Lifting the Veil: The Benefits of Cost Transparency

50 Pages Posted: 20 Sep 2014 Last revised: 10 Oct 2018

Bhavya Mohan

University of San Francisco

Ryan W. Buell

Harvard Business School

Leslie K. John

Harvard Business School

Date Written: October 11, 2018

Abstract

Firms do not typically disclose information on their costs to produce a good to consumers. However, we provide evidence of when and why doing so can increase consumers’ purchase interest. Specifically, building on the psychology of disclosure and trust, we posit that cost transparency, insofar as it represents an act of intimate disclosure, fosters trust. In turn, this heightened trust enhances consumers’ willingness to purchase from that firm. This account was supported in four studies, conducted in the field and in the lab. A pre-registered field experiment indicated that diners were 21.1% more likely to buy a bowl of chicken noodle soup when a sign revealing the ingredients of the soup also included the cafeteria’s costs to make the soup (Study 1). Three subsequent lab experiments replicated and extended this basic effect, providing evidence of when and why it occurs (Studies 2-4). Taken together, these studies imply that the proactive revelation of costs can improve a firm’s bottom line.

Keywords: cost transparency, disclosure, trust, field experiment

Suggested Citation

Mohan, Bhavya and Buell, Ryan W. and John, Leslie K., Lifting the Veil: The Benefits of Cost Transparency (October 11, 2018). 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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