In his Second Opinion column, Dr Constantine Constantinides from healthCare cybernetics provides advice to potential medical tourism entrepreneurs about entering and understanding the medical tourism market.
Deciding to go into the medical tourism business is most often motivated and encouraged by anecdotal evidence that by doing so your business is entering a fast-growing market.
Assuming that the market is indeed a “fast-growing” one...... is it suitable for all, and have any of those deciding to go into the medical tourism business thought about the “customer base rate of turnover”?
Customer turnover rate in medical tourism
The customer base rate of turnover can be calculated, and has a significant impact - see Net Turnover Rate (NTR), below.
- A low Rate of Customer Turnover means that the same customers keep coming back or keep buying, meaning that your business has a high ratio of frequent or repeat buyers.
- A high Rate of Customer Turnover means that “one time buyers” disappear and new “one time buyers” have to found.....constantly.
- Medical tourism is obviously a market where a high Rate of Customer Turnover is predominant. As we will see, this can be a good thing for some and a bad thing for others.
The Rate of Turnover of the Customer Base is of a particular significance when Tourism Destinations also decide to become Health Tourism Destinations, as well.
Should they follow a narrow focus (e.g., a Medical Tourism Destination) or the broad focus (a Health Tourism Destination offering services in all 8 Segments) approach to design and development. We know that not all Eight Health Tourism Segments (which can be regarded as Market Segments) have the same Rate of Customer Turnover.
The “booming market” story
We continue to hear and read stories of new players joining the medical tourism Industry (in various capacities) because it addresses a “booming market”. See: “Taiwan’s medical tourism boom”, "a booming niche in the travel market”, “Medical Tourism in India is a million dollar booming business”
Of course I have almost given up pointing out that no one, yet, really knows the size of the market – or how fast it is growing. But this is beside the point.
Business gurus teach that when evaluating and considering starting a new business, the question to ask is “how fast is the market growing?” But those who can think deeper than a few millimeters below the surface (and beyond next week) will tell you that basing decisions purely on rate of market growth is inadequate.
Furthermore, we are told by Karel Cool and Petros Paranikas (yes, Petros is a fellow Greek) – in an article in the May 2011 issue of the Harvard Business Review, that Rapid Customer Base Turnover – in a slow growth market can make this market a dynamic one.
Dynamic / Dynamism means constant change.
So which kind of market is more attractive?
The question is: are rapidly growing markets but with a low Rate of Customer Turnover better than those which are “slow growth” but are “dynamic” (i.e., with a high rate of customer turnover)? And is there any value in markets with slow or even flat growth – but which are “dynamic”?
The answer seems to depend on whether you are an “incumbent” or a “new entrant”.
The difference in the two types of market is between the existence – or not - of repeaters and customer loyalty.
And it seems that, with market growth being equal, markets with a high Rate of Customer Turnover pose threats to incumbents and offer opportunities to newcomers.
Generally, stagnant and non-dynamic markets favour and protect the incumbents.
Conversely, stagnant but dynamic markets are associated with risk for incumbents.
For new entrants, on the other hand, stagnant and dynamic markets may offer opportunities to take business away from the incumbents.
Using Net Turnover Rate
The best way to determine if markets are associated with high or low turnover is by calculating the Net Turnover Rate (NTR).
- Start by documenting (if you can) the overall market in the previous year.
- Then add the number of new customers entering each year.
- Subtract the number of customers leaving each year.
- You now have the total number of customers.
- To get the Net Turnover Rate, divide the number of new customers by the total number of customers.
- The higher the NTR the greater the opportunity for new companies – and the greater the risk for the incumbents.
As we empirically know, the NTR varies between the 8 Health Tourism Segments.
Market growth and dynamism factors…in the health tourism market segments
Medical Tourism, as a Segment, is associated (generally) with a market of “non repeaters” (how many times will a patient go abroad for surgery?). In other words, Medical Tourism addresses a market with a high NTR.
The other 7 Health Tourism Segments certainly seem to have a lower NTR.
In my definition, “Health Tourism” is the “catch all term” for Services in the 8 Health-related Tourism Segments:
Assisted Residential Tourism
Measuring customer turnover…and the factors which drive it
In their HBR article, Karel Cool and Petros Paranikas convince us that three factors drive, and are responsible for high customer turnover.
- Infrequency of use: Medical Tourism is associated with “high customer turnover” – it is infrequently used by the same person.
- Durability: Durability refers to buying something only occasionally – but keeping it for a long time. The Durability Factor is absent in all the Health Tourism Segments – except Medical Tourism and Assisted Residential Tourism. Customers, such as those for Assisted Residential Tourism, essentially behave – and are regarded – as New Customers. Unlike, for example, customers for Spa Tourism, the same ones do not “constantly” return to the marketplace (to buy more from the Industry).
- Age Range of Potential Client Base: Services aimed at specific age groups have high customer turnover rates. Again think of Assisted Residential Tourism (retirement communities abroad).
For the same Health Tourism Segment we may have customers associated with different turnover rates. For example, we can classify customers as regular and occasional users. The former are obviously regarded as “lower turnover customers”.
The role of facilitators
Even customers who are “high-turnover” and prepared to move between providers (no customer loyalty), when they rely on the recommendations and services of a facilitator, they will tend to end up with the same provider, over and over again.
This fact plays against the new companies offering health-related services.
Pursuing the high-turnover markets…a “how to” for new entrants
Just because high-turnover customers have no established loyalties does not mean they are an easy catch for new industry players. The cost of securing them can be high. The fact that they may be risk averse may add to the difficulty (they may opt for the security associated with well-known and established providers).
So what clever strategies can new players resort to counter the competition from the incumbents?
Again, Karel Cool and Petros Paranikas have some suggestions:
Cut customer’s trial costs (provide additional value which will cancel out any “loss” if customer is not satisfied with what is provided)
Offer a gateway to the competition (which, at first, may seem counterintuitive)
Extend bundles to drive adoption (this is something that ht8 already does)
Leverage the reputation of low-turnover segments (gain credibility by having services endorsed tacitly or explicitly by a respected and unbiased entity)
Health tourism at the macro level…narrow vs broad focus development
So, in view of what we have learned about rates of market growth and dynamism, what do we recommend to those involved in macro-level (Destination) development?
We recommend that they consider the impact of customer turnover rate in each of the Health Tourism Segments before deciding on the approach to development (narrow or broad focus). The ht8 approach (broad focus) is clearly superior for the obvious reasons.
As a start, it allows destinations to address a healthy – and risk-mitigating – mix of high and low customer turnover rate markets. More specifically, the ht8 approach creates a larger and more diverse industry to address a much broader market. Industry size is very important in influencing perceptions and inspiring confidence amongst consumers.
The ht8 approach also acts as an insurance policy for a destination. Should the demand for one segment diminish (even temporarily), you still have 7 others to keep you going. Furthermore, the comprehensive approach allows destinations to exploit the “Long Tail” phenomenon (increased choice creates increased demand).
Finally, a broader industry encourages “cross referrals” between segments (the providers of one service category can refer to and receive referrals from providers of the other segments – increasing business for all).
Maintaining market share and growing sales…by segmenting the market and offering choice
The obvious way to maintain market share and at the same time increase sales is by pointing existing customers to additional relevant services within the ht8 range. Membership of the ht8 Alliance makes it easy to keep even fickle clients who want try different “destinations” – within the alliance – through cross referrals associated with loyalty schemes.
To maintain position in high-turnover markets, Karel Cool and Petros Paranikas suggest the following strategies which can be applied to the health tourism industry and market:
Provide a migration path (offer credit accumulating incentive and loyalty schemes)
Increase platform value (to dissuade customers from bothering to look for other deals)
Create and leverage loyal and satisfied customer networks
High turnover with high growth....past eminence is no guarantee of future prominence
To complete the story, we need to point out that high customer turnover can create opportunities for growing industries, as well. And health tourism is certainly a fast-changing – and shifting – Industry. We suggest that the industry is in fact unhealthily, growing faster than the market.
And when it comes to Health Tourism Destinations (industry), I like to point out that past eminence is no guarantee of future prominence.
For example, Thailand’s position as the top Medical Tourism Destination seemed unassailable. Yet we have seen this unassailability trumped by:
Innovatively packaged offerings
Think India, Singapore and the Philippines – even Malaysia.