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
Overview
Professor David C. Schmittlein was formerly the Ira A. Lipman Professor and Wharton’s Deputy Dean. Professor Schmittlein is a noted scholar whose research focuses on marketing research methods, models for marketing decisions, advertising and new product development, among other topics. He has consulted widely for major corporations, including American Express, Lockheed Martin and AT&T, assisting them in designing and analyzing market research information for measuring customer perceptions and preferences and assessing the impact of marketing decisions.
Most recently, Professor Schmittlein’s research used information on the history of individual customer purchase patterns to identifying active (or inactive) customers, assess future sales potential, develop customer specific efforts and analyze new product success in Japan and the U.S. His research has been published in top-tier academic journals including Management Science, Marketing Science and the Journal of Marketing Research.
Professor Schmittlein’s teaching interests include courses in Marketing Management, Product Policy, Advertising Management, Research Methodology and Marketing Strategies for Wharton’s Executive MBA program. Professor Schmittlein received his PhD and Master’s degrees from Columbia University and his BA degree from Brown University.
Research
- David Schmittlein and D. G. Morrison (Under Review), A Live Baby or Your Money Back: The Marketing of in vitro Fertilization Procedures. AbstractDescription.
- D. Bowman, J. U. Farley, David Schmittlein (2000), Cross-National Empirical Generalization of a Supplier Selection and Usage Model for Global Business Services, Journal of International Business Studies, 31(4). Description.
- B. Bickart and David Schmittlein (1999), The Distribution of Survey Contact and Participation in America: Constructing a Survey-Based Estimate, Journal of Marketing Research, 36 pp 286-294. Description.
- Eric Bradlow and David Schmittlein (Under Review), The Little Engines That Could: Modeling the Performance of World Wide Web Search Engines. AbstractDescription
This research examines the ability of six popular Web search engines, individually and collectively, to locate Web pages containing common marketing/management phrases. We propose and validate a model for search engine performance that is able to represent key patterns of coverage and overlap among the engines.
The model enables us to estimate the typical additional benefit of using multiple search engines, depending on the particular set of engines being considered. It also provides an estimate of the number of relevant Web pages not found by any of the engines. For a typical marketing/management phrase we estimate that the “best” search engine locates about 50% of the pages, and all six engines together find about 90% of the total.
The model is also used to examine how properties of a Web page and characteristics of a phrase affect the probability that a given search engine will find a given page. For example, we find that the number of Web page links increases the prospect that each of the six search engines will find it. Finally, we summarize the relationship between major structural characteristics of a search engine and its performance in locating relevant Web pages.. - D. G. Morrison and David Schmittlein (1998), It Takes A Hot Goalie To Raise the Stanley Cup: The Role of Team Ability, Home Ice, and the Hot Hand in the Stanley Cup Finals, Chance, 11(1) pp 3-7. Description.
- V. Morwitz and David Schmittlein (1998), Testing New Direct Marketing Offerings: The Interplay of Management Judgment and Statistical Models, Management Science, 44(5) pp 610-628. Description.
- David Schmittlein (1997), Keep Your Customer and You’ll Be Satisfied, Australia Business Review Weekly. Description.
- David Schmittlein (1997), Why Customers Belong in Your List of Assets, Australia Business Review Weekly. Description.
- E. Sarigollu and David Schmittlein (1996), The Effect of Variety Seeking Behavior on Optimal Product Positioning, Applied Stochastic Models and Data Analysis, 12(1) pp 27-44. Description.
- David Schmittlein (1995), Customers as Strategic Assets, The Financial Times. Description
- Reprinted in The Financial Post (Toronto), November 30, 1996.
- Reprinted as “Le client, un actif stratègique,” in Les Echos: Le Quotidien de la Economie, March 1997. (France)
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