“What are the success factors of an effective service brand policy and how can Dutch health care companies, i.e. hospitals, use segmentation to build a strong brand?”
University: Erasmus University Rotterdam
Education: Economics & Business / Marketing
Date: August 2009
Name: Cees-Jan Crezee
Student number: 289163
Supervisor: Drs. Isabel Verniers
Co-reader: Drs. Mirjam van Ginkel
Abstract This thesis investigates the success factors of an effective service branding strategy and studies the similarities and dissimilarities between a goods branding strategy and a service branding strategy. Over the years, many scholars have investigated these branding strategies, but despite the growing importance of services, branding research has been associated with physical goods, rather than services (Turley and Moore, 1995). This thesis provides an overview of the differences in goods and services branding described in the literature.
After stretching the importance of an appropriate branding strategy this thesis clarifies how a firm can use segmentation to increase its brand equity. Segmentation can be a strong tool for branding, especially in the service environment where the product is highly customized.
After a wide review of the academic literature on branding and segmentation, a questionnaire is developed. The data is collected by distributing questionnaires to Dutch patients in two health care clinics, the GOED in Ridderkerk and the Albert Schweitzer Hospital in Zwijndrecht. This questionnaire is based on several studies in the United States of America. This study focuses on The Netherlands.
When all the data was collected, some empirical analyses were conducted. According to the findings, Dutch patients value the same criteria as those mentioned in the literature. In addition, the factors that influence patients’ choice of hospital are investigated. The results show that there are five different dimensions influencing patients’ choice.
In order to examine whether there are different groups of patients that have similarities or dissimilarities among the five dimensions a cluster analysis is conducted. The results show that there are five different groups which score different on the dimensions The main findings of this research indicate that different groups value different factors and that each group has distinctive characteristics.
Preface Hereby I proudly present my master’s thesis. In the past six months I have always worked with the greatest pleasure and effort on this project. I would like to thank my girlfriend, family and friends for their support throughout the writing process. I would also like to take this opportunity to send my gratitude to Drs. Isabel Verniers for her advices, feedback, and expertise during this project. In addition, I am grateful to my aunt Tea Crezee who gave me the opportunity to collect all the data I needed. Furthermore, I would like to thank my dear friend Dennis Bothoff for his ever lasting mental support and sociability during this Master’s year. Finally, I declare that the text and work presented in this master’s thesis is original and that no other sources than those mentioned in the text and its references have been used in writing the master’s thesis. The copyright of the thesis rests with the author, Crezee. The author is responsible for its contents. Erasmus School of Economics is only responsible for the educational coaching and beyond that cannot be held responsible for the contents.
In 2006, the Dutch government introduced a new health insurance law1. With this new law, they intended to reduce the government involvement in the health care, reduce the administrative matters and increase the effectiveness of the health care. The law consisted (mainly) of the following elements:
All Dutch residents are obliged to insure themselves
Health care companies are allowed to make profit
The resident can choose the company where he/she will insure him/herself
Health care companies cannot refuse a resident
Health care companies can offer different formats of insurance policies
The goal of this new law is to boost the competition, which is necessary to create quality, creativity and effectiveness. With this new law, the consumers are able to choose their own health insurance company and own health care company such as hospitals and clinics.
This new law, which is introduced in 2006, has changed the market and environment for the health care companies. Their customers are now able to choose for the hospital they want, so they need to make sure that they distinguish themselves from their competitors. But how will they do that? For years they didn’t have to see their market as a competitive environment and they didn’t had to convince the customers that they provide the best health care. How will they create a preference for their health care in the mindsets of the potential customers? How will they position themselves in the market and how will they change the perceived image of their brand? How will they make potential customers switch and how will they keep the current customer base? These kinds of questions will be crucial in the following years in the Dutch health care industry.
1.2 Problem definition and research questions
In order to answer the questions identified in the previous chapter, the following problem definition is formulated:
What are the success factors of an effective service brand policy and how can Dutch health care companies, i.e. hospitals, use segmentation to build a strong brand? In order to answer the problem definition, several research questions have been identified:
Which hospital features influence the patients’ choice of a hospital?
Which elements are necessary to make a patient switch?
Which are the factors that influence patients’ choice of a hospital?
What are the similarities and dissimilarities of the different factors?
What are the characteristics of the different patient groups?
These research questions will be answered in several chapters of my thesis, where I expect that the patients’ choice of a hospital is mainly influenced by the clinical reputation of the hospital, its location or the recommendation of the physician. Several scholars found evidence that the distance from the patient’s home to the hospital was the most important factor (Folland 1983; Lee and Cohen 1985; McGuirk and Porell 1984).
However, recent studies in the USA show that there’re also other important (non-clinical) factors that influence a patients choice, such as food and entertainment options, discounts and even the race of the physician (Bindman, 2000). McKinsey (Grote, 2007) research underscores how important nonclinical factors have become: Over fifty percent of the patients are willing to switch hospitals for better service and amenities. This thesis investigates the situation in The Netherlands.
In the first chapter of this thesis, the theoretical background on goods branding and service branding will be given. The definition of brand equity will be explained and how segmentation can be used to increase brand equity. In addition, the similarities and dissimilarities between goods branding and service branding will be discussed in detail. After that, the methodology of this thesis as well as the questionnaire and the collected data will be clarified. Then, I will answer the research questions in the results of this thesis. In order to answer these research questions, I will run a survey amongst patients in hospitals in the Netherlands. In the Albert Schweitzer Ziekenhuis and the health care clinic the GOED, patients will be asked to fill in a questionnaire during their waiting time and therefore I expect patients to be cooperative. In the survey, patients will be given several different factors that could influence their choice of hospital. These factors might differ from room appearance to conducting scheduled appointments on time. They will be asked to value the non-clinical elements they most appreciate during a visit. In addition, they have to decide which of these factors are important enough to switch a hospital. Based on these outcomes, the first two research questions can be answered. To get a clear answer on the third research question, a factor analysis will be conducted. With the results of this analysis, a cluster analysis will be run and with those results, the fourth and fifth research question will be answered. Combining the first five research questions might give me an opportunity to segment the patients market into different customer groups. This can be useful for hospitals to bundle the needs of different target groups and excellent in these needs.
As mentioned above, the new health law brought some changes with it because the patients are now able to choose for any kind of health service they want. There hasn’t been done any research in the Netherlands about the effects of this change. However, in the USA, this trend evolved in the mid eighties. Therefore, most of the scientific literature I will use is written in that period.
Chapter 2 Literature Review
In the second chapter of this thesis, the theoretical background on goods branding and service branding will be discussed. The literature that is used in this chapter consists of many different scholars. However, Keller (1998) is the main inspiration for the goods branding section and Zeithalm (1996, 1985) is the dominant scholar used for the service branding section. Since Dutch hospitals have no experience with branding, the first section of this chapter explains the concept of branding and brand equity in detail. After that, the dimensions of service branding and the similarities and dissimilarities between goods- and service branding will be discussed. Last, the concept of segmentation and how service industries can use segmentation to increase their brand equity is presented. In the results, characteristics of patients will be presented which can be used by Dutch companies as segmentation criteria. To summarize this chapter, a table is constructed visualizing the main findings.
For centuries, companies have used branding to differentiate their goods from their competitors’ goods. The word brand is derived from the old Norse word brandr which means “to burn”, as brands were and still are the means by which owners of a livestock population mark their animals to identify them.2
According to the American Marketing Association, a brand is a “name, term, sign, symbol, or design, or some combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition.”
Aaker (1991) defines a brand as “a set of assets/liabilities linked to a brand’s name/symbol that adds to the value provided by a product or service”.
The website Buildingbrands.com defines a brand as “a collection of perceptions in the mind of the consumer”.
If we combine these definitions, any entity can be a brand when it has distinct perceptions in the consumer’s mind, that identify and differentiate it and which may lead to value in the consumer’s mind.
Branding only takes place when these perceptions are managed strategically to influence consumers’ perceptions, attitudes or behavior with the purpose to create commercial value by means of marketing communication.
2.1.2 The economics of branding
The following table provides an overview of the value of brands to both consumers and firms.
Identification of source of product
Means of identification to simplify handling or tracing
Means of endowing products with unique associations
Source of competitive advantage
Signal of quality
Source of financial returns
(Table 1: Keller, 1998)
To consumers, brands provide important functions. Brands identify the source of a product, reduce the risk by buying well known brands, reduce the search costs and can deliver a signal of quality because of past experiences. Also, it provides some warrantee against poor performance. However, because of the relatively few real experiences with a firm’s products and services, it might be costly to monitor a firm’s brand and product performance.
To firms, brands represent enormously valuable pieces of legal property, capable of influencing consumer behavior, being bought and sold, and providing the security of sustained future revenues. A stronger brand allows for premium pricing and may lead to greater customer loyalty. However, it is costly to communicate authenticity, reliability and performance. Also, it is costly to select appropriate niches and to protect the image.
If, according to the American marketing Association, a logo, symbol or name is intended to identify and differentiate goods, how can we measure the marketing effects uniquely attributable to a brand? That is called brand equity.
2.1.3 Brand Equity
Keller (1998) defines brand equity as the differential effect that brand knowledge has on consumer response to the marketing of that brand. Or, as McQueen (1993) suggested, brand equity is the difference between the value of the brand to the consumer and the value of the product without that branding. A brand has positive brand equity when consumers react more favorably to a product and the way it is marketed when the brand is identified than when it is not (for example, when a product is unnamed). So when a product or firm has a positive brand equity, consumers might be less sensitive to price increases or are more willing to seek the brand in a new distribution channel. Brand equity is closely related to brand loyalty. Consumers loyal to a brand are expected to be less price sensitive then consumers not loyal to a brand. Consumers not loyal to a brand have no compelling need to buy the brand and therefore they will be persuaded to buy the brand only if the price is low enough. However, loyal consumers are strongly attached to a brand and therefore they will buy the brand regardless of the price. The literature underscores these assumptions; Neslin, Henderson and Quelch (1985), McCann (1974) and Raj (1982) all found evidence of a positive relationship between price elasticity and brand loyalty.
Keller (1998) emphases the fact that brand equity arises from differences in consumer response. If no differences occur, then the brand-name product can essentially be classified as a commodity or a generic version of the product. Competition would only be based on price. These differences in response result of consumers’ knowledge about the brand (what they have learned, felt, seen and heard about the brand). Brand equity ultimately depends on what resides in the minds of consumers. Finally, customers’ different responses are reflected in perceptions, preferences, and behavior related to all aspects of brand marketing, including their choice of a brand, recall points of an ad and response to a sales promotion.
This can be illustrated with a simply comparison test whereby one group tastes a beer without knowing the brand and an other group tastes the beer while they know the brand. Mostly, the two groups have different opinions despite consuming the same product.
McClure et. al. (2004) conducted a neuroimaginary study about this phenomenon. Two groups of people were asked to determine preferences among Pepsi and Coca-Cola, in both blinded and branded conditions. During this taste test, their brain activity was measured. The interesting result was that when preferences were based solely on taste, when the brand was not known, only the ventromedial prefrontal cortex areas (the area that is dealing with sense) were active. When the brand was known, also the hippocampus and the midbrain (known to be involved in emotional behavior) were active. So when people do not know what they are drinking, only the sensory information from the brain is used. However, when people know what they are consuming additional areas of the brain are active, influencing the strictly objective information.
Accordingly, when consumers have different opinions about the branded and unbranded versions of the same product, knowledge about the brand (created through marketing activities, word-of- mouth or past experiences) has changed their perception of the product. So perception of the performance of a product is highly influenced by the perception of the brand. In other words, a drink may seem tastier, the waiting line in a store may seem shorter and a phone may seem to connect easier depending on the particular brand.
2.1.4 Building brand equity
According to the Consumer Based Brand Equity model (Keller, 2007), there are four steps in building a brand.
Significant brand equity only results when reaching the top of the pyramid.
Starting at the bottom, the first step is to create brand awareness. Percy (1992) identifies brand awareness as the buyer’s ability to identify a brand within a category in sufficient detail to make a purchase. Brand awareness consists of brand recognition and brand recall performance. Brand recognition is consumers’ ability to confirm prior exposure to the brand when given the brand as a hint. For example, people shopping in a food store often don’t carry lists with brand names. Instead, they wrote down some product categories or types of food (orange juice, coffee, dessert etc.). They rely upon visual reminders of their needs when they scan the packages and brands are recognized. When purchases are based on recognitions, advertising should point out the products as they are present in the stores.
Brand recall is consumers’ ability to retrieve the brand from memory when given the product category, the needs fulfilled by the category, or a purchase or usage situation as hint. In other words, customers must recall a brand in order to make a decision. For example, when a family decides to go out for dinner, it is unlikely that they drive out and keep driving until they recognize a restaurant. Instead, they will recall from memories which restaurant they most like and will go there.
If firms want to create brand awareness, they should look at the time at which customer decisions are made. If consumer decisions are made at the point of purchase, where the brand name, logo and packaging are physically present, brand recognition will be important. However, if consumer decisions are made away from the point of purchase (for example at home), brand recognition will be important. For service branding, creating brand recall is critical: Consumers must actively seek the brand and therefore be able to retrieve it from memory when needed.
The second step when building a brand is to create brand image. Brand image can be defined as the cluster of attributes and associations that consumers connect to the brand name (Biel, 1993). If firms want to create a positive brand image, they must link strong, favorable and unique associations to the brand in the memory of the consumers’ mind. Consumers can create associations with the brand in many other ways than the direct marketing activities. For example, word-of-mouth, own experiences, media attention or identification with a country, city, company, channel of distribution or a person.
The strength of brand image can be measured by the number of associations a consumer has when confronted with a brand. The two factors that influence these associations are the personal relevance for the consumer and the consistency with which the brand is presented over time. If firms want to increase the strength of the brand image, it is important to consider the industry they are in. According to the Gfk Roper Report (2006), direct experiences create the strongest brand associations and are particularly influential in consumers’ decisions when they accurately interpret them. Word-of-mouth is more important for entertainment, services and restaurants. Marketing activities by the company, such as advertising, are less likely to create the strongest associations and they thus must use creative communications to overcome this problem. Examples of firms who created a very strong brand image without investing in massive advertising campaigns are Starbucks, Google and Tom-Tom. Howard Schultz, director of operations and marketing of Starbucks:
"I would say strongly, the success of Starbucks demonstrates the fact we have built an emotional connection with our customers. I think we have a competitive advantage over classic brands in that every day we get to touch and interact with our customers directly. Our product is not sitting on a supermarket shelf like a can of Coca-Cola. Our people have done a wonderful job of knowing your drink, your name, your kids' names and what you do for a living," he says.
A firm can create favorableassociations by emphasizing the relevant attributes and benefits that satisfy the need and wants of the consumers. So favorable associations are desirable – convenient, reliable, effective, efficient and colorful- to consumers and delivered by the firm. The essence of brand positioning is that the brand has a sustainable competitive advantage or unique selling point that gives consumers a compelling reason why they should buy it (Aaker, 1982). Uniqueness is what differentiates a firm from its competitors and helps consumers make their choice.
As we can see in figure 1 the second step consists of 2 parts. The left part, brand performance, is the more rational way in building a strong brand. Customers rate the brand on the performance, so how well does the product or service meets consumers’ functional needs. The right part, brand imagery appeals more to the emotional way in building a brand. Consumers rate the brand more abstractly, so how well does the product or service meets the psychological or social needs.
To summarize the second step, marketers should make strong brand associations not only unique but also favorable and realize that not all brand images are equally important. For example, the associations that come in mind when thinking of TNT may be “fast”, “reliable”, “orange”. Although orange does not play an important role when considering TNT as delivering service, it apparently is an important brand awareness factor.
The third step is to a create positive brand attitude. When consumers put together the first two steps, the brand image and the brand associations, they form personal opinions and evaluations of the brand. In the rational part of the pyramid, consumer judge brands on their quality, credibility and superiority. In the right part, the feelings consumers have about a brand are emotional responses and reactions to the brand. If firms want to create a positive brand attitude by these consumers, they must appeal to their emotional needs. They can do this by increasing the warmth, fun, excitement, security and self-respect of the product. An example of a company which excels in brand building feelings is Walt Disney. They transformed a day in an attraction park into a whole experience with their Disney characters, Disney hotels and Disney shows. In this way, the visitors really got a warm and family feeling with Disney.
The final step in realizing a strong brand is creating brand resonance. Brand resonance is the level in which consumers feel they are connected with the brand. Examples of firms with high resonance are Harley-Davidson, Apple and the national soccer team of England. A high level of resonance is crucial for a brand since resonance creates loyalty. It creates a positive word-of-mouth, price inelasticity and resilience against actions from competitors. Resonance can be separated into two elements. The level of intensity and the level of activity. Activity is linked to physical activity, so how involved are the customers with the brand. Intensity is linked to mental activity, so how often do consumers buy the product.
(Figure 2: Day, 1969)
True brand loyalty has two components, behavioral loyalty, how often do consumers buy the product, and attitudinal attachment. Behavioral loyalty is necessary but not sufficient for resonance to occur. It also requires personal attachment to the brand. Consumer must go beyond brand awareness and positive brand associations, they must really feel something special with the brand.
A brand can only maximize its brand equity when reaching the top of the pyramid. Once a firm has completed all steps it can realize true loyalty, but can this be done by any brand? Probably not, since for many low cost brands there is no need to create an entire resonance around a brand. However, most service companies should at least try to reach some form of brand loyalty.