Is Pricing Transparency the Future?

Pricing Transparency: A person holding cash in one hand and a smartphone with an opened calculator app in the other. Looking downward through this along a z-axis, we see a bag of fruit which has fruit spilling out onto the floor.

Consumers like me have grown up hearing the adage “You get what you pay for,” and now, a growing number of consumers are putting that saying to the test.

One thing the coffee industry can teach us definitively is that consumers like, and maybe even crave, transparency. Starbucks, the global phenomenon, has responded to trends in the specialty coffee industry and third wave coffee movement by adopting many of the ideas and solutions into their own business model. Specific to transparency, we have seen Starbucks adapt single-origin coffees, which are the epitome of transparency business practice with the provision of everything from information about rainfall and altitude to processing, packaging, wage amount and brewing method.

Social media and the Internet give people more to know and make them want to find out more. This trend toward global transparency includes politicians and governments as well as CEOs and businesses. Uber, less than a week ago, let one of its board members go after an audio clip went viral of him making a sexist remark.

Transparency doesn’t have to be a threat to your business model and success, however; no, not even pricing transparency.

Many consumer companies avoid directly informing their customers about the prices they pay to produce their products in order to avoid directly informing their consumers of the amount of markup they charge. This is understandable because, on its surface, any amount of markup is viewed as pure, cold-hearted profit.

The Internet, however, also produces consumer savviness on levels equally as unprecedented as, well, anything having to do with the Internet almost.

According to a recent New York Times report, the company Oliver Cabell openly tells its consumers about every price along with the assembly-line of a process that leads to the production of one of their overnight bags, including the zipper and transportation duties. They tell customers that the bag costs $110.35 to produce and then charge $285 to purchase that completed product. “This practice, known as transparent pricing, has been gaining hold among a select group of retailers, who say that it appeals in particular to millennials—who often want to know not only the provenance of the goods they are buying but also what, exactly, they are paying for.”

As mentioned above, consumers are more and more interested in knowing that the products they are purchasing are environmentally and socially considerate, ethically produced and fairly priced. As stories continue to unfold about factory workers being underpaid or exploited to match consumer demand globally, consumers feel increasingly responsible for ensuring that employees are being paid fairly and so forth.

Pricing transparency, especially full pricing transparency, is still a new trend in retail. Honest By is a clothes and accessories company that boasts that it is “the world’s first 100 percent transparent company,” utilizing a unique and severely detailed pricing breakdown that includes the costs of clothing labels (tags) and the like. in the company also includes animal-friendly, and organic products, as well as the breakdown of what the hang tag is made of and more. Essentially, a consumer can purchase one of their t-shirts and know as much about it, if not more, than the individual people working to produce, transport, and sell it to them.

Regulations come and go that attempt to provide a fraction of this type of consumer informing, consumer and worker protection, and to minimize the opportunities for companies to take advantage of the system in any way or to make decisions that are ultimately detrimental to the environment, economy or public at large. The founder of Honest By discussed watching fashion lines move production to countries that were cheaper and cheaper to produce in a while continuing to charge the same prices. This meant that they were likely taking advantage of workers in countries with lax regulations and taking advantage of consumers who didn’t know any better.

The Internet has not only pushed retailers and other companies toward this type of transparency, it also provides the opportunity to embrace it with more fairness and enthusiasm than ever before. Selling products online eliminates the need for stores that require rent and maintenance costs, et cetera. “By removing brick-and-mortar and other built-in costs, clothing sellers [can] save shoppers money” as well as helping to guarantee fair wages no matter where production takes place and boosting their company reputation.

The consumer trend is definitively toward online shopping, with its convenience, instant price comparison, and lack of time-limits. That means that they have the ability to find out more about your products, your business practices and those of your competitors; giving them what they want and what they may find on their own is, in a way, a gesture of good faith. It tells your consumers that you’ve got nothing to hide because you’ve laid it all on the table already.

For the sake of your business when employing pricing transparency, it isn’t going to be enough to break down just the costs of producing and transporting and packaging your products. As with the garments above, that could still leave your markup looking somewhat cold-hearted. The Times article references the owner of Elizabeth Suzann, a women’s clothing site; she “gets specific not only about what it takes to produce one of her garments but also about the economics of running her business.”

There is almost limitless value in authenticity and brand trust in today’s market; with the number of brands to choose from growing exponentially with each passing moment, ensuring memorability and the loyalty that trust engenders can be vital. Consumers are more likely to purchase something significantly pricier than competing brands/products if they know exactly why they’re paying that difference. The transparency of the process and the breakdown add an emotional and social value to the product that can overcome that markup.

There’s a valuable Forbes article that breaks down the benefits of the price and other transparency for your business. According to it, “when a firm voluntarily discloses its costs, the consumer is more attracted to the brand.” This, according to research, includes long-time loyal customers and first-timers to a brand. Further, “cost transparency fails only when prices become so high that they are way out of whack with the market norm—and when the firm makes it clear that its own markup is much greater than what competitors charge.” There may be exceptions here for truly unique and quality reasons for the markup, as covered above; but, researchers found that consumers tend to have great flexibility for markups so it seems a brand has to be asking outlandish prices to turn the customer base away. The researchers found that a t-shirt that cost $6.50 to produce could still sell well with pricing transparency at $35.

Further, in a specific real-world observation where one brand offered pricing transparency for three colors of one wallet but not for two other colors of the same wallet, they “found that the introduction of the cost transparency…increased daily unit sales on a per-color basis by 44 percent.”

Pricing transparency to the level I’m talking about is still a new phenomenon; but, there are brands like TOMS that have sustainable and profitable businesses even though they are geared toward giving away a set amount of their revenues/products. (TOMS is famous for its buy a pair, give a pair shoe deal and has expanded its charitability to incorporate various other goods and charities while maintaining revenues and growth).

Pricing transparency is still an experiment, and the data isn’t in yet as to its sustainability; but, it fosters competition because it forces businesses to play fair and competitively and to consider the consumer in a real and upfront way. It boosts trust and brand engagement, which is the foundation for a loyal, returning and boasting customer base. If TOMS can give away shoes and still make profits, you can definitely consider giving away some secrets of your trade!

 


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7 Comments

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  1. I think pricing transparency is very important for modern businesses. As a customer, I want to know that what I’m paying for is really worth the money and that the quality I’m promised is there. Coffee is no exception. If I pay for top notch beans, I want to get them. Nowadays there are so many businesses charging people a lot of money and not giving them what was promised, and I think that with price transparency this problem will get eliminated.

    • I completely agree with you, Ani. Also, a lot of people are looking for products that are fair trade. It makes me feel good knowing I’ve helped someone who works very hard to make an honest living.

  2. I totally understand if “older” business cant adopt with price transparency, it is because it became a norm that they still feel awkward if they will suddenly adopt to such changes. Their mind is still set for confidentiality and competition. But, yes I agree that information transparency would bring more advantage to business rather harm. I feel that as time goes by people started to understand how transparency helped people decide on which product to support.

  3. As a consumer, I also want this pricing transparency. Yesterday, I went to a well-known coffee shop and tried their coffee. It seems that there is no difference when it comes to taste with their coffee compared to a local and cheaper coffee shop. I even asked myself the difference why their coffee is twice expensive than the other shop knowing that it just tastes the same.

  4. I agree with you. price transparency is important for business and also for customers. By making competitive prices accessible, competitors themselves can make their own price comparisons and get a clearer understanding of their relative market value. You know where you need to be, so to speak, and this can reduce uncertainty and inspire confidence.

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