? Don't try to grow the business indiscriminately, they argue. Buying loyalty from "all comers" and building entirely upon a "retain every customer" strategy may not bring value.
With that "aha" in mind, the next step is how to keep and grow the 20% who contribute to a profitable business - and perhaps shed or convert some of the 80% from whom the return is not as good in order to get there. This is the underlying economic principle health care payors use when trying to manage population risk. Risk for poor health and risk to profitability go hand in hand. Payors learned some time ago not to work too hard to retain the 80%. Rather they attempt to grow the 20%,invest in modifying the negative potential of targeted populations within the 80%, and let a few contracts that drag go to the other guy.
The 100% Strategy
When it comes to health care provider organizations, we don't' want to be quite so capricious about our customers - the patients who are the actual consumers of health care. Our mission is, remember, to serve 100%! So to translate Keiningham and Aksoy 's advice to health care delivery organizations perhaps we need to be a little more creative.
Having received "enlightenment" from Keiningham and Aksoy, the task of health care leaders is not to turn away patients and partners but to strategically diminish dysfunctional loyalties that impede the profitable delivery of care and services. For provider organizations, it may not be an 80/20 rule. But, there are some customers (patients) and some vendors or partners (physicians, diagnostic providers, suppliers, etc.) whose loyalty shouldn't be valued without question. Having gained awareness, our first step should be to carefully examine what part of our 100% deserves loyalty. This means developing the discipline and metrics to characterize and analyze our loyalty relationships. Having identified our equivalent to the 80%, it's time for strategy.
Loyalty Stops Here
Consider the following examples of "loyal" customers or partners or leaders whose allegiance shouldn't retained at just any cost:
- Patients repeatedly seeking primary care in emergency rooms can be very loyal. Do we really want to retain and build on this customer base? The CDC's National Health Care Surveys document a dramatic rise in ED use over the past decade and identify a variety of reasons for this increase including lack of primary care resources, Medicaid payor status, ethnic disadvantage, etc.
In order to convert these potentially valuable customers into customers that actually add value (and are better served) strategies that call for investment in primary care, urgent care facilities, community resources such as FQHCs, insurance placement, etc. And perhaps re-examining current strategies to gain other loyalties which might also contribute to the problem. For example, I recently consulted to a hospital that provided financial incentives to ED physicians based on the number of patients seen - including primary care patients. These emergency physicians welcome and encourage primary care patients to visit the ED. A bad strategy for sure.
- Physician groups can be extremely loyal to hospitals. And hospitals - particularly those in competitive markets - work hard to remain the "hospital of choice" for as many physicians and groups as possible. Many hospitals I work with will do most anything to retain these loyalties without necessarily understanding the total value psoposition from a group or physician.
I'm working with a particularly enlightened large community hospital management team in a highly competitive marker on a physician adoption strategy for the new institution wide EHR. Rather than compromise on the use of CPOE and clinical documentation systems that are critical to obtaining full value from the EHR, the implementation team is carefully examining the value brought by physician groups (admissions, diagnostic studies, medical staff participation, etc.). They've decided that some referral relationships will be expendable if the cost of retention (i.e. workarounds to CPOE) is too high. And where retention is valued, loyalty will take the form of selected EHR module customization and extra support for EHR readiness rather than compromise on participation in using the technology.
- Academic Department Chairs and Deans can be loyal to the University and retaining them is often a high priority given the cost and disruption or replacement . But that loyalty can be trumped by loyalty to their own career aspirations which makes indiscriminate retention a poor strategy.
In an academic medical center I worked with recently, a powerful Chair to whom the University was loyal advocated for an unpopular but futuristic service line organization and leadership model that consolidated overall strategic accountability for multiple historically "siloed" and individually Chaired academic Departments. Despite opposition, the plan was approved at the highest levels of the University. But when it came to selecting a visionary leader to lead the new service line, a talented outside candidate was selected over the internal Chair to fill it and launch the new structure. This resulted in the precipitous departure of the Chair, substantial internal fallout, and heavy investment to repair the situation. Fortunately the service line consolidation was a good idea and thus endured.
Yes, it's sometimes easier to retain patients, doctors, and leaders - in the short run. In the long run, it's about the value they add. And misplaced loyalty is not a reliable value enhancing strategy.
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