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December 6, 2016
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David W. Johnson

Channel Shifting: Ominous Black Friday Trends for Health Systems

The results are in. The National Retail Federation (NRF) just released their survey results for post-Thanksgiving shopping. The numbers were strong. 154 million consumers shopped this holiday weekend, up 2% from 2015 and up 15% from 2014.

Embedded within the consumer sales figures are worrisome trends for facility-centric health systems. Consumers are increasingly comfortable shopping for products and services on-line. Moreover, they’re driven to find the best deals and not limited by geography.




What’s Happening to Black Friday?

Gone this Thanksgiving were the huge crowds of eager shoppers pushing through store doors in pursuit of deals. Numbers of Thanksgiving Day and early-morning Black Friday shoppers plummeted.

More consumers (44%) shopped on-line Black Friday than in stores (40%). Adobe Digital estimates Black Friday on-line sales skyrocketed to $3.34 billion, up 21.6% from 2015. Adding fuel to this on-line shopping fire, Adobe further estimates that “Cyber Monday” sales hit a record $3.39 billion.

NRF President and CEO Matthew Shay observed, “It was a strong weekend for retailers, but an even better weekend for consumers, who took advantage of some really incredible deals. In fact, over one-third of shoppers said 100% of their purchases were on sale.”

This is not good news for store-based retailers. Consumers no longer feel they must beat the crowds to get the best deals. This has forced retailers to host events, offer perks and/or slash prices to get customers into their stores. Promotions can increase in-store traffic and sales, but often diminish profitability.

Retail sales are homogenizing and democratizing simultaneously. Consumers can find what they want at very competitive prices irrespective of location. Moreover, retail stores find it difficult to differentiate their products. The same PlayStation 4 game console (a hot item this holiday season) is available in Omaha and Oakland as well as on-line.

Retailers have to worker harder to attract shoppers. A recent Coldwell Banker Commercial survey found that 74% of consumers say unique shopping experiences are more likely to lure them into a physical store. The report notes that “shoppers want stores to be a hub for convenience and entertainment where experiential retail meets blended retail.”

As shoppers explore new on-line purchasing “channels,” store-based retailers find themselves at competitive disadvantage. Their “channel” to customers is higher cost, less flexible and less convenient.



Healthcare’s Commodity Conundrum

On-line and in-store retailers sell commoditized products. Price, shopping convenience and customer experience drive consumers’ purchasing decisions. High-volume, low-margin retailers gain market share. Efficient cost management determines whether individual retailers post profits or losses.

Very few health systems are prepared to compete in true retail healthcare environments. Centralized reimbursement formularies incentivize providers to obscure prices, optimize revenues and largely ignore customer needs.

Customer experiences within health systems generally range from mediocre to awful. Healthcare executives have not developed the instincts, tools and customer-friendly cultures necessary to win retail business.

Moreover, health systems are not immune from commodity-based competition. The clear majority of their treatments are routine. They are easily replicable. This makes health systems vulnerable to efficient customer-centric business models that target high-margin services.

Great customer service and efficient cost management are essential to long-term success in retailing. Across industries, standardization enhances quality, improve outcomes and lower costs. Yet most providers tolerate unacceptable performance variation, avoid rigorous performance monitoring and resist demands for greater transparency. Fee-for-service reimbursement engenders complacency.

Health systems are asset heavy. They provide services in highly centralized, cumbersome and expensive facilities. Customer come to them. Too many health systems equate their facilities with their identities. They fail to realize that their ultimate value resides in their brands, cultures and customers.

The marketplace is not waiting for health systems to transform themselves. Consumers are becoming more discerning purchasers of healthcare services. New types of customer-centric companies are emerging to provide second opinions, deliver convenient primary care services, offer high-volume surgical procedures, grade provider performance and coordinate care transitions.

With better price, outcome and service information, consumers will apply their well-honed purchasing instincts to buying healthcare products and services. They will push healthcare providers to offer higher-value services.



The Rocky Road Ahead

To date, healthcare has largely avoided the digital disruption roiling other industries. That only means incumbents have farther to fall once they encounter customer-friendly competition and web-enabled consumerism.

In The Road Ahead Bill Gates remarked, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”

This is sage advice to health system executives. Retailers are learning the hard way that facilities can limit their ability to meet consumer needs and reduce their competiveness. The pace of change is accelerating across all industries. Imagine how different and customer-friendly healthcare purchasing decisions will be in 10 years.

The clock is ticking. Gates once noted that “success is a lousy teacher. It seduces smart people into thinking they can’t lose.” Healthcare executives cannot afford overconfidence. No healthcare system is too big or too essential to fail. Winning health systems will adapt service delivery to meet customers’ wants, needs and demands.

It’s time for health systems to change their delivery channels before consumers do it for them.

About the Author

David W. Johnson

David Johnson is the CEO of 4sight Health, an advisory company working at the intersection of healthcare strategy, economics, innovation. Johnson is a healthcare thought leader, keynote speaker, and strategic advisor to organizations busting the status-quo to reform our healthcare system. He is the author of Market vs. Medicine: America’s Epic Fight for Better, Affordable Healthcare, and his second book, The Customer Revolution in Healthcare: Delivering Kinder, Smarter, Affordable Care for All (McGraw-Hill 2019). As a speaker, Dave plays the role of rebel, challenger, industry historian, investor and company evaluator to push audiences forward. (Watch bio video.) Johnson applies his 25+ years of investment banking in healthcare to identify ways the healthcare industry must change to deliver better care. He received a Masters in Public Policy from Harvard Kennedy School, an English degree from Colgate University, and served in the African Peace Corp service. Join over 10k+ healthcare executives who read our weekly insights and commentary on www.4sighthealth.com. His third book, Less Healthcare, More Health: The Prescription for a Happier, More Equitable and Productive America, will publish in 2024.

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