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Buyer-Initiated vs. Seller-Initiated Information Revelation

Kenan-Flagler Business School, University of North Carolina–Chapel Hill, Chapel Hill, North Carolina 90024
Leonard N. Stern School of Business, New York University, New York, New York 10012
Harvard Business School, Harvard University, Boston, Massachusetts 02163
pradeep_bhardwaj{at}unc.edu
ychen{at}stern.nyu.edu
dgodes{at}hbs.edu

Sales presentations are the core of the selling process where salespeople provide information to prospects. One challenge is that the amount of information available to be potentially communicated may exceed salespeople's ability to communicate or customers' ability to process: there is limited "bandwidth" between the firm and customers. One important decision, then, is which information should customers see? What the firm chooses to tell customers may be informative in itself. When constrained to a "seller-initiated information revelation" format, where the firm chooses which feature to show, the firm never finds it optimal to offer more features than it is able to inform customers about. Consequently, customers never find credible a claim that the product has all features. The important implication is that price alone cannot serve as a signal of quality in this setting. In contrast, a "buyer-initiated information revelation" format, where customers decide which information to receive, increases the probability of a sale and also results in the production of higher quality products.

In a competitive setting, by adopting buyer-initiated information revelation, firms are able to attain positive profits. This is due to the fact that customers infer the product's quality from the price along with the information revelation format. Customers know that at some prices, firms find it profitable to produce high-quality products and at other, lower, prices, this is not the case. Thus, customer empowerment leads to higher profits.

Key Words: selling formats; information economics; product quality; marketing communication; game theory
History: Received: August 12, 2005;

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