Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Lifting the Veil: The Benefits of Cost Transparency
    07 Oct 2014Working Paper Summaries

    Lifting the Veil: The Benefits of Cost Transparency

    by Bhavya Mohan, Ryan W. Buell and Leslie K. John
    Most managers think about cost transparency in terms of a supplier-firm relationship: when there is a two-way sharing of cost information between a firm and its suppliers, with the goal of collaborating to reduce costs. What does cost transparency do, however, in customer-firm relationships, when firms voluntarily disclose their variable costs explicitly and directly to consumers? This is the question the authors examine in this paper. Results of several experiments indicate that one-way cost transparency enhances consumers' attraction to the brand, in turn increasing their willingness to buy. Overall, marketers can potentially improve both brand attraction and sales by revealing costs. Key concepts include:
    • Relative to other marketing tactics, cost transparency might be an innovative and inexpensive way to build brand attraction and sales.
    • Disclosing sensitive cost information appeals to consumers regardless of their prior relationship with a brand.
    • Benefits of cost transparency weaken—but do not reverse—when a firm discloses higher prices relative to cost
    LinkedIn
    Email

    Author Abstract

    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% increase in daily unit sales. This research implies that by revealing costs—typically tightly guarded secrets—marketers can potentially improve both brand attraction and sales.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: September 2014
    • HBS Working Paper Number: 15-017
    • Faculty Unit(s): Technology and Operations Management; Negotiation, Organizations & Markets
      Trending
        • 28 Mar 2023
        • Research & Ideas

        The FDA’s Speedy Drug Approvals Are Safe: A Win-Win for Patients and Pharma Innovation

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

        • 23 Mar 2023
        • Research & Ideas

        As Climate Fears Mount, More Investors Turn to 'ESG' Funds Despite Few Rules

        • 01 Mar 2023
        • What Do You Think?

        How Much Does 'Deep Purpose' Matter to the Bottom Line?

        • 25 Feb 2019
        • Research & Ideas

        How Gender Stereotypes Kill a Woman’s Self-Confidence

    Ryan W. Buell
    Ryan W. Buell
    C. D. Spangler Professor of Business Administration
    Contact
    Send an email
    → More Articles
    Leslie K. John
    Leslie K. John
    James E. Burke Professor of Business Administration
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Consumer Behavior
    • Retail

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College