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    Improving Customer Compatibility with Operational Transparency
    21 Aug 2019Working Paper Summaries

    Improving Customer Compatibility with Operational Transparency

    by Ryan W. Buell and MoonSoo Choi
    Service firms seeking prospective customers usually highlight the advantages of their offerings and downplay the tradeoffs. This study suggests a different approach: Provide transparency into advantages as well as tradeoffs. The transparency helps customers make informed decisions and can lead to better outcomes for both firms and customers over the long run.
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    Author Abstract

    Through a large-scale field experiment with 389,611 customers considering opening a credit card account with a nationwide retail bank, we investigate how providing transparency into an offering’s tradeoffs affects subsequent rates of customer acquisition and long-run engagement. Although we find transparency to have an insignificant effect on acquisition rates, customers who were shown each offering’s tradeoffs selected different products than those who were not. Moreover, prospective customers who experienced transparency and subsequently chose to open an account went on to exhibit higher quality service relationships over time. Monthly spending was 9.9% higher and cancellation rates were 20.5% lower among those who experienced transparency into each offering’s tradeoffs. Increased product usage and retention accrued disproportionately to customers with prior category experience—more experienced customers who were provided transparency spent 19.2% more on a monthly basis and were 33.7% less likely to defect after nine months. Importantly, we find that these gains in engagement and retention do not come at the expense of customers’ financial wellbeing—the probability of making late payments was reduced among customers who experienced transparency. We further find that the positive effects of transparency on engagement and retention were attenuated in the presence of a promotion that provided financial incentives to choose particular offerings. Taken together, these results suggest that providing transparency into an offering’s tradeoffs may be an effective strategy for informing customer choices, leading to better outcomes for customers and firms alike.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: July 2019
    • HBS Working Paper Number: HBS Working Paper #20-013
    • Faculty Unit(s): Technology and Operations Management
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    Ryan W. Buell
    Ryan W. Buell
    C. D. Spangler Professor of Business Administration
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