Effects of Transparency Marketing on Firms’ Ability to Create and Capture Value Sidarth Iyer An honors thesis submitted to the faculty of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill Chapel Hill 2018 Approved by________________________ Approved by________________________ Approved by________________________ ABSTRACT Sidarth Iyer Effects of Transparency Marketing on Firms’ Ability to Create and Capture Value (Under the direction of Dr. Kristin Wilson) Transparency marketing is the act of including intentionally shared information in the value proposition of a good or service. Business research is incomplete in demonstrating how transparency marketing strengthens firms’ ability to create and capture value. Despite the success of companies like Patagonia and Everlane, transparency marketing is a relatively new phenomenon. Supported by previous academic literature, this research hypothesizes that when firms use transparency marketing strategically, they can indirectly create and capture additional value by influencing consumer cognitive processes. These cognitive mechanisms are trust perceptions of a firm and its products and psychological closeness between consumers and a firm. To validate this hypothesis, this research utilizes a mixed methodology including a quantitative consumer survey experiment and qualitative firm manager interviews. Thus, this research finds evidence from both the receiving and sending perspectives of transparency marketing of an indirect, mediated causal relationship between transparency marketing and willingness to buy. ii ACKNOWLEDGEMENTS This research would not have been possible without several key individuals. Thank you. Dr. Kristin Wilson – Thank you for your endless guidance, knowledge, and support. I am forever grateful for your belief in me throughout this project. Dr. Shimul Melwani – Thank you for engaging with my research and providing invaluable expertise during my first foray into the world of consumer behavior. Dr. Robin Cunningham – From your statistics lectures to serving on my committee, thank you for your investment in me as a student these past few years. Dr. Patricia Harms – Thank you for teaching a short-spoken Midwesterner with a tendency for passive voice how to write a capstone research paper. Frances Cayton, Andrew Clark, and Annie Simpson – Thank you for serving as my conscripted editors and graphic designer respectively. See y’all on Sunday. My Parents – Thank you for providing me the opportunity to attend the University of North Carolina and for all of the sacrifices you have made for me. 703 North Columbia – My friends, for whom I am always thankful. iii TABLE OF CONTENTS ABSTRACT ....................................................................................................................... ii LIST OF TABLES ............................................................................................................ vii LIST OF FIGURES ......................................................................................................... viii I. INTRODUCTION ...................................................................................................1 II. LITERATURE REVIEW ........................................................................................5 A. The Strategy of Transparency Marketing ..........................................................5 B. Asymmetric Information, Signaling, and Transparency Marketing ..................8 C. Potential Value Creation Mechanisms Resulting from Transparency ...............9 1. Trust Perceptions .........................................................................................9 2. Psychological Closeness ............................................................................13 D. Summary of Existing Research ........................................................................16 E. Statement of Hypotheses..................................................................................17 III. THE RISE OF THE SPECIALTY COFFEE INDUSTRY....................................18 A. Historical Narrative ..........................................................................................19 B. Single-Origin Coffees compared to Blends .....................................................21 C. Transparency Marketing on Specialty Coffee Bags ........................................22 D. Summary ..........................................................................................................24 IV. RESEARCH METHODOLOGY...........................................................................25 A. Study 1: Transparency Marketing Coffee Bag Experiment .............................25 iv 1. Objective ....................................................................................................25 2. Hypotheses .................................................................................................26 3. Participants .................................................................................................26 4. Procedure ...................................................................................................27 B. Study 2: Manager Interviews at Counter Culture Coffee ................................27 1. Objective ....................................................................................................27 2. Firm Overview ...........................................................................................28 3. Interviews ...................................................................................................28 4. Questions....................................................................................................28 V. RESEARCH FINDINGS .......................................................................................30 A. Study 1: Transparency Marketing Coffee Bag Experiment .............................30 1. Hypotheses .................................................................................................30 2. Measures ....................................................................................................30 3. Findings......................................................................................................30 B. Study 2: Manager Interviews at Counter Culture Coffee ................................37 1. Overview ....................................................................................................37 2. Summarized Findings ................................................................................37 VI. CONCLUSION ......................................................................................................40 A. Limitations of Methodology ............................................................................40 B. Discussion of Findings .....................................................................................42 C. Opportunities for Future Research ...................................................................44 D. Implications on Practice ...................................................................................46 v VII. APPENDIX A. High Transparency Marketing Condition ........................................................48 B. Medium-High Transparency Marketing Condition .........................................49 C. Low-Medium Transparency Marketing Condition ..........................................50 D. Low Transparency Marketing Condition .........................................................51 E. Counter Culture Coffee Roasting Facilities, Durham, NC ..............................52 F. Coffee Cupping Demonstration .......................................................................53 G. Coffee Flavor Wheel ........................................................................................54 H. Daily Coffee Production Plan ..........................................................................55 I. Coffee Roasting Machines ...............................................................................56 J. Quality Check Station ......................................................................................57 VIII. REFERENCES ......................................................................................................58 vi LIST OF TABLES Table 1: Correlations between the Independent, Mediator, and Dependent Variables Respectively ...........................................................................................................32 Table 2: ANOVA Test between Four Transparency Marketing Conditions .....................32 Table 3: Contrast Tests: High Transparency Marketing vs. Low, Low-Medium, and Medium-High .........................................................................................................33 Table 4: Regression Models: Relationship between Transparency Marketing and Willingness to Buy .................................................................................................34 Table 5: Indirect Effects between Transparency Marketing and Willingness to Buy .......35 vii LIST OF FIGURES Figure 1: Example Single-Origin Coffee Bag ...................................................................22 Figure 2: Example Coffee Blend Bag ................................................................................23 Figure 3: Path Model between Transparency Marketing and Willingness to Buy ............36 viii INTRODUCTION Money is on the table for firms willing to provide additional information on strategic and operational