Acknowledging brand shortcomings: the interplay between negative disclosures, brand transparency, brand credibility, and word-of-mouth

With growing consumer expectations for transparency, brands are increasingly adopting candid communication strategies. However, empirical evidence on how disclosing negative brand activities influences consumer responses remains limited. Drawing on signalling theory, and specifically the concept of costly signals, this study investigates the impact of negative brand disclosures on word-of-mouth intentions, focussing on the mediating role of perceived brand transparency. Across three experimental studies involving both fictitious (hotels) and real brands (telecommunications and retail), we find that disclosures regarding negative brand activities are perceived as more transparent than positive ones. Perceived transparency serves as a key mechanism in reducing negative word-of-mouth, particularly for brands with lower credibility. This effect weakens as credibility increases, suggesting that costly signalling is especially beneficial for less credible brands. These findings offer novel insights into how brands can strategically leverage transparency to manage reputational risk when acknowledging shortcomings.