Voluntarily marketing downsides of a credit card (Operational Transparency):
- Insignificant effect on acquisition
- Customers spend 9.9% more per month
- 20.5% less likely to cancel card
- 10.8% less likely to make late payments
Providing transparency into an offering’s tradeoffs may be an effective strategy for informing customer choices, leading to better outcomes for customers and firms alike.
Background
Builds on a growing literature that demonstrates how voluntarily revealing facets of an operation that are traditionally kept hidden may in some cases improve outcomes for customers and service providers alike (Buell et al. 2017, Mohan et al. 2020).
In this paper, we define tradeoff transparency as voluntarily marketing the downsides of an offering with similar emphasis as its corresponding advantages.
To the extent that disclosing sensitive information can adversely affect demand, [some] results suggest that firms intent on acquiring new customers may have powerful incentives to hide negative information from prospective buyers.
When companies self-disclose their costs of producing goods and services – a practice which implicitly reveals their profit margins – consumers report trusting the firm more, are more willing to engage with it, and sales increase (Mohan et al. 2020). Furthermore, research on operational transparency has demonstrated how showing the otherwise-hidden work being performed behind the scenes in an operation – can enhance consumers’ appreciation for the firm and their perceptions of the value it creates.
Providing prospective customers with tradeoff transparency could improve customer compatibility in two ways:
- Reducing Type I errors (false positives); a customer chooses an offering that is poorly aligned with his or her needs.
- Reducing Type II errors (false negatives); when a customer fails to select an offering that is well-aligned with his or her needs.
Experiment
Commonwealth Bank of Australia (CBA) offers 9 different credit cards. From Sept 2017 – Feb 2018, 466,322 customers were randomly assigned to one of two experimental conditions (389,611 used for analysis).
Customers randomly assigned to the control condition observed a version of the website that was consistent with the bank’s traditional marketing efforts – emphasizing the features and benefits of each credit card in its primary copy. Customers randomly assigned to the treatment condition observed an augmented version of the website, in which the primary copy additionally revealed the tradeoffs inherent in each offering.
Not on mobile banking application, but roughly 80% of new credit card applications that came in through digital channels came via a public-facing website or the secure online banking website (RCT ran on both these websites).
Results
Tradeoff transparency may not harm acquisition rates
Voluntarily providing customers with transparency into an offering’s tradeoffs may not harm rates of acquisition; no large differences between treatment and control in all six stages of acquisition funnel. Providing prospective customers with tradeoff transparency may have an insignificant effect on overall rates of acquisition.
Midway through period of experimentation, the bank publicly announced a promotion, offering $300 cash back to customers who opened a credit card in the Low Rate family and spent $1,000 in purchases with the new card within the first 90 days of activation. The announcement was broadly supported by advertising (e.g., television, radio, and print). Promotion did lead to higher acquisition (dotted lines are above non-dotted lines); number of new credit card accounts opened per day went up by 47.3% during the promotion period.
Tradeoff transparency may lead to better long-run outcomes for customers and firms
Customers who were randomly-selected to experience transparency into each offering’s tradeoffs, and who moved forward in opening an account, used their cards more intensively, spending 9.9% more per month, and were 10.8% less likely to make late payments on a monthly basis. Furthermore, customers who experienced transparency were 20.5% less likely to cancel their credit cards during the first nine months of their relationships.
To the extent that heightened engagement and retention are behavioral indicators of a better customer experience, and a more profitable service relationship, these results suggest that providing transparency to prospective customers may be mutually beneficial.
During the initial six months of their relationships, customers who experienced tradeoff transparency were 10.8% less likely to make late payments on a monthly basis. These results provide evidence that being more transparent with customers – not just about an offering’s advantages, but also about its tradeoffs – can help customers make choices that lead to better long-run outcomes for customers and firms alike.
There may be a tradeoff between acquisition and retention-based strategies
Traffic to the credit card website increased, and the conversion rate of browsers to buyers was enhanced, such that the number of new credit card accounts opened per day went up by 47.3% during the promotion period.
However, customers acquired during the promotion spent a third less on a monthly basis, due in part to the fact that they were 3.8 times more likely to cancel their cards during the initial months of their relationships than those who were not acquired through a promotion.
Tradeoff transparency is especially effective for customers who have prior category experience
Promotions may crowd-out the benefits of providing prospective customers with tradeoff transparency
Conclusion
Conventional wisdom and common practice dictate that service firmsshould emphasize the advantages of their offerings and downplay the tradeoffs when marketing to prospective customers. We suggest that taking a different approach – providing transparency into both an offering’s advantages and its tradeoffs, in order to help customers make more well-informed decisions – can lead to better outcomes over the long run for everyone involved. We hope that the present work will lead to more research in this area, and influence practice, in order to foster better customer experiences, and more engaging and profitable service relationships among customers and the organizations that serve them.
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