Generally, firms market their services or products mentioning only the plus points of what they are offering by keeping mum on the trade-offs. This leads to ill-informed decisions by the consumers. So the correct process is to present both the pluses and the trade-offs to the consumers to make informed choices.
Experiments and Results
A large scale field experiment was conducted with a retail bank and 389,611 customers’ behaviour were studied. The service was that of opening a credit card account with the bank.
It was found that transparency had an insignificant effect on customer acquisition when compared to the process that had only the pluses.
However, it was observed that among those customers making an informed decision showed higher monthly spending (9.9% more than those making uninformed decisions)- thereby establishing better service relationship with the bank. Not only this, the cancellation rate was 20.5% lower than from those who made uninformed decisions.
Existing credit card owners who were provided with all the trade-offs and the pluses increased monthly spending by 19.2% and were less likely to default after nine months by 33.7%.
The most important external factor to be observed in these results is that those who used the cards more and cancelled less did not become financially stronger in the given period of time.
However, transparency had little or no effect on engagement and retention when financial incentives were given on different products.
All these taken together prove that Transparency is the best for both customers and the firms alike.
The experiment was done by Ryan W. Buell and MoonSoo Choi of
HBS.