New research says it does, in certain situations.
These days we take it for granted that transparency is a necessary element of branding. But is that really true? A new research study in the Journal for Service Research sheds new light on how companies or brands in service industries can benefit from a certain type of transparency.
The study, ”Service Firm Performance Transparency: How, When and Why Does It Pay Off?”, focuses on service industries, such as retailing, banking, insurance. It shows that one aspect of transparency - performance transparency – is only useful to companies that are seen as weak performers.
Focused on service performance
Transparency has many components. For example, brands can be open about the performance of their products and services; the contents of those products and services; the identity of their suppliers; the nature of their ethics and values; their social and economic impacts etc. This particular study focuses on the effects of performance transparency in service industries. In other words: how well do you actually perform the services that you sell? Some examples of tools for performance transparency include independent ratings, customer reviews, operational data and technical descriptions.
Uncertainty about performance is an important barrier in the service sector. Customers are rarely sure what they will get when companies sell services to them. Unlike physical products, services can be difficult to see or measure. Even after buying and using services, customers may still find it difficult to judge or compare them.
Transparency reduces uncertainty
The study shows that performance transparency matters specifically because it reduces uncertainty – perceived risk - in the minds of potential customers. When potential customers have more access to information about service performance, they are more confident about exactly what they will get. As a result, customers are then:
- More willing to buy services
- More willing to pay a premium for the services
The way companies make their performance transparent also matters. The study also shows that for performance transparency to have an effect, the performance information provided must be:
- Easy for potential customers to find and understand
- From an objective third party source
More valuable for challengers
However, not all companies benefit from efforts to be more transparent on service performance. The biggest benefits were observed for brands that were challengers: those whose performance was perceived to be weak compared to market leaders. Companies that already had a reputation for performing services well, did not gain from efforts to be more open about their actual performance.
The research says:
Efforts to be more transparent about service performance don’t add value for brands with reputations for good service. They do add value for companies with bad or uncertain reputations.
What’s new here:
Explanations of why performance transparency matters and how exactly it impacts sales.
When it matters:
Making strategic decisions on brand and content strategy; making tactical decisions on user research and website or app features.
Written by: Geoffrey Igharo
Find the whole study ” Service Firm Performance Transparency: How, when and Why Does It Pay Off? ” published in Journal of Service Research, May, 2015 here.