ZENITH International Journal of Multidisciplinary Research _______________ISSN 2231-5780

Vol.3 (7), July (2013)

Online available at zenithresearch.org.in

MARKET SEGMENTATION TECHNIQUES IN THE HEALTH CARE

INDUSTRY: A REVIEW FOR APPLICABILITY IN INDIA
DIPANJAN KUMAR DEY
RESEARCH SCHOLAR
IBS HYDERABAD, IFHE

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ABSTRACT
Over the last decade and a half the health care sector in India has been growing at a healthy rate
of around 15% annually on a compound rate basis. The sector was valued at around 40 billion
US $ in 2012. The health care sector poses many challenges to the practitioners as well as
academicians. These challenges also provide opportunities to study the sector in details. The
importance of management fields of study like financing the sector demands, marketing the
health care services to the consumers and training, recruiting qualified personnel have been
stressed time and again in the literature. The present study deals with stressing on the importance
of marketing and especially segmentation techniques in the health care sector. This paper
reviews the various segmentation techniques that have been used by various authors over the last
two decades for healthcare sector.
KEYWORDS: Health marketing, predictive modeling, segmentation.
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INTRODUCTION
The healthcare industry is one of the most important service delivery industries for any society
irrespective of developing or developed countries. The Indian healthcare industry has been
growing steadily around 14% per year (Kapoor & Goyal, 2013) over the last two decades. The
enormous potential of the Indian healthcare industry can be gauged from the fact that it is
estimated that in the year 2012, the industry was worth US $40 billion (Meenakshi, 2012). In the
developed countries for instance the United States of America, the healthcare industry have
recognized the importance of marketing as a strong tool for attracting customers. However in
India, the healthcare industry has utilized marketing in a very limited context. Most of the time,
marketing is associated with sales only and is restricted to interactions between pharmaceuticals
company sales representatives and doctors. However, the social scenario is changing in India as
is evident from the change in demographic profile of the consumers. There is a marked
improvement in the earning potential, education and the associated lifestyle of average Indian
middle class citizens (KPMG, 2011). As a result the evaluation process for any kind of
transaction that involves time and/or money is scrutinized at a much more micro level as
compared to earlier days by the customers. Health transactions in India involve investment of
both time and money as well as there is intense competition among various players at different
levels of providing service starting from doctors to hospitals to pharmaceutical companies. In
this case, it is of critical importance to recognize the strengths of marketing field and its various
mix elements that can be really useful in satisfying the consumers who have wide options to
choose from. In this regard market segmentation provides the strategic advantage of targeting
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those segments that would be most receptive to the services provided. This would entail savings
in terms of costs and a focused approach that can ensure better returns on investments made.
HEALTH MARKETING
Bernhardt (2006, p.1) stated the definition given by the Centers for Disease control and
Prevention (CDC) for health marketing as: creating, communicating, and delivering health
information and interventions using consumer-centered and science-based strategies to protect
and promote the health of diverse populations. Just as in any other service, in health services too
there are various social and behavioral variables of the consumers which determine to a great
extent how they are going to consume various health care services. Zaltman & Vertinsky (1971)
proposed a psychosocial model of health related behavior with an emphasis on less developed
nations. Their model identified a number of variables like race, education, cultural background,
beliefs, attitude, income, stage of life cycle, reference group aspirations and propensity to take
risk. The authors argued this affects the consumers perception towards susceptibility to the
disease, the level of seriousness they have towards their health and the benefits they see out of
the health care services being provided. They further propose that the perceptions developed
above leads consumers to behave in three peculiar ways: Health Behavior (Health Conscious
annual health checkup), Illness Behavior (Searching for remedy to cure) and Sickness Behavior
(Admittance of sickness and visiting health service provider). Although the model proposed is
seminal in nature but it suffered certain flaws like the model was not tested empirically for its
applicability. Also in the conceptual framework the interrelationships of various variables was
not explained adequately. Dickinson (1995) proposed a strategic framework the purpose of
which was to emphasize on the usage of marketing principles for health services development.
Using clinical guidelines as the platform for putting forth the argument, the author argued that
central challenge that lies ahead for the authorities to make health services more acceptable is to
base the practice on knowledge of the needs and wants of the consumers (Patients and
Providers). The author further argues that the success can be achieved only when a customer
focused approach is followed in framing clinical guidelines instead of the top down approach
that is in place right now. The author in the strategic framework proposed emphasizes on the
marketing mix elements for the development of the clinical practices. It is further noted that
health services would benefit immensely if it learns from other business that make such effective
use of marketing as a weapon for reaching out to consumers. The health services sector has many
similarities as well as peculiarities as compared to other service sectors as has been pointed out
by Berry & Bendapudi (2007). They propose that like other services health services are
intangible as the patients incur an expense in lieu of medical service provided and do not gain
any tangible asset. It is heterogeneous like any other service wherein the service provided
typically varies from provider to provider however infinitesimal the change may be. Health
services are inseparable just like any other service as the consumer has to be present physically
when the service is being delivered. Also just like other services the health service is perishable
in nature wherein once in a particular timeframe a certain resource is unused it cannot be
regained. In terms of peculiarities of health services the authors note that the amount of stress
that a health service consumer is under is phenomenal as compared to any other service. The
same applies to the amount of risk being taken by a health service consumer. Also the levels of
personal service required for health services consumers are very high as compared to other
services. Again the privacy requirements of health service consumers are much higher as
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compared to any other service. The information asymmetry in health services is again very high
as compared to any other service. Keeping all these in mind the authors have suggested various
research areas for further study in health care services. Pires & Stanton (2008) stressed on the
application of marketing knowledge to healthcare services. They argued that social marketing
has played a key role in acceptability and awareness regarding key health issues by campaigns
such as anti smoking, anti obesity etc. They further propose the importance of segmentation in
the health care services for better strategizing as per specific needs. The authors have presented
various ethnic segmentation studies performed in US over the years and argue that there is
further need of narrower ethnic based segmentation. Also age, income and psychographic
segmentation can play an important part in further subdividing the segments, the authors argue.
They harp on the importance of information and communications technologies (ICT) and
propose that with the advent of internet the access for information has gone up considerably as
compared to the cost which has come down considerably. They speak of consumer
empowerment as a result of improved ICT in todays world.
SEGMENTATION TECHNIQUES IN HEALTHCARE
Tynan & Dayton (1987) in their literature review stress upon the importance of market
segmentation techniques in overall marketing strategy. They emphasize via various authors in
their review that segmentation helps marketers in improved precision of the prediction of
consumer responses to a marketing stimuli. They suggest that the main market segmentation
bases can be: geographic, demographic, psychological, psychographic or behavioral. They argue
that market segmentation leads to closer association with the targeted set of consumers. A study
was conducted by Flnn & Lamb (1987) where the authors showed that hospitals can have benefit
segments depending various clientele that consume their services. Using tools like exploratory
factor analysis and cluster analysis they identified four clusters or segments of consumers as per
the benefits they sought from the hospital. They named them as Take care of me, Cure me,
Pamper me and Cognitive. These segments were separate in terms of their need of infrastructure,
medical knowledge, customized service and administrative issues from the hospital. Thus the
authors emphasize that market segmentation is of vital importance for health care practitioners as
well as researchers. Dolinsky & Stinerock (1998) have argued in their study that cultural
differences within the consumers lead to different importance being accorded by them to various
health care attributes. They have studied three main ethnic groups of USA i.e. Anglo Americans,
Afro Americans and Hispanics. They had chosen 16 health care attributes representing five
health care constructs of Physician quality, Health care economics, Quality of nurses and other
medical staff, Access to health care and Non - medically related experiential aspects. They used
independent variables of education, gender, health status, marital status, age and number of
household members whereas ethnicity was the dependent variable. Statistical analysis revealed
out of 16, six attributes were accorded significantly different importance across the three races.
The authors go on further reporting differences accorded to various health care attributes within
the races themselves. The authors argue that their study would enable the health care marketers
in more precise targeting of the races taken in study. Strategic market segmentation plays a key
role in discovery, innovation and development of medical products and services (MacLennan &
MacKenzie, 2000). Authors argue that there are two types of forces: Driving and Constraining
forces acting for and against strategic market segmentation in any organization. These forces are
mostly associated with limited resource availability and their optimum allocation along with the
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organizational culture. They go on to purpose a framework for strategic segmentation for the
organizations which comprise of six steps of: opportunity analysis, ideal service/product profile
id, competitors analysis, positioning, segmentation strategy and finally communication and
branding. They argue that strategic market segmentation would lead to increased creative
advantage, improved resource allocation and customer focused organization ultimately leading to
improved bottom-line performance from the organization. Johnson, Saha, Arbelaez, Beach &
Cooper (2004) investigated the racial and ethnic differences in patients perceptions of bias and
cultural competence in health care. They used a three stage model wherein the covariates used
were demographic characteristics, self reported health status, primary source of medical care,
patient physician communication and respondents health literacy. The authors chose Anglo
Americans, Afro Americans, Asians and Hispanics for their study and their self reported
ethnicities were used as dependant variables for the study. Their results revealed that Hispanics
considered themselves to be treated with more respect and dignity as compared to their white
counterparts by their physicians whereas the Asians perceived themselves to be looked down
upon by their physicians because of their way of living. All the three races perceived that the
health system in place has a bias against them as compared to whites and they perceive that had
they been whites than they would have received better medical care, fair treatment from medical
staff and better judgment from the medical staff. Owing to the huge nation based survey used the
authors claim that the results are generalizable and point to need of further study which can
examine why such perceptions exist within the races. Lynn, J., Straube, Bell, Jencks, & Kambic
(2007) suggested a conceptual framework for population stratification based on health prospects
and priorities rather than on health care providers. They took into consideration three conditions
for formation of these segments. These were: limited number of segments, all inclusive but
mutually exclusive and justification ability of the segment in terms of size and reach. Based on
above conditions they proposed 8 segments which were: Healthy, Maternal and infant health,
Acutely ill with likely return to health, Chronic conditions with generally normal function,
Significant but relatively stable disability, Dying, Limited reserve and serious exacerbations and
Long course of decline. They also proposed the priority concerns for these populations as well as
the major components of health care associated with each of these segments. They called this
framework as bridges to health model. They argued that correlating each of these segments with
Institute of Medicines goals for quality can ultimately lead to better resource planning, care
arrangements and health service delivery. Moschis & Friend (2008) focused on the growing
number of mature consumers in US health care market using Gerontographic segmentation
technique. Using factor analysis and cluster analysis they identified four segments namely
Healthy hermits, Ailing outgoers, Frail reclusives and Healthy indulgers. They empirically
proved that as compared to simple age based segmentation their segmentation technique gave
much more clear and precise results. They argued that by using Gerontographic segmentation the
preference of consumers can be gauged on a more accurate basis as compared to other
conventional modes of segmentation techniques used. The importance of the emerging technique
of data mining for segmentation of health care industry has been investigated by Liu & Chen
(2009). They performed two types of data analysis. In the first method they found out six clusters
performing cluster analysis directly on all the 24 variables they had chosen wherein in the second
method they first performed a factor analysis. They identified five factors and then they
performed cluster analysis on the factor scores and found out three clusters namely: Reputation
driven, Performance driven and Empowerment driven.
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PREDICTIVE MODELING IN HEALTH CARE: AN EMERGING FIELD

Cousins, Shickle & Bander (2002) have defined predictive modeling as something wherein
population is segmented on the basis of risk of nearly any outcome and wherein opportunities are
identified to intervene before anything unpleasant happens by predicting in advance. There have
been worldwide interests for the case of predictive modeling owing to various reasons such as
increased healthcare costs, limited resources, improved electronic health records technology,
increasing healthcare financial services collaborations. All these have contributed in increased
focus of practitioners as well as academicians towards predictive modeling. The strength of
predictive modeling lies in bringing to the table a wide variety of choices ranging from high
disease burden to general population, depending upon the need.
In Indian context wherein the co morbidity rates are high for a variety of diseases, predictive
modeling study can open a very promising chapter of improving the healthcare of people. India
is a unique case wherein majority of the health care expenses are borne out of pocket of the
individuals with very limited government support as insurance penetration is very low. In this
scenario if models can be developed which can act as preventive health care mechanism and
pinpoint the particular segments which require to be intimated about their health status so that
they can take corrective action in time can result in huge resource savings.
CONCLUSION
Even after so many years the various segmentation techniques being used by various researchers
still have some critical limitations. In all these segmentation techniques there is a clear lack of
healthcare variables in cluster formations namely for example co morbidity rates, health
diagnostic codes etc. These techniques fail to focus on one very important aspect that only a few
individuals in a society are responsible for majority of the health care costs. Also individual data
is not given the attention it deserves. Lifestyle habits are a very important factor in health
behavior of any individual but again it somehow lacks as a factor in segmentation. Hence there is
a definite scope for more powerful models in health care segmentation. The challenge lies in
identification of variables which are relevant for Indian population, testing of the models via
various iterative stages till an optimum solution is reached, deciding on the target audience, and
to empirically prove that predictive modeling is a long term solution in the marketplace.
Segmentation of markets has been used by marketers in almost all the fields in India for a long
time, yet surprisingly it has found limited application in the healthcare industry of India. Perhaps
the reasons for these were the dominance of healthcare providers in the Indian markets till the
time the markets were opened and limited options available to the Indian consumers. The
situation has entirely changed over the past two decades and now the Indian consumers are
empowered as well as have a variety of options to choose from. Hence, in this time of intense
competition, healthcare industry would be better served if it adopts and applies the segmentation
approach from other industries that have applied these techniques successfully over the years.
However, healthcare industry is unique as compared to some of the other ones; hence the
development of segmentation technique especially for Indian markets should be handled in a
sensitive manner keeping in mind the vast geographic and social landscape of India. India is
evolving as a strong player in the software industry and has a vast pool of human resources who
are technically skilled. Hence, there are ample resources available in house to develop predictive
models that can assist and improve the segmentation aspects of the healthcare industry. Future
research could be carried in development of predictive models for segmentation for the Indian
healthcare industry specific to the requirements of the kind of providers that encompass doctors,
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hospitals, healthcare education institutions, public healthcare providers and pharmaceutical

companies.
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