Money-Back Guarantees and Service Quality: The Marketing of In Vitro Fertilization Services

Abstract

Marketing practices like money-back guarantees (MBGs) are prevalent in many expert-service markets but are often decried as marketing gimmicks that take advantage of vulnerable and poorly informed consumers. In this research, conducted in the market for in vitro fertilization services, the authors empirically assess differences in quality of care between clinics that offer MBG programs and those that don't, to investigate whether MBG programs can serve a purpose consistent with signaling and insurance theories. The analysis is conducted on a unique longitudinal data set that includes information on clinic-level treatment, outcome statistics, clinic characteristics, and marketing practices for fertility clinics in the United States, state-level insurance mandates, competition environments, and demographic and geographic characteristics. Using an instrumental variable approach to account for the endogeneity of MBG decisions made by fertility clinics, the authors find that MBG clinics, on average, offer better treatment outcomes in terms of success rates while undertaking lower risks. The results are consistent with signaling theory predictions that market-based programs like MBGs can serve as signals of unobservable clinic quality despite the incentives for clinics to engage in opportunistic behaviors.