Lifting the veil
Subtitle: the benefits of cost transparency
By: Bhavya Mohan, Ryan W. Buell, Leslie K. John
Contributors: Buell, Ryan W., author; John, Leslie K., author; Harvard Business School
Series: Working paper / Harvard Business School -- 15-017; Working paper (Harvard Business School) -- 15-017
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston]
Language: eng
Number of pages: 26
Description: A firm's costs are typically tightly-guarded secrets. However, across six laboratory experiments and a field study we identify when and why firms benefit from revealing cost information to consumers. Disclosing the variable costs associated with a product's production heightens consumers' attraction to the firm, which in turn increases purchase interest (Experiments 1-3). In fact, cost transparency has a stronger impact on purchase interest than emphasizing the firm's personal relationship with the consumer - a much more involved marketing tactic (Experiment 4). Further experiments explore boundary conditions and suggest that the benefit of cost transparency weakens as firms increase price relative to costs, and when markups are made salient (Experiments 5-6). Consistent with our lab findings, a natural experiment with an online retailer demonstrates that cost transparency improves sales. In particular, cost transparency led to a 44.0% increase in daily unit sales. This research implies that by revealing costs - typically tightly-guarded secrets - managers can potentially improve both brand attraction and sales.
Notes: "September 2014. (Revised December 2014.)" -- Publisher's website.

Includes bibliographical references (pages 24-26).