It Pays to Reveal Production Costs
Companies rarely disclose the cost of producing a good—but a new study suggests that often they should. In a field experiment with the dining service of a large U.S. university, customers saw one of two signs about the chicken soup for sale: a list of ingredients, or a list of ingredients showing the cost of each one plus the cost of labor. Over the course of five weeks and more than 50 hours of lunchtime sales, customers who saw the costs were 21% likelier than others to buy a bowl of soup. Five subsequent experiments involving a variety of products (wallets, travel packages, T-shirts) replicated the result and provided insight into the reason for it. “Although firms typically treat their costs as tightly guarded secrets, the present research points to a potential upside of revealing them,” the researchers write. “Just as when people reveal sensitive information, when firms do so, it can engender trust and deepen the relationship among companies and consumers.”
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