Does Relationship Marketing Pay? - An Empirical Investigation for Hospitals Paper Example

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863 words
Carnegie Mellon University
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The health-care industry has extensively adopted the idea of relationship marketing and relational partnering activities following growing pressure to provide quality and improved services while containing costs. Relationship marketing involves the development of cooperative and collaborative relationships with the customers and other actors in the market with the aim of achieving efficiency. In the health-care sector, hospitals are establishing such alliances with other parties such as patients, payers, preferred provider organizations (PPOs), other hospitals, physician groups, and other health-care providers offering similar services. The partnerships are seen as an opportunity to enhance effectiveness as it boosts the capability to meet the needs of individual customers fully. With these activities focusing on achieving efficiency, there is the question of the correlation between long-term relationships and profitability. This essay aims at analyzing whether there exists a positive correlation between these long-term relationships and the performance of hospitals practicing them.

There are three categories in which relationship marketing can be practiced in a hospital setting, all geared towards efficiency and containing cost. One involves programs aimed at customer retention. These activities include after-marketing and post-treatment satisfaction services, patient-focused care programs, maintenance of the database, support for an on-going relationship with customers, and programs that involve the customer in the design, development, and sales activities of the hospital. These activities will make customers feel part of the hospital team thus earn their loyalty. Two, programs involving unique supply and delivery arrangements with other health-care providers and key suppliers. These programs could involve arrangements such as just-in-time supply, preferred vendor programs, membership in health-care networks, intensive delivery systems, integrated selling, referral of services, and patient information sharing with other providers. The third category is engaging in relational partnering programs to leverage the resources of others. These engagements may include joint marketing programs, joint product development, cross-distribution arrangements, sharing facilities, co-providing services, as well as joint ventures and alliances.

There exists an argument that relationship marketing improves the productivity of a firm. In a hospital setting, this means that relationship marketing should result in improved general and specific performance indicators. In testing this performance, various financial and non-financial indicators have been used in studies for a hospital setting. Financial indicators use profitability as a measure of performance while non-financial indicators use the other performance indicators to show the general performance of the hospital. An empirical study was conducted involving 187 hospitals in the United States to measure the impact of relationship marketing activities on hospital performance. The relationship was measured by considering relationship intensity, marketing orientation, and intensity of competition. The performance indicators used included occupancy rate, per bed admissions, net income margin, patient gross revenue per day, profit margin in total, and uncollectible ratio.

From the results, there is a significant increase in relationship intensity when competition is high. Subsequent interviews revealed that hospital management initiates collaborative activities with their customers and partners when competition intensifies. Secondly, marketing orientation and relationship intensity proved to have a significant association. Hospitals that are marketing-oriented tend to initiate and maintain several relationship marketing programs. Additionally, the results revealed that hospitals engaging in relationship marketing tend to have better occupancy rates as well as higher admissions per bed. Moderate to higher relationship intensity was associated with lower uncollectible ratio and vice versa. This is because payers have established a long-term relationship with the hospital thus boosting loyalty and the drive to pay their debts. Still, from the study, relationship intensity and gross revenue per patient day are significantly related. For example, from the study, in a hospital with low relationship intensity, the mean revenue per patient day was $1,300 as compared to those with a higher relationship intensity with a mean revenue of $1,862. From the above-mentioned observations, it is evident that there is a definite association between relationship marketing activities level and the performance of a hospital, both on financial and non-financial indicators.

The study also considered the second category of relationship marketing, that is, the impact of partnering programs. The impact was measured against the same performance indicators measured above which are rate of occupancy, per bed admissions, net income margin, patient gross revenue per day, overall profit margin, and uncollectible ratio. The result indicated that many specific relationship marketing activities were associated with several performance indicators. However, these relationships, on the other hand, are also significantly associated with lower income margin for the hospitals. This could result from programs such as huge discounts and capitation fees to physicians and other partners. However, these programs could be regulated to minimize the financial impact they have on hospitals.

In summary, relationship marketing intensity has a positive impact on the performance of hospitals. Hospitals that have established moderate to high relationship marketing programs with their customers and other partners have better results as compared to those with low or none of these activities. Those activities that would affect the finances of the hospital such as discounts can be regulated to minimize their impact. With this revelation, it is right to say that relationship marketing does pay.


Naidu, G. M., Parvatiyar, A., Sheth, J. N., & Westgate, L. (1999). Does relationship marketing pay? An empirical investigation of relationship marketing practices in hospitals. Journal of Business Research, 46(3), 207-218.

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