Lifting the Veil: The Benefits of Cost Transparency
47 Pages Posted: 20 Sep 2014 Last revised: 6 Nov 2017
Date Written: September 11, 2016
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
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