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Show your costs to boost sales

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Re: Show your costs to boost sales

#31

Post by tdmckinlay »

cody3222 wrote: post #4

"People said they were 14.2% more likely to buy this chocolate bar when they were shown the version with a cost breakdown." What people say they would do and what they actually do are 2 very different things. The conversion rate of actual behavior needs to be tested for this to mean something useful.

Author of the summary here:

You are right regarding the chocolate bar experiment.

That's why the researchers ran multiple experiments, some of which measured actual behavior:

- People were 16.1% more likely to bid for a gift card for an Everlane backpack (vs a J.Crew one) when they saw cost information about it

- Sales of chicken noodle soup bowls ($4.95) in Harvard’s campus canteen increased 21.1% when costs were disclosed

Re: Show your costs to boost sales

#32

Post by ericabiz »

selykg wrote: post #5
offtop5 wrote: post #2

Yes, whenever I try to buy something if you hide the price behind a sales call, I'll just assume it's some absurd amount of money. There's no reason to do this, have pricing front and center and be honest about it. My dream service would say something like $10 a month flat rate hosting, and in bold print underneath say it's not a promo rate. I think digitalocean does this

Yup. I had to call iStockPhoto about pricing and the entire thing soured me so bad on it that I basically told them I was out. I shouldn't have to call to get a price. It wasn't even my money and the company would've paid it just the same. But the principle of the matter is that if you want to piss customers off, hiding information is a clear way to do so.

I used to use and love iStockPhoto. I discovered DepositPhotos through an AppSumo deal, switched, and never looked back. Even their regular prices are better than iStock for similar photos.

Re: Show your costs to boost sales

#34

Post by tdmckinlay »

yunohn wrote: post #9
cody3222 wrote: post #4

"People said they were 14.2% more likely to buy this chocolate bar when they were shown the version with a cost breakdown." What people say they would do and what they actually do are 2 very different things. The conversion rate of actual behavior needs to be tested for this to mean something useful.

Exactly this. Plus, I didn’t see “profit” mentioned anywhere in the costs, and the article also touches upon the (mostly obvious) fact that for high margin goods this would impact them negatively.

The effect was tested on profit margins as low as 17% and as high as 55%. Outside those ranges it's unclear if it will still work.

Re: Show your costs to boost sales

#35

Post by selykg »

ericabiz wrote: post #32
selykg wrote: post #5

Earlier quoted context omitted.

Yup. I had to call iStockPhoto about pricing and the entire thing soured me so bad on it that I basically told them I was out. I shouldn't have to call to get a price. It wasn't even my money and the company would've paid it just the same. But the principle of the matter is that if you want to piss customers off, hiding information is a clear way to do so.

I used to use and love iStockPhoto. I discovered DepositPhotos through an AppSumo deal, switched, and never looked back. Even their regular prices are better than iStock for similar photos.

Nice. I'll have a look at this. Thank you!

Re: Show your costs to boost sales

#36

Post by jrwoodruff »

This seems like a great marketing technique for up starts trying to compete in the quality/price space. In the chicken soup example, for instance, cost to produce is a strong indicator that the soup has quality ingredients, and isn't just a big markup on some generic condensed soup.

It's a similar thing with the backpack, but in the other direction - this price isn't low because we cheaped out on manufacturing and materials, it's cheaper than J. Crew because they spend too much on marketing.

The line item cost breakdown is an indicator of honesty and product quality, which of course increase trust. That's not going to work if you're selling $10 shirts for $120

Re: Show your costs to boost sales

#37

Post by neolefty »

Black101 wrote: post #17

That can't be true in all cases.

There are a few hypothetical exceptions discussed, but the authors were surprised to see that in all the cases they looked at, it seemed to help.

> Extremely high profit margins (>55%) could trigger a negative reaction, although this was not tested. Likewise, suspiciously low margins (e.g. negative or very low) could negatively impact the effect of trust that drives increased sales.

Re: Show your costs to boost sales

#38

Post by lizardmancan »

londons_explore wrote: post #30
pwned1 wrote: post #24

Earlier quoted context omitted.

But that reflects an ignorance of how cost accounting works. Sure, it might include $400 of parts, but a hell of a lot of R&D, equipment, labor, and overhead are amortized into that phone. A very cursory look at Apple's latest income statements shows that the net profit margin on their revenue is about 20%, meaning that the phone's actual cost to produce is somewhere around $1200 (assuming a $1500 retail cost).

Yes, but will you be the one to explain that cost accounting to each buyer? "Yes Maaam, we'll spend $200 of the money you're about to give us on a fancy campus with hammocks to try to attract good engineers. Oh, and the massive billboard outside that made you walk into the shop in the first place."

$1 for labor

> For the effect to work, the cost disclosure must be voluntary, not forced (e.g. by regulation).

A logical conclusion from the study.

Re: Show your costs to boost sales

#39

Post by shoto_io »

tdmckinlay wrote: post #31
cody3222 wrote: post #4

"People said they were 14.2% more likely to buy this chocolate bar when they were shown the version with a cost breakdown." What people say they would do and what they actually do are 2 very different things. The conversion rate of actual behavior needs to be tested for this to mean something useful.

Author of the summary here: You are right regarding the chocolate bar experiment. That's why the researchers ran multiple experiments, some of which measured actual behavior: - People were 16.1% more likely to bid for a gift card for an Everlane backpack (vs a J.Crew one) when they saw cost information about it - Sales of chicken noodle soup bowls ($4.95) in Harvard’s campus canteen increased 21.1% when costs were di…

Hi Thomas, thanks for your work. I am a fan!

Just a minor comment: I find using decimals places (like 16.1% and 21.1%) in human experiments pretty irritating. It feels like false precision.

After all, these experiments must have confidence intervals. If I had to guess, I’d assume at least a +/- 5 ppts variability in all these numbers.

What’s your view on that?

Re: Show your costs to boost sales

#40

Post by pydry »

chadash wrote: post #28
londons_explore wrote: post #11

Most "premium" products costs are mostly Advertising, R&D, paying employees/shareholders, etc. They're valid things to spend money on, but don't reflect the "top quality ingredients" that consumers expect the money to be spent on. I suspect many consumers wouldn't like to know that the $1500 iPhone they just bought only has $400 worth of actual parts in.

Point taken, but perhaps a bad example. When I buy an iPhone, I'm paying a little for materials, but mostly I'm purchasing the culmination of tens of billions of dollars of R&D that possibly surpasses any other product on Earth. A better example might be a luxury brand wallet where they sell the illusion of better quality, but that may or may not be true.

Luxury brand wallet owners feel much the same way about their wallets that you do about your iPhone.
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