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IM for Lovelock & Wirtz, Services Marketing 6/E
Teaching Notes for Cases - Section 5
CASE 18 TLCONTACT: CARE PAGES SERVICE (A) OVERVIEW Three family members launched an Internet startup company just before the “dot.com bubble” burst in 2000. The product is a web-based service that enables hospital patients to stay in touch with family and friends through the medium of individualized home pages, typically linked to a sponsoring hospital’s own web site. Three years after the launch, the company is finally becoming profitable and the CEO is reviewing strategy for future growth. TEACHING OBJECTIVES •
Demonstrate the tremendous amount of time and effort that needs to be invested in developing, maintaining, and evolving a functional, foolproof, and userfriendly web site
•
Illustrate need to evolve a start-up company’s business model and sales strategy in the light of experience
•
Highlight the difficult, time-consuming nature of marketing a new concept in a B2B environment, including the need for missionary selling to skeptical purchasers
•
Explore creative opportunities to leverage sales efforts
•
Discuss the constraints and opportunities posed by operating under high ethical standards
STUDY QUESTIONS 1. Evaluate the evolution of TLC and identify the key decisions that kept it afloat and underpinned its subsequent success. 2. How does TLC create value for (a) patients, and (b) hospitals? _______________________________________________________________________ _ © 2007 Christopher H. Lovelock
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Teaching Notes for Cases - Section 5
3. Review the four topics on Eric Langshur’s draft of the agenda for the board meeting. As a board member, what position would you take on each topic, and why? ANALYSIS 1.
Evaluate the evolution of TLC and identify the key decisions that kept it afloat and underpinned its subsequent success.
Time Line of Case (Key decisions identified with boldface) February 25, 1998
Eric and Sharon (Day) Langshur’s son Matthew born in Hartford, CT with heart defect
March 2
Matthew has first operation at U. of Michigan Medical Center
Early March
Mark Day (Sharon’s brother) creates simple web site at Stanford
1998–99
Matthew has two more surgeries; more than 200 people visit the website and return many times
Late 1999
Langshur quit jobs in Chicago to start company to commercialize the concept, quickly and easily raise $3 million in “angel” financing; Eric is CEO, Sharon is director of medical services
January 2000
Mark Day joins team as Chief Technology Officer, decides to build website in-house; team is expanded to include other staff
August 2000
TLC website is launched and continuous improvements made thereafter
Summer 2000
Additional financing obtained; TLC revises business model to B2B, targets marketing/PR hospital staff, adopts missionary sales approach
Early 2001
Contracts signed with three prestigious hospitals: U. of Michigan Medical System, NY Presbyterian, Children’s Memorial Chicago
Fall 2001
TLC is running out of cash—dot.com crash environment means no longer possible to raise money for seed-stage Internet company without cash flow
2002
Competitor, BabyPressConference shuts down; TLC reaches agreement with CHCA—buying consortium for 38 children’s hospitals; direct-to-hospice co-marketing initiative launched with 2
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Teaching Notes for Cases - Section 5
National Hospice and Palliative Care Organization; paid pilot program launched with Tenet Corp., operator of 116 acute-care hospitals; Spanish language option developed through collaboration with Mexican hospital June 2002
Mark leaves TLC to enroll in Wharton MBA program
Fall 2002
New feature, online survey capability added to Boston Children’s Hospital site—useful feedback about value of service to users; pilot donation programs at two hospitals suggest TLC service increases willingness of users to donate money to sponsoring hospital—could make service self financing
Late 2002
Lead time on new sales has dropped from nine months to three months
Q1 2003
Revenues accelerating rapidly, more customers sign up, existing customers renew, increased CarePage utilization/hospital; TLC now serves 40 hospitals in United States and Canada, mostly academic medical centers (acute care, state-of-art medicine, very prestigious); additional hospital prospects in pipeline but no nursing home or hospice customers; TLC responds to SARS crisis in Toronto, where several hospitals have been quarantined, by offering 24-hour implementation of CarePage service at a special price
Q2 2003
Eric Langshur plans agenda for board meeting
Genesis of the Concept The TLC concept originated as a brother’s response to a devastating medical problem affecting his sister’s new baby. The challenge: To employ evolving website technology (1998) to keep everyone up to date on the baby’s progress and thus save the parents from having to repeat the same information over and over again by telephone to concerned relatives and friends. The original simple website (which would have cost only a few hundred dollars if Mark had paid someone else to build it) included: •
Bulletins on baby Matthew’s progress
•
Background medical information
•
Bulletin board for family and friends to post messages
3
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Teaching Notes for Cases - Section 5
Key results: •
News of the site spread by word of mouth
•
Individuals who had never used the Internet before were motivated to find a way to access the site
•
200 people in total used the site—that’s a lot of friends and family!
•
People revisited the site on a regular basis to get updates
•
Site remained up for two years (Matthew had three rounds of surgery)
•
Parents were spared massive amounts of time responding to phone calls with same information
Success of this concept led to decision to commercialize it. Note that each of TLC’s competitors was started by individuals who had created family websites for similar purposes (pp. 624–625). Evolution of Business Model TLC was launched in an “intoxicating environment” with what proved to be unrealistic expectations of rapid growth. The business model and selling procedures all had to be modified (pp. 619–20): •
Business Model 1.0: B2C, target prospective parents, families of hospital patients and charge them a fee per page. But too expensive, too difficult to reach these individuals.
•
Business Model 2.0: B2B, target hospitals (who would then offer service to patients—perhaps at a fee); sell to physicians. Problem, doctors don’t have time to listen or budget to buy; are busy with patient care.
•
Business Model 2.1: Target PR and marketing groups within hospitals—have budget, more likely to see advantages for hospitals in terms of increased patient satisfaction. Problem, don’t want to charge patients for a service designed to increase their satisfaction (e.g., TV).
•
Business Model 2.2: Get hospital to pay and offer service free to patients. Problem, hospital administrators couldn’t see appeal to patients or advantages to hospital— required missionary sales approach which had to target multiple individuals holding a variety of other jobs within a broader decision-making unit.(e.g., finance, nursing, IT)
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Teaching Notes for Cases - Section 5
Missionary Sales Approach TLC had expected service to sell itself (better mousetrap fallacy). Now had to switch to missionary sales approach, emphasizing: •
Advantages to hospital include more satisfied patients, fewer demands on hospital staff as family and friends turn to website rather than phoning hospital for information
•
Findings of national survey of patient satisfaction which showed that: − − − −
27 percent reported lack of emotional support 28 percent cited inadequate information and education 23 percent complained of insufficient involvement of family and friends patients receiving inadequate emotional support were up to ten times more likely to say they would not return to/recommend that hospital
Investment in Systems Design TLC decided to build the website themselves rather than subcontract which would: •
Retain intellectual capital
•
Make it easier to undertake future updates and expansion
•
Mark Day’s experience with original site gave him clear idea of how it should be built, including need for flexibility
TLC was willing to invest heavily to get its own systems up and running fast. Worked hard to ensure system and software were:•
Usable (user friendly)
•
Functional (does what it’s supposed to do)
•
Scalable (can be expanded and built upon without failing)
Chose to employ open source-operating system because source code was freely available. Regularly updated, revised, fixed problems, enhanced functionality, added new features, including email notification to members of updated news. Customized pages for hospitals so that they were branded with hospital logo and accessible through hospital website, even though loaded on TLC’s own servers.
5
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Teaching Notes for Cases - Section 5
Included software logic to fix common mistakes that users might make. Note people accessing medical bulletins of loved ones are likely to be nervous and often infrequent users of keyboards and websites, so more prone to make mistakes—will appreciate userfriendly, “forgiving” website. This type of innovation is expensive. Marketing Strategy •
Offer hospitals stand-alone service positioned as e-business patient satisfaction solution
•
Rely on viral marketing among families and friends to promote TLC through word-of-mouth referrals and thus avoid need for mass media marketing
•
Outsource direct sales to a national distribution partner that has relationships with hospitals and health care facilities
•
Licensing TLC software to trusted third party vendors and consultants who could bundle TLC services as a feature to enhance their own offerings, in return for a royalty
•
Seize opportunity presented by SARS crisis that quarantines several Toronto hospitals to offer special rate Care Page service with only 24-hour notice
2.
How does TLC create value for (a) patients, and (b) hospitals?
Value for Patients (and their families)—See feedback in Exhibit 2 •
Emotional support—keep in touch during illness and recovery
•
Save time, reduce stress for family—avoid need to repeat same information many times
•
Ensure accuracy of information about patient
•
Get new info out quickly to everybody
•
Offer potential to link to expert information about the patient’s medical condition
•
Facilitate support networks, build bonds with family, friends, and community
•
Uplifting for family, patients to read all the messages—may even speed recovery
•
Generate spiritual support through prayers
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•
Teaching Notes for Cases - Section 5
Include pictures
Value for Hospitals (Note Case Exhibit 3, especially) •
Competitive advantage: -
3.
Increased patient satisfaction is a competitive advantage Former patients more willing to return Positive word of mouth by both patients and “members” generates referrals
•
Productivity tool—saves staff time and effort of responding to requests for info on patients
•
Motivational tool—TLC offers potential for patients and CarePages members to nominate outstanding hospital staff; knowledge that hospital is well regarded may increase retention and motivation, facilitate recruitment
•
Image booster for hospital—May be able to get local PR when TLC service first installed; CarePage members are impressed (see responses to question 4 of visitor survey, Case Exhibit 3, p. 623)
•
Educational tool—potential for hospital to send messages to CarePage members on permission basis—note responses to Exhibit 3, q. 2, p. 624
•
Donation booster—satisfied “members” (visitors to CarePage) more willing to make donations (see p. 622 and Exhibit 3, responses to question 4, p. 623). Review the four topics on Eric Langshur’s rough draft of the agenda for the board meeting. As a board member, what position would you take on each topic, and why?
Future Growth a) How fast? The rationale for growing fast is to penetrate the market as deeply as possible before current or new competitors can do so. The risk facing any small business with limited capitalization is that expenditures will rise faster than income and it will become insolvent. b) What directions? TLC has to decide whether to emphasize CarePages versus HTN or to try to run both in harness simultaneously. It also has to decide whether to stick with the current offerings or to actively pursue a strategy of product enhancements, even an expansion 7
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Teaching Notes for Cases - Section 5
of the product line. Finally, it has to decide how much emphasis to devote to Canada, Mexico, and (potentially) other Spanish-speaking countries relative to the United States. c)
Key targets as selling priorities?
Bigger hospitals have more beds and therefore more patients. Acute care hospitals have sicker patients who will be in hospital and recuperation longer and whose friends and families will be more worried about them. Hospitals with substantial obstetrical beds will have larger numbers of babies being born. d)
Opportunities for new value-added services?
CarePages already are available in Spanish and will soon be available for sale to U.S. hospitals for an extra fee. Maybe TLC should also consider French? But this represents a much smaller market (Canada’s population is 33 million, about the same as California’s, and only 20–25 percent are French speaking). This option would have only limited appeal in the United States where the primary French speaking immigrants are Haitian, many of whom prefer to speak and write Creole—effectively a different language. Under development are: •
Refined procedures for surveying members (visitors) after they have completed a certain number of visits (useful for feedback, fundraising)
•
Nurses Hall of Fame (helps hospitals with hiring—presumably by highlighting that this is a good place to work—and retention [pride?])
•
Message inbox allowing hospitals to deliver targeted messages to members (would require permission from members but, if given, could help with fundraising and word-of-mouth promotions; TLC would need to specify content parameters
•
Send-a-Prayer—functional link to faith-based organization (would certainly appeal to some members—note religious content in four of ten feedback messages in the Appendix; question: Should TLC control list of “appropriate” faith-based organizations? Could be tricky.)
e)
Launch stripped down TLC at much lower price? •
Might help TLC gain entry to cash-strapped hospitals, nursing homes, hospices
•
Issues:
−
Would there be any significant savings for TLC in stripping out certain features? (Probably minimal because main costs of features are in development.)
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Teaching Notes for Cases - Section 5
−
Risk: buy market share by deep discounting that can’t easily be reversed in future years
−
Product will be less appealing—fewer functions for members and sponsors
−
Existing customers might wonder why they are paying so much more and use this fact as a bargaining chip at renewal time
−
May lower barriers to competition, bring TLC down to TheStatus and CaringBridge levels. Note failure of VisitingOurs, provider of “a rather basic service”
−
Eric believes “added value items are what persuade hospitals to buy” (p. 622, col. 2)
Competition a) VisitingOurs folds. Good riddance to another competitor, which joins Baby Press Conference on the trash heap! Is there anything to be learned about this latest failure? •
A rather basic service (less demand for the basics?)
•
Outsourced web technology (probably less innovation, less learning from experience, risk of poorer quality, owners divorced from interface with customers).
b) Comparison chart of TLC vs. TheStatus and CaringBridge (Case Exhibit 4). TheStatus (TS) is run as sideline of Web design company in Alaska. How seriously will prospective hospital customer take them? How effective can their sales effort be? CaringBridge (CB) runs by nonprofit. May have lower prices but how much can they afford to invest in upgrades and innovation? TLC offers: •
Highest levels of customer service. TS is close but lacks Spanish language, CB is weak.
•
The most feature rich service for health-care facilities—the only one with welcome message, active survey, and donation systems, Spanish language, and unit specification. TS is next best. CB is very weak.
•
Branding. TS is the only one with the entire website co-branded (but is this what hospitals want?). TLC is the only one to offer customized colors and graphics (more bells and whistles). 9
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Teaching Notes for Cases - Section 5
•
TLC offers the most features for patients. Unique advantages include email notification (when a new bulletin is posted for a patient, all registered members are told there’s an update), sorting and paging. TS is second, CB a distant third.
•
Message board. Only TLC offers opportunity for patient (or family member) to respond to messages.
Future threats? CB looks very weak and will probably be the next to go. Perhaps its owners might sell the system to someone with deep pockets who would be willing to invest in it. TS would be a better buy for such a party in terms of offering more features. (Note no one wanted to buy BabyPressConference when it went under.) The potential market is huge, however, TLC has only a tiny share, and the investment required would be very modest for a major player in the health care market. Instead of selling the service to hospitals, a large health products firm could offer its own service free, either self-branded or co-branded with the hospital (“sponsored by ABC pharmaceuticals”) and develop the membership list, with permission, as an advertising channel. Would competition hurt us? Probably not. It would be easier for a competitor to target current non-users than fight to take one of TLC’s existing customers away at renewal time. In a mature market, new sales can only be gained by drawing share from other competitors. In a market with huge latent potential, stimulating primary demand is the issue (note from p. 6 that there are 6,000 acute care hospitals in the United States, 17,000 nursing homes, and over 3,000 hospices) Competitive activity will generate more awareness and could help to establish the legitimacy of this type of service. (Note FedEx created the overnight package delivery business, but subsequent competition from UPS, DHL, Airborne, TNT, and the postal services helped expand the market rapidly and all parties grew sales as a result). The main risk would come from a competitor who provided a similar service at a much lower cost, forcing TLC to drop its prices. Can we competition proof TLC? Can’t prevent entry of deep-pocketed new competitor from entering, although it would take time to develop necessary software, systems and infrastructure (could outsource, of course). Could probably work around patent protection. Eric thinks TLC’s best defenses are: •
Strategic partnerships
•
Continued growth (a long way to go!)
•
Product enhancements 10
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Teaching Notes for Cases - Section 5
•
Maintenance of exceptional customer satisfaction levels
•
(Could also add high ethical reputation)
Possible Financial Partnership A large supplier of medical equipment and services is interested in taking a minority financial stake in TLC. Finance for accelerated growth? This is obvious motivation and would allow TLC to sharply increase its selling effort. Market leverage? •
A powerful financial partner might be able to open doors to prospective new customers
•
Add to TLC’s credibility—no risk of them disappearing in a year or two like BabyPressConference and VisitingOurs
•
Perhaps opportunity for bundling of sales efforts (medical supplies plus TLC products)
Pros and cons? YES •
Increase selling and preempt competition
•
Invest in new product development and enhancement
•
Finance HTN programming development
•
Help with R&D on new technologies
NO •
Some loss of control, even with minority shareholder who may want full control later
•
Potential for disputes—what happens if partnership breaks up?
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•
Teaching Notes for Cases - Section 5
Will there be pressure to abandon TLC’s very ethical positions on “permission” marketing, “moral contract” with patients and families
Now or later? •
What’s the rush? Sales are accelerating and TLC is about to become profitable. No new competition on horizon to stimulate drive for preemption of market.
•
May be able to finance growth out of income.
•
If waits to sell a stake later, may get more money for a smaller share of equity.
•
If TLC feels it really could use more funds to advance market penetration of CarePages, how about selling HTN?
WE ARE A MISSION-DRIVEN ORGANIZATION TLC operates to very high ethical standards. This appears to be very important to its owners and doubtless builds respect and credibility among hospitals and trust—even affection—among users who are sure to spread positive word of mouth and even reward, with donations, sponsoring hospitals. TLC must be very careful not to compromise its values by partnerships with organizations that have dissimilar perspectives, by addedvalue services that take advantage of patients, or by relaxing its permission marketing strategies. TLC’s high standards also make it easy to meet provisions of the Health Information Privacy and Accountability Act (HIPAA) and the demanding requirements of the TRUSTe Privacy Seal (p. 3). TEACHING SUGGESTIONS Students enjoy this case. They are touched by the story of how the idea for the service was first developed for the family of a desperately ill baby. They enjoy the interesting backgrounds of the founding family (Eric the whiz MBA, Sharon the MD, Mark the PhD student, and even the famous Wharton marketing professor, George Day, as advisor. And they shake their heads at the giddy atmosphere prevailing in the last months of the dot.com boom, with investors offering millions of dollars for sketchy business plans, owners of inactive domains wanting $2 million for the name, and huge fees being demanded for technology consulting. You might want to cite all of these as you introduce the case at the beginning of class in order to build energy and enthusiasm. At some point in the class, you should discuss the website itself and the efforts that Mark Day and his colleagues made to ensure user-friendliness, functionality, and scalability. Ask how many have visited www.tlcontact.com and how many read the privacy 12
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Teaching Notes for Cases - Section 5
statement. Why does this matter and why does TLC place such emphasis on it? Ask, too, if anyone has used CarePages to follow a patient’s progress. If so, get them to talk about it for a minute or two. The case is easy and straightforward to teach. You need to budget your time on each of the questions. The discussion of the business model and how it evolved has important lessons for any start-up, as does TLC’s experience in trying to sell to hospitals and having to shift its approach, first as they recognized that doctors were the wrong target and second, as they realized that hospital administrators simply didn’t understand the benefits of the CarePage product. Although the case contains no financial statements, it is clear that cash flow was a very significant problem for TLC. Point out that missionary selling efforts are often needed for new services and it may take a while before prospective purchasers recognize a value that the originators of the product thought was quite obvious. You can tell students that it took FedEx three years to become profitable, because traffic managers in the early 1970s could not see the benefit of guaranteed overnight service and were very slow to adopt the new concept. . You should budget at least 15 minutes, possibly more, to discuss the four points raised in question 3. This teaching note provides a fairly detailed analysis of each point and subpoint. You may wish to ask students to vote on such issues as: •
Whether to offer a stripped-down CarePage service at a reduced price
•
Whether to accept the offer of the medical equipment and services supplier to purchase a minority share in TLC right now
SUBSEQUENT EVENTS TLC has made huge strides since the time of the case and by 2006 had more than 400 hospitals as customers. New customers continue to be acquired, old ones renew with enthusiasm, selling costs are down because the task is now easier, and CarePage volume continues to rise within existing institutions. Possible Financial Partnership. TLC turned down the medical supplier’s offer to invest in the company in return for a majority share. Mark Day. Following graduation from Wharton in May 2004, Mark Day has gone to work for a company in Minneapolis. He says his experience at TLC was invaluable and the insights he developed there complement his MBA skills very well. Other Markets. CarePages was moving into the long-term care (nursing home) and hospice care markets, seeking to gain experience, and exposure with a limited number of contracts.
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Competition. In May, 2004, competitor CaringBridge pulled off a remarkable PR coup, being featured on three consecutive days in the Doonesbury cartoon strip. However, CaringBridge remains relatively small (it is believed to have about 50 institutions as customers) and CarePages dominate as market leader. NOTE: A SEQUEL CASE, TL CONTACT: CAREPAGES (B), IS IN PREPARATION AND WILL BE POSTED TO THE BOOK’S WEBSITE—PLUS TEACHING NOTE —ON COMPLETION
14
Teaching Notes for Cases - Section 5
CASE 18 TLCONTACT: CARE PAGES SERVICE (A) OVERVIEW Three family members launched an Internet startup company just before the “dot.com bubble” burst in 2000. The product is a web-based service that enables hospital patients to stay in touch with family and friends through the medium of individualized home pages, typically linked to a sponsoring hospital’s own web site. Three years after the launch, the company is finally becoming profitable and the CEO is reviewing strategy for future growth. TEACHING OBJECTIVES •
Demonstrate the tremendous amount of time and effort that needs to be invested in developing, maintaining, and evolving a functional, foolproof, and userfriendly web site
•
Illustrate need to evolve a start-up company’s business model and sales strategy in the light of experience
•
Highlight the difficult, time-consuming nature of marketing a new concept in a B2B environment, including the need for missionary selling to skeptical purchasers
•
Explore creative opportunities to leverage sales efforts
•
Discuss the constraints and opportunities posed by operating under high ethical standards
STUDY QUESTIONS 1. Evaluate the evolution of TLC and identify the key decisions that kept it afloat and underpinned its subsequent success. 2. How does TLC create value for (a) patients, and (b) hospitals? _______________________________________________________________________ _ © 2007 Christopher H. Lovelock
1
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3. Review the four topics on Eric Langshur’s draft of the agenda for the board meeting. As a board member, what position would you take on each topic, and why? ANALYSIS 1.
Evaluate the evolution of TLC and identify the key decisions that kept it afloat and underpinned its subsequent success.
Time Line of Case (Key decisions identified with boldface) February 25, 1998
Eric and Sharon (Day) Langshur’s son Matthew born in Hartford, CT with heart defect
March 2
Matthew has first operation at U. of Michigan Medical Center
Early March
Mark Day (Sharon’s brother) creates simple web site at Stanford
1998–99
Matthew has two more surgeries; more than 200 people visit the website and return many times
Late 1999
Langshur quit jobs in Chicago to start company to commercialize the concept, quickly and easily raise $3 million in “angel” financing; Eric is CEO, Sharon is director of medical services
January 2000
Mark Day joins team as Chief Technology Officer, decides to build website in-house; team is expanded to include other staff
August 2000
TLC website is launched and continuous improvements made thereafter
Summer 2000
Additional financing obtained; TLC revises business model to B2B, targets marketing/PR hospital staff, adopts missionary sales approach
Early 2001
Contracts signed with three prestigious hospitals: U. of Michigan Medical System, NY Presbyterian, Children’s Memorial Chicago
Fall 2001
TLC is running out of cash—dot.com crash environment means no longer possible to raise money for seed-stage Internet company without cash flow
2002
Competitor, BabyPressConference shuts down; TLC reaches agreement with CHCA—buying consortium for 38 children’s hospitals; direct-to-hospice co-marketing initiative launched with 2
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National Hospice and Palliative Care Organization; paid pilot program launched with Tenet Corp., operator of 116 acute-care hospitals; Spanish language option developed through collaboration with Mexican hospital June 2002
Mark leaves TLC to enroll in Wharton MBA program
Fall 2002
New feature, online survey capability added to Boston Children’s Hospital site—useful feedback about value of service to users; pilot donation programs at two hospitals suggest TLC service increases willingness of users to donate money to sponsoring hospital—could make service self financing
Late 2002
Lead time on new sales has dropped from nine months to three months
Q1 2003
Revenues accelerating rapidly, more customers sign up, existing customers renew, increased CarePage utilization/hospital; TLC now serves 40 hospitals in United States and Canada, mostly academic medical centers (acute care, state-of-art medicine, very prestigious); additional hospital prospects in pipeline but no nursing home or hospice customers; TLC responds to SARS crisis in Toronto, where several hospitals have been quarantined, by offering 24-hour implementation of CarePage service at a special price
Q2 2003
Eric Langshur plans agenda for board meeting
Genesis of the Concept The TLC concept originated as a brother’s response to a devastating medical problem affecting his sister’s new baby. The challenge: To employ evolving website technology (1998) to keep everyone up to date on the baby’s progress and thus save the parents from having to repeat the same information over and over again by telephone to concerned relatives and friends. The original simple website (which would have cost only a few hundred dollars if Mark had paid someone else to build it) included: •
Bulletins on baby Matthew’s progress
•
Background medical information
•
Bulletin board for family and friends to post messages
3
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Key results: •
News of the site spread by word of mouth
•
Individuals who had never used the Internet before were motivated to find a way to access the site
•
200 people in total used the site—that’s a lot of friends and family!
•
People revisited the site on a regular basis to get updates
•
Site remained up for two years (Matthew had three rounds of surgery)
•
Parents were spared massive amounts of time responding to phone calls with same information
Success of this concept led to decision to commercialize it. Note that each of TLC’s competitors was started by individuals who had created family websites for similar purposes (pp. 624–625). Evolution of Business Model TLC was launched in an “intoxicating environment” with what proved to be unrealistic expectations of rapid growth. The business model and selling procedures all had to be modified (pp. 619–20): •
Business Model 1.0: B2C, target prospective parents, families of hospital patients and charge them a fee per page. But too expensive, too difficult to reach these individuals.
•
Business Model 2.0: B2B, target hospitals (who would then offer service to patients—perhaps at a fee); sell to physicians. Problem, doctors don’t have time to listen or budget to buy; are busy with patient care.
•
Business Model 2.1: Target PR and marketing groups within hospitals—have budget, more likely to see advantages for hospitals in terms of increased patient satisfaction. Problem, don’t want to charge patients for a service designed to increase their satisfaction (e.g., TV).
•
Business Model 2.2: Get hospital to pay and offer service free to patients. Problem, hospital administrators couldn’t see appeal to patients or advantages to hospital— required missionary sales approach which had to target multiple individuals holding a variety of other jobs within a broader decision-making unit.(e.g., finance, nursing, IT)
4
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Missionary Sales Approach TLC had expected service to sell itself (better mousetrap fallacy). Now had to switch to missionary sales approach, emphasizing: •
Advantages to hospital include more satisfied patients, fewer demands on hospital staff as family and friends turn to website rather than phoning hospital for information
•
Findings of national survey of patient satisfaction which showed that: − − − −
27 percent reported lack of emotional support 28 percent cited inadequate information and education 23 percent complained of insufficient involvement of family and friends patients receiving inadequate emotional support were up to ten times more likely to say they would not return to/recommend that hospital
Investment in Systems Design TLC decided to build the website themselves rather than subcontract which would: •
Retain intellectual capital
•
Make it easier to undertake future updates and expansion
•
Mark Day’s experience with original site gave him clear idea of how it should be built, including need for flexibility
TLC was willing to invest heavily to get its own systems up and running fast. Worked hard to ensure system and software were:•
Usable (user friendly)
•
Functional (does what it’s supposed to do)
•
Scalable (can be expanded and built upon without failing)
Chose to employ open source-operating system because source code was freely available. Regularly updated, revised, fixed problems, enhanced functionality, added new features, including email notification to members of updated news. Customized pages for hospitals so that they were branded with hospital logo and accessible through hospital website, even though loaded on TLC’s own servers.
5
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Included software logic to fix common mistakes that users might make. Note people accessing medical bulletins of loved ones are likely to be nervous and often infrequent users of keyboards and websites, so more prone to make mistakes—will appreciate userfriendly, “forgiving” website. This type of innovation is expensive. Marketing Strategy •
Offer hospitals stand-alone service positioned as e-business patient satisfaction solution
•
Rely on viral marketing among families and friends to promote TLC through word-of-mouth referrals and thus avoid need for mass media marketing
•
Outsource direct sales to a national distribution partner that has relationships with hospitals and health care facilities
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Licensing TLC software to trusted third party vendors and consultants who could bundle TLC services as a feature to enhance their own offerings, in return for a royalty
•
Seize opportunity presented by SARS crisis that quarantines several Toronto hospitals to offer special rate Care Page service with only 24-hour notice
2.
How does TLC create value for (a) patients, and (b) hospitals?
Value for Patients (and their families)—See feedback in Exhibit 2 •
Emotional support—keep in touch during illness and recovery
•
Save time, reduce stress for family—avoid need to repeat same information many times
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Ensure accuracy of information about patient
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Get new info out quickly to everybody
•
Offer potential to link to expert information about the patient’s medical condition
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Facilitate support networks, build bonds with family, friends, and community
•
Uplifting for family, patients to read all the messages—may even speed recovery
•
Generate spiritual support through prayers
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•
Teaching Notes for Cases - Section 5
Include pictures
Value for Hospitals (Note Case Exhibit 3, especially) •
Competitive advantage: -
3.
Increased patient satisfaction is a competitive advantage Former patients more willing to return Positive word of mouth by both patients and “members” generates referrals
•
Productivity tool—saves staff time and effort of responding to requests for info on patients
•
Motivational tool—TLC offers potential for patients and CarePages members to nominate outstanding hospital staff; knowledge that hospital is well regarded may increase retention and motivation, facilitate recruitment
•
Image booster for hospital—May be able to get local PR when TLC service first installed; CarePage members are impressed (see responses to question 4 of visitor survey, Case Exhibit 3, p. 623)
•
Educational tool—potential for hospital to send messages to CarePage members on permission basis—note responses to Exhibit 3, q. 2, p. 624
•
Donation booster—satisfied “members” (visitors to CarePage) more willing to make donations (see p. 622 and Exhibit 3, responses to question 4, p. 623). Review the four topics on Eric Langshur’s rough draft of the agenda for the board meeting. As a board member, what position would you take on each topic, and why?
Future Growth a) How fast? The rationale for growing fast is to penetrate the market as deeply as possible before current or new competitors can do so. The risk facing any small business with limited capitalization is that expenditures will rise faster than income and it will become insolvent. b) What directions? TLC has to decide whether to emphasize CarePages versus HTN or to try to run both in harness simultaneously. It also has to decide whether to stick with the current offerings or to actively pursue a strategy of product enhancements, even an expansion 7
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of the product line. Finally, it has to decide how much emphasis to devote to Canada, Mexico, and (potentially) other Spanish-speaking countries relative to the United States. c)
Key targets as selling priorities?
Bigger hospitals have more beds and therefore more patients. Acute care hospitals have sicker patients who will be in hospital and recuperation longer and whose friends and families will be more worried about them. Hospitals with substantial obstetrical beds will have larger numbers of babies being born. d)
Opportunities for new value-added services?
CarePages already are available in Spanish and will soon be available for sale to U.S. hospitals for an extra fee. Maybe TLC should also consider French? But this represents a much smaller market (Canada’s population is 33 million, about the same as California’s, and only 20–25 percent are French speaking). This option would have only limited appeal in the United States where the primary French speaking immigrants are Haitian, many of whom prefer to speak and write Creole—effectively a different language. Under development are: •
Refined procedures for surveying members (visitors) after they have completed a certain number of visits (useful for feedback, fundraising)
•
Nurses Hall of Fame (helps hospitals with hiring—presumably by highlighting that this is a good place to work—and retention [pride?])
•
Message inbox allowing hospitals to deliver targeted messages to members (would require permission from members but, if given, could help with fundraising and word-of-mouth promotions; TLC would need to specify content parameters
•
Send-a-Prayer—functional link to faith-based organization (would certainly appeal to some members—note religious content in four of ten feedback messages in the Appendix; question: Should TLC control list of “appropriate” faith-based organizations? Could be tricky.)
e)
Launch stripped down TLC at much lower price? •
Might help TLC gain entry to cash-strapped hospitals, nursing homes, hospices
•
Issues:
−
Would there be any significant savings for TLC in stripping out certain features? (Probably minimal because main costs of features are in development.)
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−
Risk: buy market share by deep discounting that can’t easily be reversed in future years
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Product will be less appealing—fewer functions for members and sponsors
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Existing customers might wonder why they are paying so much more and use this fact as a bargaining chip at renewal time
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May lower barriers to competition, bring TLC down to TheStatus and CaringBridge levels. Note failure of VisitingOurs, provider of “a rather basic service”
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Eric believes “added value items are what persuade hospitals to buy” (p. 622, col. 2)
Competition a) VisitingOurs folds. Good riddance to another competitor, which joins Baby Press Conference on the trash heap! Is there anything to be learned about this latest failure? •
A rather basic service (less demand for the basics?)
•
Outsourced web technology (probably less innovation, less learning from experience, risk of poorer quality, owners divorced from interface with customers).
b) Comparison chart of TLC vs. TheStatus and CaringBridge (Case Exhibit 4). TheStatus (TS) is run as sideline of Web design company in Alaska. How seriously will prospective hospital customer take them? How effective can their sales effort be? CaringBridge (CB) runs by nonprofit. May have lower prices but how much can they afford to invest in upgrades and innovation? TLC offers: •
Highest levels of customer service. TS is close but lacks Spanish language, CB is weak.
•
The most feature rich service for health-care facilities—the only one with welcome message, active survey, and donation systems, Spanish language, and unit specification. TS is next best. CB is very weak.
•
Branding. TS is the only one with the entire website co-branded (but is this what hospitals want?). TLC is the only one to offer customized colors and graphics (more bells and whistles). 9
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•
TLC offers the most features for patients. Unique advantages include email notification (when a new bulletin is posted for a patient, all registered members are told there’s an update), sorting and paging. TS is second, CB a distant third.
•
Message board. Only TLC offers opportunity for patient (or family member) to respond to messages.
Future threats? CB looks very weak and will probably be the next to go. Perhaps its owners might sell the system to someone with deep pockets who would be willing to invest in it. TS would be a better buy for such a party in terms of offering more features. (Note no one wanted to buy BabyPressConference when it went under.) The potential market is huge, however, TLC has only a tiny share, and the investment required would be very modest for a major player in the health care market. Instead of selling the service to hospitals, a large health products firm could offer its own service free, either self-branded or co-branded with the hospital (“sponsored by ABC pharmaceuticals”) and develop the membership list, with permission, as an advertising channel. Would competition hurt us? Probably not. It would be easier for a competitor to target current non-users than fight to take one of TLC’s existing customers away at renewal time. In a mature market, new sales can only be gained by drawing share from other competitors. In a market with huge latent potential, stimulating primary demand is the issue (note from p. 6 that there are 6,000 acute care hospitals in the United States, 17,000 nursing homes, and over 3,000 hospices) Competitive activity will generate more awareness and could help to establish the legitimacy of this type of service. (Note FedEx created the overnight package delivery business, but subsequent competition from UPS, DHL, Airborne, TNT, and the postal services helped expand the market rapidly and all parties grew sales as a result). The main risk would come from a competitor who provided a similar service at a much lower cost, forcing TLC to drop its prices. Can we competition proof TLC? Can’t prevent entry of deep-pocketed new competitor from entering, although it would take time to develop necessary software, systems and infrastructure (could outsource, of course). Could probably work around patent protection. Eric thinks TLC’s best defenses are: •
Strategic partnerships
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Continued growth (a long way to go!)
•
Product enhancements 10
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•
Maintenance of exceptional customer satisfaction levels
•
(Could also add high ethical reputation)
Possible Financial Partnership A large supplier of medical equipment and services is interested in taking a minority financial stake in TLC. Finance for accelerated growth? This is obvious motivation and would allow TLC to sharply increase its selling effort. Market leverage? •
A powerful financial partner might be able to open doors to prospective new customers
•
Add to TLC’s credibility—no risk of them disappearing in a year or two like BabyPressConference and VisitingOurs
•
Perhaps opportunity for bundling of sales efforts (medical supplies plus TLC products)
Pros and cons? YES •
Increase selling and preempt competition
•
Invest in new product development and enhancement
•
Finance HTN programming development
•
Help with R&D on new technologies
NO •
Some loss of control, even with minority shareholder who may want full control later
•
Potential for disputes—what happens if partnership breaks up?
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Teaching Notes for Cases - Section 5
Will there be pressure to abandon TLC’s very ethical positions on “permission” marketing, “moral contract” with patients and families
Now or later? •
What’s the rush? Sales are accelerating and TLC is about to become profitable. No new competition on horizon to stimulate drive for preemption of market.
•
May be able to finance growth out of income.
•
If waits to sell a stake later, may get more money for a smaller share of equity.
•
If TLC feels it really could use more funds to advance market penetration of CarePages, how about selling HTN?
WE ARE A MISSION-DRIVEN ORGANIZATION TLC operates to very high ethical standards. This appears to be very important to its owners and doubtless builds respect and credibility among hospitals and trust—even affection—among users who are sure to spread positive word of mouth and even reward, with donations, sponsoring hospitals. TLC must be very careful not to compromise its values by partnerships with organizations that have dissimilar perspectives, by addedvalue services that take advantage of patients, or by relaxing its permission marketing strategies. TLC’s high standards also make it easy to meet provisions of the Health Information Privacy and Accountability Act (HIPAA) and the demanding requirements of the TRUSTe Privacy Seal (p. 3). TEACHING SUGGESTIONS Students enjoy this case. They are touched by the story of how the idea for the service was first developed for the family of a desperately ill baby. They enjoy the interesting backgrounds of the founding family (Eric the whiz MBA, Sharon the MD, Mark the PhD student, and even the famous Wharton marketing professor, George Day, as advisor. And they shake their heads at the giddy atmosphere prevailing in the last months of the dot.com boom, with investors offering millions of dollars for sketchy business plans, owners of inactive domains wanting $2 million for the name, and huge fees being demanded for technology consulting. You might want to cite all of these as you introduce the case at the beginning of class in order to build energy and enthusiasm. At some point in the class, you should discuss the website itself and the efforts that Mark Day and his colleagues made to ensure user-friendliness, functionality, and scalability. Ask how many have visited www.tlcontact.com and how many read the privacy 12
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statement. Why does this matter and why does TLC place such emphasis on it? Ask, too, if anyone has used CarePages to follow a patient’s progress. If so, get them to talk about it for a minute or two. The case is easy and straightforward to teach. You need to budget your time on each of the questions. The discussion of the business model and how it evolved has important lessons for any start-up, as does TLC’s experience in trying to sell to hospitals and having to shift its approach, first as they recognized that doctors were the wrong target and second, as they realized that hospital administrators simply didn’t understand the benefits of the CarePage product. Although the case contains no financial statements, it is clear that cash flow was a very significant problem for TLC. Point out that missionary selling efforts are often needed for new services and it may take a while before prospective purchasers recognize a value that the originators of the product thought was quite obvious. You can tell students that it took FedEx three years to become profitable, because traffic managers in the early 1970s could not see the benefit of guaranteed overnight service and were very slow to adopt the new concept. . You should budget at least 15 minutes, possibly more, to discuss the four points raised in question 3. This teaching note provides a fairly detailed analysis of each point and subpoint. You may wish to ask students to vote on such issues as: •
Whether to offer a stripped-down CarePage service at a reduced price
•
Whether to accept the offer of the medical equipment and services supplier to purchase a minority share in TLC right now
SUBSEQUENT EVENTS TLC has made huge strides since the time of the case and by 2006 had more than 400 hospitals as customers. New customers continue to be acquired, old ones renew with enthusiasm, selling costs are down because the task is now easier, and CarePage volume continues to rise within existing institutions. Possible Financial Partnership. TLC turned down the medical supplier’s offer to invest in the company in return for a majority share. Mark Day. Following graduation from Wharton in May 2004, Mark Day has gone to work for a company in Minneapolis. He says his experience at TLC was invaluable and the insights he developed there complement his MBA skills very well. Other Markets. CarePages was moving into the long-term care (nursing home) and hospice care markets, seeking to gain experience, and exposure with a limited number of contracts.
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Competition. In May, 2004, competitor CaringBridge pulled off a remarkable PR coup, being featured on three consecutive days in the Doonesbury cartoon strip. However, CaringBridge remains relatively small (it is believed to have about 50 institutions as customers) and CarePages dominate as market leader. NOTE: A SEQUEL CASE, TL CONTACT: CAREPAGES (B), IS IN PREPARATION AND WILL BE POSTED TO THE BOOK’S WEBSITE—PLUS TEACHING NOTE —ON COMPLETION
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