Lifting the Veil: The Benefits of Cost Transparency

47 Pages Posted: 20 Sep 2014 Last revised: 6 Nov 2017

Bhavya Mohan

University of San Francisco

Ryan W. Buell

Harvard Business School

Leslie K. John

Harvard Business School

Date Written: September 11, 2016

Abstract

Firms typically treat their costs as tightly-guarded secrets. In six studies, we test the effect of firm disclosure of the costs to produce a given product (i.e., cost transparency) on purchase interest. We begin with a natural field experiment conducted with an online retailer, in which cost transparency increased sales (Study 1A). We subsequently replicate this field experiment in a controlled lab setting (Study 1B), and show that cost transparency is particularly potent in boosting purchase interest above other forms of transparency (Study 2). Guided by our theoretical framework, Studies 3 and 4 show that the effect is mediated by consumers’ trust in the firm, with Study 4 showing that this mediator explains variance above and beyond perceptions of price fairness. Finally, Study 5 demonstrates the critical role of the voluntary nature of the disclosure, by showing that cost transparency boosts purchase interest only when voluntarily instated by the firm, as opposed to involuntarily (e.g., as required by law). These results imply that the proactive revelation of costs can improve a firm’s bottom line.

Keywords: cost transparency, operational transparency, purchase intentions, brand attraction, customers

Suggested Citation

Mohan, Bhavya and Buell, Ryan W. and John, Leslie K., Lifting the Veil: The Benefits of Cost Transparency (September 11, 2016). Harvard Business School NOM Unit Working Paper No. 15-017; Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 15-017. Available at SSRN: https://ssrn.com/abstract=2498174 or http://dx.doi.org/10.2139/ssrn.2498174

Bhavya Mohan

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

Ryan W. Buell (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan Hall 429
Boston, MA 02163
United States
617-496-6918 (Phone)

HOME PAGE: http://www.hbs.edu/rbuell

Leslie K. John

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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