Cost transparency can increase sales 20%
Listen to this article
Businesses don’t typically disclose information to consumers on how much it costs to produce a product. However, new research in the journal Marketing Science provides evidence that doing so can increase consumers’ purchase interest by more than 20%.
The study found that cost transparency can increase sales, but only when done voluntarily. They also found that cost transparency increases purchase interest even when prices are unexpectedly low or high.
What the researchers say: “Even if prices aren’t exactly what the customer might envision, the customer appreciates the act of cost disclosure,” said the lead author.
“It’s all about the psychology of disclosure and trust,” he added. “Cost transparency represents an act of intimate disclosure and fosters trust. Heightened trust enhances consumers’ willingness to purchase from a business.”
The researchers conducted six experiments to illustrate the effects of cost transparency.
Cost transparency conveys more sensitive information to consumers than operational transparency alone by referring to the disclosure of the costs to produce a good or provide a service. But it can be risky because it makes the business vulnerable to experiencing negative consequences such as consumer ire or supplier price increases.
One experiment was a partnership with a dining services organization of a large university in the northeastern U.S. in which a month of lunchtime sales was studied. That organization revealed the costs of producing a bowl of chicken noodle soup, including the cost of each component and the total cost. Cost transparency was associated with a 21% increase in the probability of buying a bowl of the soup.
Another experiment looked at a private online retailer and their sales of a leather wallet. For three of the wallet colors, the online product detail page included, among other information, the costs incurred to produce the wallet.
“We compared the daily sales between the wallet colors before and after the graphic was introduced over a 92-day period. The infographic increased sales of the wallets by 22%,” the researchers said. “These and other studies imply that the proactive revelation of costs can improve a company’s bottom line.”
So, what? This study is important because it ties in with other research (see previous TRs) which showed that people buy more if they believe that the seller or the manufacturer has revealed something about themselves—giving them an insight into their personality and offered a relationship.
This stimulates the uptake of the reward, trust and bonding neurochemical oxytocin. People feel good about buying the product because they feel that they are buying into a relationship rather than a wallet or a bowl of soup. The retailer or the maker of the product becomes, in a sense, a part of the purchaser’s perceived support network and they will buy more from that outlet or maker in order to deepen the virtual relationship.
Join the discussion
More from this issue of TR
Cost transparency can increase sales 20%
Retailers who reveal something about themselves may notice an increase in sales as customers feel they are buying into a relationship and developing a perceived support network.
We believe we're less likely than others are to fall for online scams
More research shows how bad we are at judging ourselves, underestimating our own exposure to risk. With millions of people working from home, COVID-19 threatens to wreak havoc on the world's cyber health.
Study finds stronger links between automation and inequality
In some white-collar jobs—designer, engineer—people become more productive with sophisticated software at their side. In other cases, forms of automation have simply replaced factory workers, receptionists, and many other kinds of employees.
You might be interested inBack to Today's Research
'Playing hard to get' really works
To the human neurogenetic system, romantic relationships are just like all other relationships, including those with clients.
Fake news can lead to false memories
The idea that people can be susceptible to fake or fabricated stories—even about themselves—is not new. What is new, and frightening, is our modern ability to create false memories, and attitudes and beliefs based on them, on a mass scale.
Join our tribe
Subscribe to Dr. Bob Murray’s Today’s Research, a free weekly roundup of the latest research in a wide range of scientific disciplines. Explore leadership, strategy, culture, business and social trends, and executive health.