Question

In recent years, two nationally known health care providers established satellite facilities a great distance from their main clinic locations:

• Mayo Clinic: The Mayo Clinic, of Rochester, Minnesota, opened facilities in Arizona, Florida, Iowa, Wisconsin and Minnesota as well as Mexico City.

• Cleveland Clinic: The Cleveland Clinic also opened a Brain Institute in Nevada, a facility in Florida, and a hospital in Abu Dhabi.

Define the three levels of distribution intensity. Explain and assess the changes in distribution intensity these actions by the two clinics represent.

Answer 1

Explain the changes in distribution intensity in these satellite facility openings.

The big cities, crowded with good and large hospitals from the competitors offer very less scope of business expansion through additional capacities in the existing hospitals or in launching new hospitals. The additional investments not only are carrying high risks, but also the cost per bed addition in these cities is very high.

Strategically, to maintain the market share, each of these two health care providers need to expand and capture new markets. Thus it is a good business strategy to make use of the brand name these two organizations are already enjoying, overseas also, to launch new facilities in small cities, where the health services to the consumers can be added safely, maintaining reasonable distribution intensity.

The opening of new hospitals is less expensive in these cities and the working capital requirement for the staff salaries in these cities also is less. Each healthcare provider can expect a larger target market in these locations and promotion costs are also less.

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