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Senior and Post-Acute Healthcare News and Topics

Improving Real Estate Economy Leading to Improving Seniors Housing Trends?

Among the improvement laggards in the current slow economic recovery was the real estate sector of the economy.  Despite record low borrowing rates, home sales seemed stuck in neutral even as positive GDP growth resumed, modest gains in employment occurred, and consumer confidence improved.

Starting late summer 2012 and accelerating in to 2013, the real estate economy has strengthened and improved nicely.  Historically, a healthy real estate economy correlates to strong seniors housing starts, sales and occupancy.  With many major markets over-supplied as of late in terms of seniors housing units (demand perspective), an improving real estate economy, if trends hold true, imparts hope for the seniors housing sector – or does it?

Seniors housing, as I have written before, has a very price elastic demand curve.  Essentially, this means that potential buyers and the universe thereof, is directly influenced by the cost of the housing option.  Even when costs remain stable, the demand equation changes dramatically if the buyer for the units experiences change (real or perceived) in his/her economic capacity.  Negative changes such as falling real estate prices, constrained ability to liquidate real estate, or reduction in the number of potential buyers for the real estate contribute directly to a senior’s ability and willingness to purchase a seniors housing option.  The most dramatic impacts occur within projects that are above-market priced or higher-end as the elasticity of demand for the most expensive options is greatest.  In effect, the higher the price the more the consumer of the product or service, will shift to lower cost alternatives, if his/her ability or capacity to purchase has changed (again, real or perceived).

What is most interesting about the real estate economy compared to other economic sectors is that national trends don’t play-out directly, in regional or local markets.  Take for example, markets or regions where oil and natural gas production has exploded.  Even during the slowest, most depressed times for the real estate economy nationally, the real estate sector in these regions and locales was booming.  Housing of any form in areas such as Casper, Wyoming  and Williston, North Dakota was (and remains) scarce, pricy, and by timing (supply and demand), development scarce.  Conversely, some markets fared far worse than national trends in terms of foreclosures, time on the market and price deflation (Las Vegas and Chicago, IL are examples). Given the regional drivers that impact the real estate economy, recovery will vary dramatically.

Correlating a recovering real estate economy to an improving seniors housing sales and occupancy cycle is simplistic from a global perspective but at the site-specific end, a bit more daunting.  What we know generally is that a more fluid, stable real estate market generally improves the occupancy, unit absorption and sales results for seniors housing.  We also know that in general, by occupancy and ultimately, price inflation, it improves the operating results of seniors housing projects.  What we don’t yet know is whether this recovery is a harbinger of longer-term real estate stability and does the improvement tide wash over all markets at some point and in what time frame.

Arguably, this recovery is perhaps different, certainly less uniform and due to other over-arching economic issues, more complex than any post recession period prior.  In certain markets, those that were the least impacted by too much existing supply, rapid increases in unemployment and a large number of foreclosures (REO or REJ properties), recovery is impactful for seniors housing projects, especially if the unit supply is normative or about par with pre-recession demand.  In other markets where prices fell dramatically, foreclosures were heavy and unemployment greater than national average, recovery will be slow.  Even the latest positive economic news regarding the real estate economy is a tad misleading.  Yes, most markets are improving.  Yes inventory is down, days on the market is improving, listing prices are recovering, etc. (a few markets such as Columbus, OH, Philadelphia, PA and Spokane, WA continue to see price deflation) but the improvements are from a very, low point.  In short, the improvements are signs of “recovery” not a validation of stability – yet.

While the road ahead appears somewhat smoother, the opportunity for pot-holes exists and thus, the relationship between real estate fortune and seniors housing is still rocky.  My considerations worth noting are as follows.

  • Employment and wage growth (personal income) is still stubbornly slow.  Under-employment at record highs.
  • In some markets, employment and under-employment will never return to post-recession levels.  Certain jobs and companies are gone from the landscape for good.
  • Interest rates today are less of a function of improving sales even though low rates improve affordability and thus, general increases in eligible buyers.  Changes to federal lending laws and mortgage requirements have tightened credit requirements for borrowers.  These changes, regardless of how low rates remain or go, preclude a large universe of individuals from securing favorable term mortgages.  In short, the supply of buyers has shrunk and permanently so.
  • Given how low rates have been and for how long, rate rise to a certain degree is forthcoming.  Rising rates inversely impacts the supply of buyers (negatively).
  • Price increases for individual homes won’t broach pre-recession levels (actual or inflation adjusted) for years in many markets.  In certain markets such as the Metro Chicago region, price increases in terms of realized sales, are years out to achieve pre-recession par.
  • The overall economy is still vulnerable and the consumer, still leery of what can lie ahead.  Confidence is better but not great.  Consumer confidence is critical to a buyer’s willingness to leverage long-term, arguably as critical as financial capability to buy.
  • Seniors housing costs are at their low-ebb as expressed by monthly rental and in some communities, entry fees.  While costs continue to rise, albeit not dramatically, the pressure to begin to inflate fees is present for many projects.  Fee inflation during a recovery period or stabilization period is anathema to improving unit sales and developing new prospects.  With the elasticity of the product, rising rates in a market that still isn’t healed can “chill” prospective buyers.

Is the trend improving for seniors housing?  Yes but not universally and the real estate economy in many regions remains disconnected.  Additionally, I think the direct correlation between a strong real estate economy and the prospect for seniors housing sales has changed.  Yes it remains a major factor but property sales cycles will remain slower than prior periods, prices lower than prior periods, and buyers for individual homes, in lower numbers than in prior periods.  The take-away is this: The improving real estate economy is good news, not necessarily great news or for that matter, a sign of salvation for projects looking to ramp-up sales with urgency. The trend is improving but full improvement, is still down the road and for certain, the road is different in direction than before.

June 4, 2013 Posted by | Senior Housing | , , , , , | Leave a comment

Presentation from Leading Age Annual Conference in Denver

I have uploaded the Power Point portion of the presentation I did at the recent Leading Age Annual Meeting and Conference in Denver per reader and attendee request.  You can find it and download it on the Reports and Other Documents page on this site.  The presentation is titled, “Value Propositions and Marketing”.  The content essentially covers the application and development of economic value propositions and their resulting use in developing marketing and pricing strategy.

October 25, 2012 Posted by | Senior Housing | , , , , , , , | Leave a comment

CCRC Marketing Reality Check-Up

Periodically, the source for a post on this site is the accumulation of thematically condensed questions that I receive regularly and with frequency; what I now call the “buzz”.  While the “buzz” for me is fairly constant across the post-acute/seniors housing industry, the pitch does vary, sometimes daily but most often, weekly.  I guess it just depends on what is trending and where people’s focus lands.  If the buzz is steady enough and the sound-bites within the buzz repetitive, it spurs me to sit and write, perhaps defensively, to quiet the noise from Twitter and e-mails, and re-focus.  This post is one of those defensive or perhaps, reactive posts.

Lately (last three to four weeks), I’ve been getting a steadily increasing series of questions regarding CCRC marketing, value (economic) propositions and to a lesser extent, repositioning.  The sources of course anonymous, range from established communities to relatively new communities, seeking sales and occupancy improvements.  In some form or fashion, I’ve likely addressed most of these issues in pieces via various posts and articles spanning the last two years but alas, I have been remiss in circling back with a condensed and consolidated version.  Hopefully, this post will help.

Post recession and into a grinding period of almost unrecognizable economic improvement sprinkled with volatility, CCRCs need to come to grips with four key themes when it comes to marketing.

  1. Reality has shifted permanently for the industry.  This is not necessarily bad but it does mean that every aspect of the sales and marketing cycle once engrained, understood, and successful in terms of selling units has changed.  Consider the following;
    • Within the last four years, most seniors saw their incomes via investment returns, social security, pensions, etc., flatten and/or trend down.  Some saw immediate and permanent reductions (permanent for their remaining lifetime).
    • While investment portfolios principally consisting of equity securities have rebounded, the recoupment of loss only occurred for those that remained fundamentally steadfast and did not turn what were “unrealized” losses into realized losses via reactionary selling during the market fall-off and bottom.
    • Depending on the individual market, real estate prices fell precipitously or at least modestly and the liquidity of the real estate via a thriving residential market stagnated and declined.  Some markets have recovered elements of liquidity and re-sale value (price) but not to the levels prior to the downturn.
    • Seniors housing demand has always been elastic but as a result of the three points preceding, it is even more elastic today.  Why?  Simply, economic fortunes of the consumer shifted downward and thus their real and perceived purchasing capability moved accordingly down while the prices for seniors housing remained stable to modestly higher.  We’ve seen a similar effect in new construction vs. existing housing.  New construction per square foot costs have stayed relatively flat or slightly higher over the period while existing construction on per square foot basis fell.  When the correlation between the two is tighter or even inverted slightly, the demand shifts accordingly.  For seniors housing, this added price elasticity, created by a wider gap between the declined consumer’s economic purchasing capability (again, real or perceived) and flat to slightly higher seniors housing prices, creates a different value proposition and purchasing dynamic.  For most CCRCs and other seniors housing providers, the best strategy to combat some of this impact in the near term is to hold prices or drop prices; a scenario for many that may be difficult.
  2. The customer demography has shifted.  While this shift has been subtly occurring over the past decade, the recession period sped the movement.  Retirement is now more deferred and the economic need or desire to remain in the community for a longer period of time more developed.  The customer today is de facto older and more driven by need, predominantly health related.
  3. In light of number 2 above, even with the constant growth of age bands suitable for seniors housing and CCRCs, a percentage of the market evaporated.  This percentage is folk whose economic fortunes changed so profoundly negative or were marginally positive enough to afford a seniors housing product but now no longer so as a result of wealth loss.  This segment or percentage was at the normative market age, economically qualified at the time, but four or so years later, outside the age and health profile and/or economically incapable of affording the product.  The bad news is, the replacement numbers generated from a cohort behind them are insufficient to make-up for their loss.  The market has marginally shrunk, although unit numbers have not and in some markets, have increased during this period.
  4. Given points 1-3 above, the sales cycle is now longer requiring new approaches, more touches, and revised pricing strategies and product features that realign the value proposition.

Circling back to where this post started, the compendium of current questions I am attempting to defer and answer lie in number 4 above.  Specifically; “OK, I get 1-3 but how do I then develop the strategies, etc. dictated by this new sales cycle”.  My summarized answer is below.

  • First, redefine your customer.  I like an analytics approach.  Who are they?  What do they need? What is their economic profile?  What are they shopping for (and it’s not the real estate)?  What is their background at all (or as many) levels that you can ascertain (education, occupation, interests, locations, current living arrangements, health profile)?  The more you know, the better.
  • What is your community’s economic value proposition?  I’ve written on this before and it needs to be clear.  Price it and benchmark it across the broadest market segments possible (compared to living in their current home, rental, condo, etc.).  How does your product compare to competitors at all levels (features, services, care levels, etc.) on a price basis, quality basis, access basis, etc.?  Again, the more detailed this information is, the better.
  • Generating leads once the above is complete becomes easer.  The strategies that work the poorest on a cost per lead basis are newspaper and print media advertising, other media advertising, facility generated brochures, billboards,  and events.  Events can be helpful in getting people into the community to remove a barrier but in and of themselves, they do very little to turn attendance into prospects without other steps taking place.  Strategies and tactics that work best in terms of numbers and on a cost basis are referrals (current residents, families, community members, from other providers, etc.), e-mail contacts and direct mail, website and social media marketing, and co-branding with other organizations where your target market is plentiful and frequent.  In this latter strategy, I recommend being present and visible via human presence as well as building joint lists and joint value-added connections (education, support, referral development, resource sharing, sponsorships, etc.).  A word of caution here: Make absolutely certain that in co-branding and co-marketing strategies that the other organization is as credible and solid as your organization – the relationship must be value-added not value-dilutive.
  • Incorporate new math into your thinking.  The new math is all about how many touches and presentations are required to make a sale.  For most CCRCs and market rate or above market rate projects, 20 or so touches to qualify and close a prospect is the new norm.  In short, if you are working on a list of 100, expect five to ten sales (if the list is qualified) from that 100.
  • Marketing needs to focus on building “volume” thus, methods and analytics need to be at the forefront of strategy.  To keep costs manageable and to build fluidity, I recommend strategies that utilize in revolving fashion, the following four elements.  First, e-mail blasts and e-mail news letters that go out to target segments on specific interest levels.  Second, simple events that are educational, again focused on target market interests.  Third, internet and social media campaigns.  For internet, I like to make certain that the web pages are clean, focused and have ample opportunities for people to request more information.  Fourth, direct mail campaigns.
  • All campaigns and elements need to focus on a clear, direct distinction between your product and other options.  In other words, the goal is to find as many ways as possible to reinforce what the value proposition is and how the same is directly correlated to the interests of your target markets.  For CCRCs, the simplest concept is “continuum of care”.  The vast majority of CCRC consumers are motivated by health and supportive care access.

The “new” CCRC marketing reality is all about analytics and alignment; narrowing the gap between what your customer wants and how your community is best suited to address the key issues.  Touches have to go up to meet sales objectives and contacts need to be weeded through quickly.  Building a qualified and fluid prospect list today is all about using multiple methods with fluidity.  Finally, I can’t emphasize enough how critical and how granular the marketing analysis needs to be to push forward a successful strategy.  Without a full analysis of market targets, customers, prices, product, etc., gaps remain that allow prospects to filter through, resulting in less than effective marketing activity.

April 19, 2012 Posted by | Senior Housing | , , , , , , , | 8 Comments

Know Your Market, Know Your Value Proposition

Last October I wrote a post regarding the development of an Economic Value Analysis and how the same is important for marketing seniors housing and skilled nursing.  A couple of weeks ago, I wrote a post regarding feasibility tests key to project success and targeted feasibility.  Later this year, in October at Leading Age’s annual conference in Denver, I’ll again cover the concepts in a direct, interactive fashion.  Until such time however, I continue to receive dozens upon dozens of inquiries as to how to construct an Economic Value Analysis and a corresponding value proposition.  Last October’s post is instructive and can be found at http://wp.me/ptUlY-7G.  In addition, and in concert with the post prior to this one on financial feasibility methodologies, I’ve provided below some additional “help points”.

Economic Value Analysis is a fairly simple process that centers on determining the ability or capability of a product or service to satisfy the core demands of a given market; the ability to quantify utility.  Utility in this context, simply stated, is satisfaction at a given price.  For seniors housing, the struggle always is “how” to demonstrate value to potential consumers in a way that is logical and meaningful.  This is acutely problematic in a market that is competitive as the “noise” emanating from all the competitors regarding price and services is constant and at times, deafening.  At its core, Economic Value Analysis creates a more tangible constant.

Given that seniors housing has a very elastic demand curve (a great many substitute products provide equal or proximally equal core utility), the devil is creating a comparison basis and this basis is not “stated price or features”.  A place to start is completing a simple analysis that equates a seniors housing unit per square foot cost (cost = fixed costs, variable costs, and margin) to the comparable alternatives in the market.  In this case, comparable alternatives equal rental housing, other competitors, community dwellings (housing units, condominiums, etc).  Ignore your current pricing structure as unless the same is equalized on a square foot basis, this analysis won’t provide a true picture.

Taking the example to the next level, once the cost per square foot is known, determine the relevent market comparables.  This does take some homework but it is fairly easy to complete.  Via simple survey, one can generally gather enough information from realtors, friends, etc. to determine a community housing cost per square foot (utilities, taxes, rent costs, depreciation/maintenance, etc.).  Gaining information from competitors is even easier as typically, they publish the information or a simple “blind shopping” trip gathers all the necessary information.

Once the information is gathered, populate a simple spreadsheet with the data.  If the core cost per square foot for the seniors housing option is higher, and it typically is, the analysis must delve deeper.  Usually, elements that drive costs for seniors housing come in the form of rate or price inclusions such as meals, cable television, maid/cleaning services, etc.  Two approaches to deal with this issue are possible.  First, back these costs out of the seniors housing number and re-analyze the comparables.  Second, and my recommended method, gather data on these services and develop a square foot comparable.  Between competitors, the key is to keep the data as apples to apples as possible so one must be clear that the costs include exactly (or as close as possible) the same features/amenities, etc.

Once all the information is known and “spread” and sorted, the picture should become clear.  I like to look closest and hardest at the comparison between living at a seniors housing complex versus living in a market rate situation whether that is home, condominium or rental.  The age-old belief among seniors is that a seniors housing community is too expensive.  The analysis should detail where the true costs lie.  Expect some price sensitivity issues where the seniors housing is a tad more expensive but the difference should be clearly and easily explained (24 hour services, access to care, transportation, etc.).  The more than can be quantified in the form of dollars, the tighter the analysis becomes and the easier it is to explain where the salient benefits lies.  If the gap between the seniors housing cost and the alternatives is too high, the issue may lie in the structural elements of the equation such as inordinately high fixed costs or variable costs.  Becoming competitive may require changing, if possible, the financial drivers of the seniors housing project equation.

Concluding, the square foot model works exceptionally well in this analysis as it provides flexibility to model and to change any number of variables.  It also is “non-unit” specific so its data and results aren’t skewed by less-than relevant unit pricing schemes.  The difficulty simply lies in taking the time to build the model and to accurately gather solid data from the “universe” of housing alternatives.  Assuming costs mirror most of the market, the value proposition thus becomes a powerful tool that can and should be used in market positioning.

April 3, 2012 Posted by | Assisted Living, Senior Housing | , , , , , , , , | 1 Comment

When and Why Projects Go Bad: Traps and Pitfalls to Avoid

Creeping slowly out of a period of recession where financing was nearly impossible to get, providers, operators and developers are starting to look favorably at new development and refreshment of existing properties and infrastructure.  Though capital is less than free flowing, money is entering back into the long-term care and seniors housing world fluidly enough that projects once parked in the “back of the lot” are edging closer to the front.  Having watched significant failures occur over the past three to four years and/or counseled organizations through some of the rough times, now is an appropriate time to pass along some “learnings” from the failures and struggles that I have seen.  Importantly, as the industry and the methods for financing have fundamentally and permanently changed, so have the markers for assuring project (new, redevelopment and remodeling) success.

As a primer or if you prefer place to start, there are three basic elements critical to project (new construction or renovation) success: Market demand, cash flow margins, and project cost.  Too many new projects failed to meet occupancy projections simply by misunderstanding market demand dynamics (market demand is not demography).  While not universal or sacred to only non-profits, misunderstanding regarding cash flow margins is a common failure item.  For example, I don’t know how many projects I’ve looked at, especially on the substantial remodeling side, that incorporated no expectation of new revenue or improved operating margins (either this element was missed or worse, not present/expected as a result of the project).  Finally, project cost should always be less a function of funds available but more a function of payback.  I’ve seen too many projects that suffer from “scope creep” simply because funds, either via debt or equity, were available.  Being able to afford something doesn’t necessarily make it “affordable”, especially when the long range economics of a project are critically analyzed.

Avoiding the common traps, pitfalls, etc. that lead to project failure or in some cases, poor performance, is a function of being clear and knowledgeable about the core feasibility requirements.  Being clear up front means not just “knowing or providing lip-service to” but actually investigating and working through each element.

  • Market Demand: The presence of age and income qualified individuals is not demand; it is supply.  The supply of potential customers only assures that potentially, a large enough universe of people exists that meet the broadest elements of “potential consumers”.  Recognition that only so many of this universe will be actual consumers of any long-term care or seniors housing product at a given time is critical to developing the initial framework for market demand.  For example, less than 10% of all seniors reside at a nursing home at any given time, whether for short or long-term care purposes.  If occupancy rates within the existing supply of facilities are average to low, building more units within such a market is a big step toward potential failure.  Simply adding units, even if they are different in size, amenities, etc., doesn’t change the core demand for the product.  Success of such a project in such a market is thus fundamentally hinged on “taking existing customers” from an established facility; a risky proposition at best.  Even in markets with good demographics (customer supply) and minimal to average supplies of like products doesn’t guarantee that demand is present.  This is particularly true for seniors housing where demand is very price elastic.  The same is true, though not as directly, for SNFs when demand is correlated to payer source (e.g., a private-pay only facility in a market with primarily a Medicaid demand).  Without factoring in price and overall costs plus location and unit features and benefits, demand cannot be truly gauged or determined.  The mere presence of a suitable supply of age and income qualified individuals doesn’t guarantee any occupancy of a new project, save that the new project at a given price, given location, with given features and benefits fits an unfulfilled need or want within the universe (supply) of qualified customers.  Summarily, no matter how much money someone has or how age appropriate someone is, if that person (or persons) does not possess or find a need for a given product at a given price with desired features and benefits, the mere presence of the product within the market will not promote consumption (or occupancy). 
  • Financial Feasibility: Interconnected with a fundamental understanding of demand is pricing.  Pricing, as I have written before, has two key components.  The first is the derivation of price based on the formula of Fixed Costs + Variable Costs + Margin = Price.  The second component is strategic, tied to market.  In any given market, the supply of like products and programs will dictate the amount of elasticity that exists across the pricing continuum.  No longer is “me too”or matching the market a viable strategy for pricing.  This said, true financial feasibility is mostly tied to the first pricing component.  Where projects tend to struggle is when three core elements are misinterpreted or, over (or in some cases under) estimated.  The first core element is fixed cost.  Feasibility which doesn’t properly capture the key fixed cost elements of debt, debt repayment and depreciation has the potential for quickly turning a project from possible to impractical.  Specifically, I recommend the following approach to structuring the fixed cost portion of the feasibility.
    • Debt assumptions, especially those involving floating rate scenarios, need to be conservative and reflective of the true interest rate risk across as lengthy a horizon as possible.  Fixed rate scenarios are ideal but terms for the fixed period are generally less than the amortization schedule for the debt.
    • Following the point above, debt repayment on a schedule that is more aggressive than the amortization schedule is a must.  New projects or substantial remodeling projects carry the mindset that depreciation is a non-event in the initial years; minimal cash outlays.  While this may be true, depreciation picks-up rather quickly in terms of cash needs by year 5 and becomes more acute by year 10.  By year 15, substantial repairs and upgrades to major elements are a common theme.  Carrying debt across a normative amortization cycle without more aggressive repayment means that by year 10, the project is being substantially replaced by the need for upgrades and repairs, all while the first phase is still being paid for at a premium cost (interest on the original debt).  I have seen all too often, providers struggle with competing cash needs; debt service vs. capital maintenance.  Once maintenance becomes deferred, the ability to compete successfully is hampered.  Cardinal rule here: Work the feasibility numbers in terms of pricing to include a debt repayment plan no longer than fifteen years, regardless of the amortization terms, and incorporate a laddered assumption of cash needed (reserves) to replace equipment, upgrade units, etc. within the fixed costs assumptions (cash funding depreciation).
    • Margin is the devil in the details.  Too much fixed cost and/or too much variable cost eats at needed margins or stresses occupancy assumptions to unrealistic and/or unsustainable levels.  Ideally, a forty percent or higher “top line” margin is the target for Assisted Living and Independent Living (marginally higher for Independent).  When debt and depreciation (cash funded) is added below the line at stabilized occupancy, the project can create sustainable cash earnings/returns on equity.  Lower leverage (debt) levels and lower interest costs can aid in thinning top line margin levels but remember, equity contributions instead of debt still bear a cost in the form of opportunity cost.  Repayment of equity infusions need to be factored with an opportunity cost (interest factor).  Depending on current interest rate environments, the arbitrage on equity cash can be positive (debt cost is higher) or negative (debt cost is lower).  Not always does the provider get to pick the amount of equity participation required as lenders today are far pickier on leverage levels and loan to value relationships.
  • Project Costs:  Project costs should always be built around the assumption of revenue required to substantiate the project.  Renovations that do not incorporate opportunities for new revenue or enhanced revenue (new product/service lines, better payer mix, etc.) will almost exclusively be paid-back through depreciation funding and life cycle cost assumptions.  In short, no new money, the project scope needs to be tight.  Rarely have I ever seen the purported “efficiencies” used in renovation justifications materialize to the extent that the gains justified the project scope.  I also am always wary of renovations that incorporate enhanced or improved occupancy levels.  Again, rarely does the cost justify the outcome and almost always, the adage of “we are not marketable” is more a function of other organizational issues (bad reputation, pricing, average care, etc.) than it is a justification for an expensive renovation project.  In new projects/new development, building efficiency is the key to adequate payback.  Allocating too much space to common areas and non-revenue producing areas increases project costs in terms of building and furnishing (not to mention heating, air conditioning, maintenance, upkeep, etc.) and places more “dead space cost” burden into the pricing equation.  Objectively, a building that maximizes the majority of square footage for revenue production pays back investment far faster.  In an Assisted Living project or Independent Living project, I think a 65% revenue allocation vs. 35% common allocation is reasonable.  Higher allocations to common space strain pricing and definitely, require higher occupancy levels to create break-even and payback targets.  Similarly, more common space consumes more “furnishings”, often minimally used. Good focal space done right and space with a multi-purpose use is preferrable over space with singular use or no real defined use at all (i.e., lounge

April 5, 2011 Posted by | Assisted Living, Senior Housing, Skilled Nursing | , , , , , , , , | Leave a comment

Economic Value Analysis, Value Propositions and Marketing

Recently I gave a presentation on strategic pricing and senior housing (see Reports and Other Documents page on this site for the presentation power-point).  A key theme that I often refer to centers around the “value proposition” or in other words, the concept that pricing is both monetary and non-monetary and as such, the value proposition is about not only the price but also about the functional and psychological value of the service or product.  In short hand, the utility; how the product/service satisfies both functional and psychological needs at or for the given price.  During the presentation and since, I’ve received a fair number of questions regarding “how” a value proposition is determined and thus, how the same is correlated to price.  Knowing how complicated senior housing and all forms of long-term care (SNF, ALF, Senior Housing, etc.) are today to market, understanding the core concepts of pricing, economic value analysis, and value proposition can make a real difference in establishing an effective sales and marketing program.

Initially, the primary concept to understand is demand and how demand and price work together.  Demand, for purposes of this article and simplicity, is the ability and willingness on the part of an individual to buy something.  In general, demand and price have an inverse relationship such that the demand for a particular good or service (the quantity thereof) tends to increase as price decreases.  Of course, a variety of factors impact demand including the actual nature of the product or service.  Funeral services for example have a fairly steady level of demand and in actuality, the demand only changes by a change in supply of dead people (morbid as this thought is).  If for example, a major pandemic began to sharply increase the number of people dying, the demand for funeral services would increase.  Conversely, if a break-through in genetic research produced a series of cures for diseases such as diabetes, heart disease and cancer, the demand for funeral services would gradually decrease.  In the example of funeral services, price is less of an influencer on demand as once an individual has died, few alternatives exist (legally) to disposition of a corpse.  While there may be multiple options for pricing inside the range of possible mortuary services (cremation, caskets, size and style of services such as wakes, etc.), there remains a core price that is basically inelastic; doesn’t really change demand as it rises or falls.

For goods and services such as senior housing and to a lesser extent, other long-term care such as Assisted Living and SNF care, demand is more elastic as price changes.  The simple reason is that alternatives exist to each level of care that are available, supply or provide the same basic utility and range in cost (expressed as price).  In the case of senior living, many options exist at a great many price points.  With SNF care, fewer options exist but still, many providers exist and home care and even in some cases, Assisted Living present alternatives at different prices.  The net result is that demand is influenced by price as well as a host of other factors.

  • The service’s core price is a factor such that all products and or services have a “going rate” calculation.  When demand is highly elastic such as with senior housing, the safest presumption is that the core price is equal to living in one’s existing residence as normally, a move to a senior housing facility is equal to or more expensive per month.  If the costs associated with a senior housing option are rising, demand will taper off.
  • The price of related or alternative goods will impact demand, especially when substitution products or services are widely available.  For example, using the funeral home example, if prices for a particular line of wood caskets drop substantially below the prices of metal caskets, the demand for caskets stays essentially the same but the demand for wood versus metal rises substantially.  For senior housing, the demand can be widely impacted by the cost associated with alternatives such as market rate apartments, condominiums, or staying at home with certain services.
  • The ability of the consumer to buy in terms of economic resources changes demand.  If the consumer’s purchasing power changes as a result of loss of income, lower income or lower overall resource levels, the demand for particular goods and services at current price points declines, perhaps shifting to less expensive substitute products/services.
  • An increase or decrease in desire or preference on the part of a consumer can change demand positively or negatively.  The greatest mover here is consumer confidence.  A consumer with a more positive outlook on the economic condition of his/her situation is simply more motivated to consumer.  Consumer expectations about prices also impacts the decision to buy.  A consumer that believes that prices will rise in the near future is more likely to buy immediately and conversely, an expectation of falling prices triggers a delay in consumption.

Taking the above into account regarding demand, economic value analysis and the determination of a value proposition is fundamentally about determining the monetary value of the product or service as well as the functional and psychological value.  The monetary value is not the product/service price but the value, expressed in dollars, of the total cost of a product or service’s ownership.  In this regard, the monetary costs also produce monetary benefits.  For example, using senior housing, calculating the monetary costs requires an analysis of the following (minimally);

  • Rent or mortgage payment
  • Monthly amortized cost of any entry fee including interest cost and negative amortization costs (loss of refund as applicable)
  • Utilities
  • Taxes
  • Insurance
  • Other fees such as parking, etc.
  • Other cost intangibles such as free health care, reduced cost health care, delivery of medications, meals as part of rent, rent increase guarantees (limits), etc.

Calculating the monetary value thus becomes an exercise in quantifying the above elements over a reasonable period of time such as five years, etc.  Once this is complete, the result is used as a comparison against like or alternative options.  Below is an example for a non-profit, senior housing provider with a fully refundable entry fee compared to a person remaining in their home in the community, with no mortgage payment (a fairly typical situation).  The costs I’ve illustrated are over a five-year period (rent for example is monthly times 60 months).

  Sr. Housing Home          
Rent $72,000 $0.00          
Mortgage $0.00 $0.00          
Prop. Taxes $0.00 $25,000          
Insurance $3,000 $7,000          
Utilities $0.00 $18,000          
Depreciation $0.00 $6,250          
Repairs $0.00 $5,000          
Lawn Service $0.00 $1,200          
Parking $0.00 $0.00          
Meals (1 x day) $0.00 $6,400          
Entertainment $0.00 $2,500          
Healthcare (1) $0.00 $1,500          
Misc. Transport $0.00 $1,000          
Entry Fee (2) $18,924 $0.00          
Home Price +/- (3) $0.00 $5,400          
  $93,924 $79,250.00          
               
(1) Sr. Housing provides free wellness services such as flu shots, blood pressure monitoring,
medication assistance, setting appointments, education, screenings, etc.    
               
(2) Entry fee is fully refundable ($150,000) at no interest.  Interest yield is assumed at
2% compounded monthly            
               
(3) The home price increase or decrease reflects what the resident can safely assume
the home price will be in five years.  A negative number is an increase in value whereas 
a positive number reflects a decrease in selling price.  Price of the home is assumed  
to be $300,000 in current dollars.          

In this example, the monetary value of the senior housing option is greater (negative) than the monetary value of remaining at home or simply, it costs more to receive the same basic utility to move to the senior housing community.  The value essentially becomes negative with the inclusion of the entry fee interest loss or cost.  On the surface, this appears to be a negative value proposition for the senior housing community.  The key to achieving a balance or a higher proposition value for the senior housing option is to monetize the functional and psychological costs between the two options.  Ideally, the spread between the two is worth at least $14,674 or the present negative difference between the senior housing option and remaining at home.

In monetizing the functional and psychological costs and benefits between the two options, the trick or key is to have a clear understanding of the profiled consumer.  This means having a true handle on current customers and seniors living in the community.  For example, a psychological benefit to senior housing versus remaining at home is security.  It is possible to measure the value of security by talking to your current customers and imputing a value for a security service to the remain at home option.  A functional value is transportation and convenience.  If for example, the senior housing option provides shopping trips to local grocery stores or has an in-facility delicatessen and convenience store, the cost between the two options in terms of convenience and transportation is measurable.  Other examples such as activity, access (even at a cost) to prescription drug delivery, on-site medical care, check-in services, laundry, housekeeping, etc. are all items with a potential functional and psychological benefit.  Perhaps the most under-valued is the access to on-site, future health care such as an incorporated Assisted Living or Skilled Nursing Facility, even if such access is nothing more than guaranteed accommodation without a price reduction.  The important point here is that each functional and psychological benefit that is discernible and tangible to current customers has a value that is quantifiable and comparable across each option or living alternative.

The value proposition is the accumulation of the monetized values for the core product or service plus the functional and psychological factors.  Consumption activity incorporates all three elements and effective marketing strategy is grounded in communicating the value proposition of a product/service as compared to all other alternatives. Of course the largest difficulty arises in communicating values ascribed to psychological factors.  The key in doing so is the heavy use and reliance upon, current satisfied customers.  They are the source of input as well as the ground for determining monetary values associated with the related psychological factors.

As senior housing demand is highly elastic, creating and communicating a value proposition is critical in terms of developing potential customers.  I would argue that the same approach is as critical for SNFs that are looking to attract certain types of patients with certain payer sources.  In using the above approach, an SNF would complete its economic analysis against its competitors, again monetizing the core service, the functional and psychological factors.  In many regards, completing the analysis against existing competitors is an easier exercise as quantifiable data is far more plentiful.

Pricing strategy comes into play when the value proposition is imbalanced.  Pricing strategy re-weights variables and allows the value proposition to change favorably against key alternatives or competitors.  For example, in the senior housing analysis above, pricing change involving the entry fee instantly changes (positively or negatively) the initial calculated proposition.  For an SNF, adding amenities within service offerings or adding clinical competence improves the value proposition, even under a fixed-payment scenario such as Medicare.  The objective from a marketing strategy approach is to maximize all elements of the value proposition as compared to the competition or to the alternatives.  Taking this approach and then developing an effective sales and communication strategy dramatically improves the opportunities for successful new customer conversions – sales.

October 27, 2010 Posted by | Assisted Living, Senior Housing, Skilled Nursing | , , , , , , , , | 1 Comment

Presentation on Strategic Pricing for Senior Housing

I’ve posted a Power Point presentation one of my partners and I did at a trade show/conference last week.  The title is  “Strategic Pricing Strategies for Senior Housing” and it is available for viewing or download on the Reports and Other Documents page of the site (menu listing on the right).

October 12, 2010 Posted by | Senior Housing | , , , , , , , | Leave a comment

Hospices Looking for Census Improvements: Add Some Innovations

Most hospices I talk with are finding census gains difficult these days.  As I’ve written before, a number of factors are conspiring at the moment to keep census somewhat depressed and referrals tough to come by.

  • With a struggling economy, all providers are looking for paying patient days.  Referrals that should (or would) routinely go to hospice aren’t as readily available as upstream referral sources (hospitals, skilled facilities, etc.) don’t have the depth of other paying patient pools.  In fact, all downstream providers are seeing compressed referrals.  Simply put: When the queue of paying patients is smaller due to a fall-off of privately insured patients (due primarily to high unemployment), any paying patient including those that would be or should be hospice referred is better than a vacant bed.  There simply are not enough patients with good payment sources for all of the supply of providers today.
  • Hospice is a mature market or one that is stable and growing only very modestly.  Despite the fact that it is cost-effective, arguably more appropriate and better for a terminal or near-terminal patient, it hasn’t permeated the traditional patient, familial and medical community psyche to a sufficient depth to create additional demand.  Culturally, the medical community and patients still prefer to pursue curative options at virtually every step of the way as opposed to accepting death as a natural course of occurence. 
  • The financial incentives favor the pursuit of more expensive care as opposed to hospice.  Payment in our system is highest and most fluid for acute, episodic, technologically based care and treatment.  A simple economic axiom applies: What gets rewarded gets done (or, follow the money).

Taking the above into account, one would tend to think that generating additional referrals is an improbable task.  While I won’t propose that doing so is easy, there are some options in terms of “innovation” that make sense.  By innovation I mean programmatic changes or new programs that tap non-traditional markets or fractional markets.  Being honest, simply marketing more or trying desperately to educate a few more patients and/or a few more physicians about the benefits of hospice care won’t create many additional referrals (again, see the top bullets for “why”). 

Here are some favorites that I have seen tested in other settings, some within hospice programs, and/or other countries.  Each is innovative and worthy of exploration by a hospice organization that is looking to create some novel niches, incremental referrals and brand differentiation.

  1. Day Hospice: A variation on adult-day care, this program provides a respite style of program but for caregivers to take a few hour break.  Transportation, meals, socialization, etc. plus spiritual and other counseling typically round-out the services and where “cares” are involved, staff assist the patient as required.  A hospice could start such a program either via a partnership with an existing adult day care provider, SNF, Assisted Living, Hospital or on its own in a suitable location.
  2. Disease Specific Programs: Develop end-of-life algorithms and care management programs for specific diseases such as ALS, MS, Parkinson’s, COPD, etc.  Enlist physician specialists to provide review and consultation in the program development phase and even in a supporting medical director capacity.  Consult with the local chapters of groups/associations that represent each disease (Parkinson’s Association, MS, etc.). The result of this approach is a three-fold win for the hospice.  First, a segregated category of potential new patients.  Second, a branding opportunity and co-marketing strategy through the physician specialists and the local disease representatives.  Third, a focused opportunity to educate patients and physicians on when, why and how to make a hospice referral – these folks become a “warm” group.
  3. Embrace Alternative Therapies: Some organizations do this better than others but few do the compendium and certainly not as well as organizations in foreign countries (the Dutch are the best).  Here’s a few of the better concepts that I have run across.
    • Medicinal Marijuana: Now legal in 14 states and DC, medical marijuana is viewed as a wonder drug for symptom management, especially by cancer patients and patients with intolerable spasms (MS, Parkinson’s, etc.).  Embracing this option where legal and perhaps, even becoming a distributor creates a “cutting-edge” brand and a marketing advantage.
    • Acupuncture: For use either as a stand-alone symptom management aid or for adjunct therapy to deal with pain, nausea, spasms, headaches, etc.  Bringing on staff, a certified acupuncturist is again, a cutting-edge option and one that is marketable.
    • Mood Rooms: For inpatient programs, rooms developed with particular design elements have proven to be successful in easing patient’s symptoms and creating a more relaxed and tranquil environment.  Hospitals have started to embrace this level of design and there is no reason that hospices don’t do the same.  Everything from lighting to color to sound systems and views are designed to improve tranquility, comfort, and patient “mood”.
    • Others: Massage therapy, music therapy, hydrotherapy, meditation, etc., are all fair game and in one form of another, have legitimate bases for use in a hospice setting.
  4. Increase the Technical Capabilities: Being more capable in terms of taking certain types of complex patients is always a cost-benefit issue although, done correctly, the return is still positive “financially”.  Patients that often don’t benefit from hospice (due to cost issues)  include ventilator patients, patients that require palliative radiation or palliative chemo-therapy, and patients that require specialty DME.  In reality, the scope of each under a terminal diagnosis is limited and with solid advanced planning. good partnerships with other providers, and effective cost management, it is possible to tackle these patients and still achieve a modest margin.  Don’t be automatically afraid or unwilling to accept patients in unusual circumstances and actually, increase your technical competence in dealing with these patients.  They are an untapped market in many regards.
  5. Private Duty: For a hospice that is part of a home-care organization and/or can partner with such an entity, private duty hospice can be very profitable and very successful, albeit on a limited scale and honestly, only in certain market areas.  There remains a class of people that are terminally ill, hospice eligible and in-need (and desirous) of extended caregiver or private-duty support at home.  Targeting this market is as easy as developing good relationships with trust company officers, estate planning attorneys, and other trusted counselors to the “well-off”.  One word of caution persists, however.  This group is picky so to sustain the business, a hospice must be very customer service focused.
  6. Be Palliative, Not Just Hospice: For those hospices affiliated with home care agencies or, can build a relationship with a non-competing agency, offering expertise to patients that require symptom management and palliative services only makes sense, even if the same patients aren’t yet hospice appropriate or won’t at this point, consciously elect a hospice benefit.  Expertise in symptom management and the palliation of chronic diseases is the strength (or should be) of all hospices and leveraging this strength to “marginal” hospice patients builds a bridge for the hopefully, inevitable referral.  If nothing else, this business is incremental revenue.

As I indicated, the above is just a sample of my favorites from sources where successes have occurred.  I encourage readers to add others, different ideas or to elaborate on perhaps, a twist or two to the above.  Feel free to post your comments and experiences so that I (and you) can share our “collective” knowledge.

October 11, 2010 Posted by | Hospice | , , , , , , , , | 1 Comment

The Housing Market and CCRC Prospects: What Each Means to the Other

It has been a world-wind few days (make that a week) analyzing all that is or was, health care reform.  In some respects, I’m glad that the meat of health care reform is done for now though admittedly, I’m disappointed at the outcome.  Suffice to say, I will catch-up on the ramifications of the legislation and the reconciliation package for providers over the course of the next few days. For now however, I need to re-focus on the subject matter pile that is building within my e-mails and my files.

An issue that has drawn a great deal of attention lately is the future and current prospects for CCRCs (Continuing Care Retirement Communities).  As I wrote in earlier posts, the CCRC industry was perhaps, the hardest hit by the recent and continuing economic downturn, although not necessarily as bad as some would think.  Two highly visible restructurings/bankruptcies involving Erickson and Sunwest placed caution in the minds of the rating agencies and as a result, the analysts at Fitch for example, issued a “negative outlook” for the industry.  At the crux of Fitch’s outlook is the dismal residential real estate market performance, the lackluster economy and slow-recovering investment markets (the latter less of an issue today).  Correctly, Fitch points out that declines in its CCRC rated borrowers’ financial condition in terms of liquidity and profitability are contributing factors to their negative outlook but they seem to view these conditions as symptoms of the economy rather than tell-tale signs of an exhausted industry.

As I take a close look at the industry and at the comments from Fitch, et. al., it is easy to see how a dim or less than optimistic view can occur.   Specifically, here’s what I mean and moreover, why I think there is room for a tad more optimism until one focuses acutely on the real estate market itself.

  • The CCRCs that are struggling and those that have gone through highly publicized restructurings, etc. are truly isolated and reflective principally of highly leveraged, aggressively expanded organizations with many unstabilized projects and projects under development.  Unstabilized projects and new, in-development projects have unquestionably suffered the most although, some have done fine when they are located in areas or markets that remained more stable during the economic downturn (parts of Texas for example).
  • Occupancy dipped a tad as a general condition in 2009 but again, for stabilized operators, not as bad.  In fact, the majority of the declines averaged 3.5% to 5% and some operators in good locations, saw virtually no declines, even in projects with 95% to 100% occupancy levels. 
  • Occupancy dips, such that they were or are combined with price suppression (down economies require providers to hold the line on price increases) and sagging investment values are the cause for the lower liquidity and profitability levels that Fitch reports.  The latter two don’t have me terribly concerned as most stabilized and solid operators can handle the modest, temporary price suppression and the once sagging investments should be on much better footing by now as a result of recent improvements in the investment markets.

The residential real estate market is proving to be the biggest lag on CCRC industry performance and unfortunately, I don’t see a lot of cause for optimism that recovery in real estate is near.  As much as I am a proponent of creative, strategic marketing for CCRCs as a means of boosting and maintaining occupancy, if a prospective senior can’t sell his/her home or worse, can only do so at a severe discount to value, demand for units and occupancy won’t realistically improve.  Entry fee CCRCs will face this predicament in far greater numbers than rental only CCRCs, though rental-based projects will still see some of the same issues.  As CCRCs predominantly attract transitioning seniors, those moving from one residential, owner occupied setting to another complimentary setting (CCRC), real estate sales are a significant part of the transition.  In short, a lackluster or illiquid residential housing market effectively suppresses the current demand for CCRCs on the part of seniors.

Unfortunately, what I am seeing now in the immediate and near-term outlook for the residential real estate market, particularly for existing home sale prospects, is not encouraging.  In January, existing home sales declined by 7.2% over January.  This in and of itself is not hard to understand as the November to early December period was a high month for closings due to the expected end of government tax-credits for new home and replacement home buyers.  Congress extend the credits through May but the extension occurred a bit too late to match the demand fall-off.  The news or trend that is disconcerting in “what” volume is making up the sales and at “what” prices.

More than a third of all current sales are distressed or foreclosed properties and as a result, median sale prices in most markets continue to fall.  For a CCRC, the typical prospect is not likely to live in a distressed or foreclosed property and, since the homestead is a significant portion of the prospect’s estate, not as willing to drop the home selling price to match the declining market values.  In other words, depressed values and selling prices combined with a great amount of “bargain” inventory means that the senior citizen prospect for the CCRC isn’t likely to sell his or her home in the near future (not enough traffic across all of the inventory options and a seller unwilling or not needing to lower his/her price to match the market price points).

For the balance of the year, especially across the prime sales months of April through September, I expect to see the following occur.

  • A gradual increase in sales volume starting now and stabilizing through May – the end of the tax credit extension.  April and May should be the heaviest volume months in the first half of the year.
  • Average sales prices will continue to decline in the West, South and Midwest regions.  Prices seemed to have stabilized and are actually rising every so slightly in the Northeast and in the Northwest.  The majority of the suppression on average sale price will continue to come from foreclosures.
  • Foreclosures will stay at their current pace for at least the next two quarters, perhaps even to year end.  As a result, average prices will remain suppressed as foreclosure sales and distressed sales pull the selling prices down and require sellers to drop asking prices to points or levels proximal to the values of like properties being sold; a dismal trend for seniors wishing to sell a home to move into a CCRC.
  • Individual markets and regions will out-perform the nation as a whole but these markets will remain few in number and despite performing better than the national averages, their performance still isn’t great.  Examples include Charlotte, NC,  Boston, MA, Denver CO, and San Diego and San Francisco, CA.  Larger market areas that are performing better can be found in Virginia (D.C. areas), Austin and Dallas Texas areas and the Golden Triangle areas in North Carolina.  CCRCs in these areas will find a bit more “rosier” outlooks for converting side-lined prospects to residents in 2010.
  • The wild-card for faster more more steady improvement in the residential real estate market is jobs.  Improving employment will help to stabilize the real estate market, reduce foreclosures, allow prices to trend back-up slowly and spur more home-buying.  As I see only gradual and slow job recovery prospects for the balance of 2010, the spill-over to residential real estate won’t logically occur until months after.  Job growth needs to filter to job stability for major investment (consumption) activity to heat back up (there is always a lag).

March 23, 2010 Posted by | Senior Housing | , , , , , | 2 Comments

Sharpen the Sales and Marketing Efforts in 2010

I lost track this past year of how many people I talked to that told me that, “organizationally, we are kind of stalled in developing new business because of the economy and health care reform”.  I know that in down economic periods, promotion budgets (advertising, sponsorships,etc.) are some of the first line items trimmed but to me, that’s not really marketing; more of an adjunctive tool that organizations use, typically with limited impact.  I understand the health reform subject creating an air of uncertainty although, for most organizations very little changes immediately post-passage (when and in what form that occurs).  The reality of the health reform debate is that for every possible implication there is a strategic opportunity that most post-acute providers can develop, capitalizing on the new policy changes.  Further, as I have written in previous posts, Congress has shown very little will-power in terms of enforcing the punitive elements of additional Medicare cuts and as such, while I don’t advocate a wait and see strategy, in this case, a bit of skepticism about how much pain will ultimately occur with health reform is warranted.  I’m generally more concerned about here and now health policy problems such as Medicaid and the status of state budgets, combined with an overarching concern that economic recovery has a ways to go to qualify as “fully progressing”.  All this said however, and in spite of a still lagging economic recovery, the time is right to sharpen the sales and marketing efforts for this new year.

What is different this year (as opposed to last or years before) is that society is still shell-shocked by the economic fall-out.  The traditional rules or approaches to a new year marketing and sales strategy will no longer net the same results.  In one regard, it is unlikely that any organization’s sales and marketing budget is “bigger” this year than last or better yet than in say, two to three years past.  I am literally unaware of any organization (not that some might exist) that has added substantially more resources (dollars or people) to their marketing area.  This means, more will have to be done with less or at least, the same level of resources. To that end, creativity and strategy are the terms that best fit.

Strategically, health care marketing has traditionally been focused on selling three “tangibles”: Convenience (ease of access, location), Quality (outcomes), and Depth of Service (capacity, expertise, etc.).  Today, I would add two more focal areas to the mix – Value and Stability.  I would also re-work the first three to make certain they were in concert with the latter two.  Thinking about the latter two, does anyone really ever say that health care doesn’t cost too much?  Even at the heart of the health reform debate, while most Americans don’t want the government to necessarily take over their current health plans, they also openly state that solutions that lower the cost of health care (save government take-over) are a priority.  Psychologically, when someone believes something costs too much, the rub is not price but value received for that price, particularly in light of the resources available to pay the price.  Without being too technical, in a down economy, people become even more price and value conscious, even those who have been somewhat unaffected by the down turn.  The news of job losses, falling home values, etc., reinforces caution and conservatism to people even though arguably, health care when needed can’t be completely, competitively shopped or for that matter, deferred for too long.  The trick or strategy thus becomes, how to craft a marketing strategy around a value proposition and reinforce that proposition with the concept of stability.  Providers that can demonstrate a consistent track record of stability (low turnover, solid financial management, continued reinvestment in products, services, and physical plant) will undoubtedly lower the level of trepidation present in would be referral sources, current referral sources and patient/resident bases (families/significant others included).

Strategically repositioning the marketing program or plan to integrate value and stability looks something like this at a high level (organization specifics of course, would flesh this out deeper).

  • Value and Convenience: Review the target market, especially the primary market area.  Can customers and referral sources get to you quickly and easily?  Are you fully accessible for referrals across all channels (phone coverage, internet, e-mail, etc.)?  Are your coverages for referrals responsive and available across elongated business hours?  Weekends? Holidays?  Do you have a system in place for dealing with emergency referrals or odd hour referrals?  Will you go “to” the referral?  Do you or can you automate or reduce the paperwork and approval process on a referral?  Can referrals access a website for pre-completion paperwork?  The more of these tactics you can integrate into your marketing arsenal, the more you can create a value proposition around convenience. 
    • Key Concepts:  Value and convenience tied together is all about delivering more touch points or connections to your products/services than otherwise available in the market area.  In a worst case, it may simply be about keeping up with the competition so as not to lose referrals or business – being as convenient.  I like a full embrace of reasonable, simple web-based technology and e-commerce applications where possible.  Facebook, Twitter, etc. are emerging tools that no provider should ignore as viable means of getting and staying in touch with potential customer sources or current customer sources.
  • Value and Quality: This is all about the quality of your service warranty or the notion that price and outcomes are clearly aligned.  Health care leaders today would be well served to take a look at other industries and products where price and quality are clearly packaged, marketed and used as competitive tools. I like reinforcing the concept of, “better, faster, and cheaper”.  Adopting this mantra means a consistent review of  and communication about, how the organization delivers its products and services to its customers in a way that creates a better outcome, a quicker response or in a quicker period of time for the same price as a competitor or hopefully better.  This concept is not about convenience or location, though these concepts play-in.  This concept is about warranty or the reliability of the service and an implicit and well-communicated promise that customer’s expectations about the reliability and quality of a given service will be met or hopefully, exceeded.  Remember, consumers exist across the price spectrum from low price seekers to high price or premium consumers.  Products and services can fare equally well across this spectrum, provided that the service or product is aligned with the price paid and the customer clearly understands what the warranty or promise of the service/product quality is in relationship to the price.  Arguably, in periods of economic decline or slow-down, premium priced services or products require the most amount of adjustment as pure luster and past reputation will not alone be sufficient to maintain market share.  The opposite side of the argument however, is that products or services once viewed as premium can attract the interest of prospective customers faster if price can be adjusted even modestly and quality increased or warranty improved modestly.  Everyone loves a bargain and if the market senses or believes that something once unattainable is now available, new customer inertia can be changed (ala the premium outlet mall concept).
    • Key Concepts: Value and quality is principally about drawing a bright correlation between the price or cost of the product or the service and what a customer can expect to consistently receive.  This is about creating a distinct and clear warranty or promise of the service’s/product’s utility(tangible) and the cost and communicating the same.  Nothing hurts marketing and sales efforts worse than products priced too high in relationship to their utility.  Conversely, products or services that are priced too low may be undervalued by the marketplace and perceived as “gimmicky”.  Down economic periods place trepidation into the minds of consumers and as a result, it is incumbent to marketers to be aware that holes or gaps in their product’s/service’s warranty compared to the price or cost, must be adjusted rapidly.  I am less in favor of price cutting as opposed to perhaps, a price maintenance strategy.  I am always in favor of pushing the value proposition by improving quality (tangible outcomes) upward and holding price in check.  The key however, is that health care providers need to sharpen their communication around their product’s/service’s warranty and the cost thereto.
  • Value and Depth of Service: Can you or do you provide more services or have more service availability than your competitors for the same price?  Alternatively, do you do the same things better or identical to another provider from an expertise stand-point for a lower cost or price?  This concept is not about “doing more” (not that additional service depth is bad), it is about comprehensiveness within the product offerings.  Taken to the core; products or services, even few in number, should be flushed-out fully so that staff providing the service are viewed as experts, the capacity for comprehensive delivery is in effect and the price associated with such an exceptional level of service is of great value to the customer.  Thought about differently perhaps, it is akin to a strategy used by Wal-Mart to constantly expand the amount of goods one can buy while shopping, all at a perceived or real “better” price.  Now, Wal-Mart focuses on a particular market with a particular strategy but frankly, few do it better from a classic marketing perspective.  My point here is not to say health care providers should be like Wal-Mart but to draw forward, the concept of value correlated to depth of service.  The same strategy can apply (and does) to more limited product or service offerings.  For example, in my community, a jewelry store named Kessler’s has had continued success and growth by applying this concept, although their focus is just on diamond jewelry.  Their marketing strategy consistently drives home a depth of experience, service and even products, focused entirely around diamond jewelry, principally for couples celebrating engagements, marriages or anniversaries.  Kessler’s, like Wal-Mart, even correlates price to their service and products and boldly so, I might add. 
    • Key Concepts: This concept is about taking the very core of what an organization provides or does and making sure that it is extremely well thought out, as good or perhaps better than what is available in the market and then correlating this to cost or price, communicating the same to the customer.  It is definitely not about doing more, unless that is a real possibility; it is about doing what you do better or to the best of your ability and making sure that the price reflects, uniformly, the depth of service provided.  For healthcare providers, I like leveraging internal capacity and programs to do more across the board or to improve other products and services thereby creating a deeper level of service organizationally. For example, if your organization has hospice as part of your service or product offerings, use the hospice to improve your symptom management expertise and pain management programs and then,  promote this capability. Every area of excellence can and should be leveraged to improve others or to add new niches, new depth that creates additional value for customers.
  • Value and Stability: For lack of better words, this is the foundation in the current climate from which all other strategies emanate.  Customers, community and referral sources need to believe and hear over and over that the value proposition created by the organization is permanent and regardless of the current climate, the organization will remain committed to providing the best products/services for the cost or price (whatever and however this plays out within a market or for any provider).  Once customers or referral sources believe or feel that a service or product is diminishing or that prices are in-flux (usually upward), the ability of the organization to draw attention to any other key marketing strategy is significantly damaged.  I don’t know of too many customers that are willing to trade for a poorer or weaker warranty or accept poorer service or quality for the same price or for that matter, even for a slightly reduced price.  In reality, unless the organization was already offering “second-rate” quality or service for a deeply discounted price (ala scratch-and-dent), maintaining and building upon value and stability strategically, is a first priority to developing additional sales.

It should be somewhat apparent (hopefully) now that these concepts wrap around each other and build or feed off each component. From a sales perspective, the marketing strategies above create the tools that sales people need.  Improve the marketing strategies and the sales tools are improved.  To achieve better sales outcomes, the organization needs to clearly communicate to the sales staff a set of behaviors and activities that reinforces and makes real for the customer, the organizational strategies (illustrated above).

For providers today, the key is not to avoid via less or no activity, the current economic and health policy issues but to strategically and tactically engage them.  The economy in my view, has fundamentally changed the consumption dynamics within the market place, for referral sources and patients.  The emphasis is on value and that emphasis is unlikely to shift any time soon.  The health policy/reform discussions only sharpen the issues around cost and quality.  For providers that can leverage their quality and build a clear value proposition, there is no reason to believe that 2010 won’t be a very good year to attract and develop new business and to solidify existing referral sources and customers bases.

January 12, 2010 Posted by | Assisted Living, Hospice, Senior Housing, Skilled Nursing, Uncategorized | , , , , , , , , , , | Leave a comment