Is Transparent Cost Always Good? Different Effects of Cost Transparency on Consumer Perceptions by Retail Price and Product Type: An Abstract

Cost transparency refers to the practice of corporate sharing of cost information with consumers (Mohan et al. 2015; Simintiras et al. 2015). This study empirically confirmed that consumers’ perceptions vary according to available cost information (Study I), and its differential effects based on retail prices (Study II) and product type (Study III). First, when the product is a basic t-shirt and its price is fair, providing the cost structure did not help in enhancing price fairness and brand credibility perceptions (Study I). However, if the product prices were higher than the market price and thus perceived as unfair, disclosing the cost structure was more effective in improving perceptions of price fairness and brand credibility than providing the retail price only (Study II). Second, in the context of purchasing a cashmere sweater (Study III), presenting the cost information of traditional retailers’ inferior benchmarks was effective in increasing favorable perceptions of price fairness and brand credibility regardless of the retail price. However, when the given retail price was perceived as unfair, providing cost information was less likely to enhance perceptions of price fairness, as compared to when given a fair retail price of the same product. Third, in the $60 cashmere sweater setting (Study III), showing the itemized costs without the benchmark information elicited even lower perceptions of price fairness than when consumers were presented with the retail price only. This result may provide a support for a number of studies to explore whether or not cost transparency is always good for improved consumer perceptions (Kuah and Weerakkody 2015; Simintiras and Dwivedi 2015). These findings suggest that it would be better to present the retail price only without revealing its true cost and markup if their products are high-involvement objects priced below market (i.e., the $60 cashmere sweater in this study). However, the same information plays an important role in justifying the price when the firm inevitably charges higher retail prices than market prices. Fourth, inconsistent responses of price fairness and brand credibility affected by cost information suggest that transparent cost information plays differently in creating short-term price fairness and long-term brand credibility. In this vein, companies need to understand the effect of transparent cost strategically in meeting their short-term or long-term objectives. Future studies on successful cost transparency strategies may stem from the valuable findings of this study.