Many clinics that offer in vitro fertilization (IVF) have begun to market the following options to couples: (1) an a la carte program where the couple pays $7,500 per attempt regardless of the outcome; or (2) a money–back–guarantee program where the couple pays a $15,000 fee that covers up to three attempts, however, if after three cycles there is no live–birth delivery, then the full $15,000 is refunded.
We assess the a la carte versus the money–back–guarantee programs, and find the surprising result that the money–back–guarantee program appears (for the patients) to be “too good to be true.” That is, the money–back guarantee yields a substantial negative expected profit per couple for the clinics. More importantly from the patients’ perspective, the money–back guarantee is the better option for all couples with less than 0.5 success probability per cycle. Virtually all traditional IVF patients have had per–cycle success probabilities below 0.5.
A detailed analysis of the key variables—i.e., success rate per attempt, heterogeneity of couples’ rates of success, individual couples’ “learning” on successive attempts, and cost to the clinic per attempt—shows that these money–back guarantees are unprofitable for the clinics. Since presumably clinics are not in business to lose money, the standard analysis must be missing something major. We suggest that the marketing of money–back guarantees is inducing couples who would previously have used—successfully—other less invasive procedures with fewer side effects and less risk of multiple births to decide to proceed directly to IVF, and that this scenario makes the money–back guarantees profitable for the clinics.
The implications of earlier use of IVF are then considered from an overall public policy point of view. Just as mothers everywhere tell their children, “When something looks too good to be true, then it is too good to be true!”
David Schmittlein
- John C Head III Dean and Professor of Marketing, MIT Sloan School of Management
Contact Information
- Primary Email:
dschmitt@mit.edu
Research Interests: advertising, direct marketing., market segmentation, marketing research methods, models for marketing decisions, new product development
Links: CV, Personal Website
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Latest Research
David Schmittlein and D. G. Morrison (Under Review), A Live Baby or Your Money Back: The Marketing of in vitro Fertilization Procedures.
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Knowledge @ Wharton - 2024/07/30