Why Companies May Benefit from More Transparency about Product Drawbacks

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Most companies, quite expectedly, focus intensely on the positive attributes of their products and services when communicating with customers.   They market all the benefits, and typically, they minimize any discussion of the limitations or drawbacks of the product. After all, who would want to shine a spotlight on negative attributes of your products? 

Well, Harvard Business School scholars Ryan Buell and MoonSoo Choi decided to challene the conventional wisdom.  They sought to examine whether a bit more honesty and transparency might actually be beneficial for companies.  Buell and MoonSoo Choi published their findings in a paper titled, "Improving Customer Compatibilitywith Operational Transparency."   

The scholars worked with Commonwealth Bank, a large Australian financial services company, to conduct a randomized field experiment.  On the bank's website, potential new customers received one of two offers: one highlighted the best attributes of the company's credit card, while the other also mentioned key drawbacks that firms often tend to place in the fine print only.   In short, the company made explicit some of the key tradeoffs inherent in the company's strategy and product offering.   In other words, you get these wonderful features, but here's what we don't offer, or what we don't provide at the same level of service.   Think about Southwest Airlines... we offer you on-time flights, low fares, friendly service, and no baggage fees, BUT we don't assign seats, have no first class and no meals, and won't transfer your bags to other airlines.  The company makes the trade-offs quite clear to consumers.  

The scholars tracked customer behavior at Commonwealth Bank for the next year.  What did the researchers find?   HBS Working Knowledge summarized the key results:

"The researchers found that people who opened an account after learning about a card’s downsides spent 10 percent more each month than customers who heard only the benefits. Their nine-month cancellation rate was also 21 percent less, and they were 11 percent less likely to make late payments on a month-to-month basis... Although the team didn’t probe why customers spent more, they suspect that providing more information helped people choose products that were more compatible with their financial needs, creating a better customer experience."

Now, clearly, companies need to be careful with this added level of transparency.  They can't just dump a bunch of negative information on customers and hope to succeed.  However, they can think about how providing more transparency may help them gain consumers' trust and help customers self-select in a way that creates a more enduring and better fit between company and customer.  

Does Group Loyalty Breed Unethical Behavior?

Angus Hildreth, Francesca Gino, and Max Bazerman have conducted a fascinating set of experimental studies that study the question: Does group loyalty breed unethical behavior?   Here's how they examined that research question.   They engaged members of three college fraternities.  First, they asked them about their loyalty to their organization.   A week later, they asked the fraternity brothers to solve a series of puzzles.  They could earn money if they solved them correctly.  Moreover, they could earn an additional cash prize if their organization outperformed the other two fraternities in the study.  The participants could score themselves in this exercise, providing them an opportunity to cheat.  The researchers employed a mechanism to determine who had cheated.  What did they find?  Interestingly, the fraternity members who expressed stronger loyalty to their organization tended to cheat less in this exercise.   Loyalty did not breed unethical behavior.  

Then the researchers conducted another experiment.  This time, they engaged four fraternities.  They provided each subject a note from their fraternity president at the outset of the experiment.   Some people received a note that said, "Please take these tasks seriously. Good luck!"  Others received a longer message that included the following statement in bold and underlined: "It is a tough competition, but I know we can win."  Before the experiment, each brother received a note from his house president. In some cases, the note read, simply, “Please take these tasks seriously. Good luck!” For others, the note was a much longer call to action, specifically referencing the competition with the other houses, and adding, in bold and underlined, “It is a tough competition, but I know we can win.”  

What did they find?  The members who received the first note again tended to show the same pattern: loyalty tended to be correlated with ethical behavior.   However, for those receiving the second note, they saw a different pattern: "Strongly loyal brothers cheated at a rate of 66 percent, compared to only 42 percent for those who were less loyal."  In this case, loyalty seemed to breed unethical behavior.  

Hildreth concludes, "We provided evidence suggesting loyalty can be a good thing, but there is a big caveat, which is beware when you tell people what their loyalty demands because that can have a strong blinding aspect to it.”

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