Converting interested customers into actual buyers is the end goal of any business. From gigantic chain stores to a small mom & pop shop, it all comes down to making that sale. Of course, transforming leads to purchases is usually easier said than done. In today’s competitive business landscape there’s always going to be someone else offering a supposed better deal or cheaper price.
Businesses of all kinds have employed a wide variety of strategies in their hunt for sales; fresh new marketing campaigns, big “one time only” discounts, or promotional tie-ins with local sports teams are all popular tactics. Now, a new study has a surprising recommendation for businesses looking to boost their sales. Let customers know how much it cost to produce your products.
It may sound counterproductive at first, but researchers from Harvard Business School and the University of San Francisco have found that consumers really appreciate it when stores and businesses are transparent when it comes to production costs. Even if the product costs a whole lot less or more than a customer assumed, they’ll still be more likely to purchase it if production costs are freely volunteered.
All in all, the study concluded that cost transparency is associated with a 21% overall jump in purchase probability! Some business owners may not agree with this tactic, but that percentage speaks for itself. Offering production costs to browsing customers can lead to a serious jump in profit.
“Even if prices aren’t exactly what the customer might envision, the customer appreciates the act of cost disclosure,” comments Bhavya Mohan, a professor of marketing at the University of San Francisco, in a press release.
However, there is one catch. That transparency has to be voluntary. If a state or local law mandates that a business must display such information, they’re not likely to reap the same trust-building rewards with customers.
Modern consumers are more ethically conscious than ever before. Customers these days want to trust the stores and brands they’re spending their hard-earned money on. Freely providing production costs with customers is another way businesses can maintain a certain level of transparency with the public.
“It’s all about the psychology of disclosure and trust,” explains Ryan Buell, a professor in the technology and operations management unit at Harvard Business School. “Cost transparency represents an act of intimate disclosure and fosters trust. Heightened trust enhances consumers’ willingness to purchase from a business.”
Across six experiments, the research team was able to document the benefits of cost transparency. One of those experiments took place on an unnamed northeastern university campus. In collaboration with the university’s dining services organization, researchers studied the effect of revealing the cost of producing a bowl of chicken noodle soup for a month on students’ buying habits. This meant openly displaying the cost of each ingredient, as well as the total cost.
At the end of the month, researchers calculated that displaying the soup’s costs was associated with a 21% overall increase in the probability of the soup being purchased and a 2.3-2.8% probability increase per customer.
Another one of the experiments focused on an online store selling a leather wallet. The wallet came in a variety of colors, and for three of those colors, the cost of producing the wallet was included in the listing.
“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%,” Buell notes. “These studies imply that the proactive revelation of costs can improve a company’s bottom line.”
It may go against many businesses and store managers’ outdated instincts, but transparency is a major asset for any company in 2020. We live in a time of constant information, for better or for worse, and consumers appreciate it when they’re given the full story on a potential purchase.
The full study can be found here, published in Marketing Science, a journal of the Institute for Operations Research and the Management Sciences.