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ZENITH International Journal of Multidisciplinary Research _______________ISSN 2231-5780

Vol.3 (7), July (2013)

Online available at zenithresearch.org.in

253

MARKET SEGMENTATION TECHNIQUES IN THE HEALTH CARE

INDUSTRY: A REVIEW FOR APPLICABILITY IN INDIA

DIPANJAN KUMAR DEY

RESEARCH SCHOLAR

IBS HYDERABAD, IFHE

__________________________________________________________________

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. _____________________________________________________________________________________________

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


Vol.3 (7), July (2013)


254

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 consumer’s 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


Vol.3 (7), July (2013)


255

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 today’s 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


Vol.3 (7), July (2013)


256

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 Medicine’s 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.


Vol.3 (7), July (2013)


257

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,


Vol.3 (7), July (2013)


258

hospitals, healthcare education institutions, public healthcare providers and pharmaceutical

companies.

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