Working Paper | HBS Working Paper Series | 2019

Improving Customer Compatibility with Operational Transparency

by Ryan W. Buell and MoonSoo Choi

Abstract

Through a large-scale field experiment with 389,611 customers considering opening a credit card account with a nationwide retail bank, we investigate how providing transparency into an offering’s tradeoffs affects subsequent rates of customer acquisition and long-run engagement. Although we find transparency to have an insignificant effect on acquisition rates, customers who were shown each offering’s tradeoffs selected different products than those who were not. Moreover, prospective customers who experienced transparency and subsequently chose to open an account went on to exhibit higher quality service relationships over time. Monthly spending was 9.9% higher and cancellation rates were 20.5% lower among those who experienced transparency into each offering’s tradeoffs. Increased product usage and retention accrued disproportionately to customers with prior category experience—more experienced customers who were provided transparency spent 19.2% more on a monthly basis and were 33.7% less likely to defect after nine months. Importantly, we find that these gains in engagement and retention do not come at the expense of customers’ financial wellbeing—the probability of making late payments was reduced among customers who experienced transparency. We further find that the positive effects of transparency on engagement and retention were attenuated in the presence of a promotion that provided financial incentives to choose particular offerings. Taken together, these results suggest that 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.

Keywords: behavioral operations; operational transparency; customer compatibility; customer behavior; Consumer Behavior; Decision Making; Operations; Strategy;

Language: English Format: Print 43 pages SSRN Read Now

Citation:

Buell, Ryan W., and MoonSoo Choi. "Improving Customer Compatibility with Operational Transparency." Harvard Business School Working Paper, No. 20-013, July 2019.

About the Authors

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Ryan W. Buell
Finnegan Family Associate Professor of Business Administration
Technology and Operations Management

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