How Much Would You Pay to Spit in a Cup?
Pricing Strategy: How Much Would You Pay to Spit in a Cup?
This week, I read about the fall in stock value for 23andMe, a mail-away genetic testing service that provides insights both on genetic ancestry data but also genes associated with health. I read this article: https://www.wsj.com/health/healthcare/23andme-anne-wojcicki-healthcare-stock-913468f4?mod=healthcare_news_article_pos4
Both my husband and I have taken 23andMe tests, signing up for the highest membership level, but only for one year. We also bought the kits on sale. For us, it was worth it, but as the article points out, the key issue with the 23andMe pricing strategy is that each individual only needs to take the test once. Genes don't change over time, so once customers have had fun assessing their ancestry profiles and heave a sigh of relief that they're not BRCA2 carriers, there's really not much point in continuing to pay for a subscription.
The article points out that at first, the tests cost $399, which was obviously designed to be too high for most customers, but priced appropriately for early adopters, and people who cared deeply about their health risks. At this point, the only competition would be out-of-pocket costs to customers for medical genetic testing done at the physician's office. Pricing for that testing is almost impossible to know ahead of time, so for these early adopters, $399 as a fixed, known cost might have been reasonable. This appears to be an example of a mix of two pricing strategies: customer-oriented and sales-oriented. It seems 23andMe wanted to recoup some of their fixed and variable costs, and felt their ideal early adopter customers would bear the cost. They wanted to attract sales, demonstrate growth and in turn attract further funding.
As time went on, pricing strategy changed for the company. The article points out that in 2012, pricing fell to $99 per kit, making it far more likely to draw in a larger segment of customers beyond early adopters. This allowed them to employ a sales-oriented pricing approach, and it worked. According to the article it took nine years to reach one million customers, but only three years to get to eight million customers.
But, as the article points out, once customer acquisition has peaked, the customers have largely already received their value. Though a subscription (priced $69/year) reveals the results of any new tests the genes reveal (risk for unusual mutations or rare disease markers), the problem is that a) most people don't have a rare genetic mutation and b) even if they did, the value to the customer of knowing about it is limited.
As an anecdotal piece of data: I stopped subscribing last year, and though occasionally there have been reports I wish I could read, the most important data has already been shared (and downloaded), so even though $69 per year is affordable for me, the value just isn't there.
Next, the company appears ready to shift into a healthcare market. They're beginning to market a "clinical grade" test (what were they before?) that does not bill insurance. I can imagine this being very useful if it's able to cross-reference drug studies and identify which medications will work best for individuals. For instance, if I could know in advance that Zoloft would be more effective for me than Lexapro, that would be beneficial. And being able to pay that cost once and use it for a lifetime of health insights and drug choices would also be helpful. Moreover, both customers and insurance payers might find value in the product, if they know they can treat a condition faster and with less unnecessary cost (repeat visits, changing prescriptions, etc.) I can imagine a scenario in which 23andMe customers can receive a small discount on their insurance premiums, much like premiums are adjusted for individuals who demonstrate good health behaviors.
To me, it seems like 23andMe has come full circle. They're launching essentially the same product again, at a higher price, with a slightly altered use and hoping to attract early adopters. Where they go from here, and how they sustain revenue for a product that only needs to be taken once is an open question.
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