“Showrooming” and the Competition between Store and Online Retailers

Amit Mehra, Subodha Kumary and Jagmohan S. Raju do a pretty useful research on a topic affecting a number of offline and online retail stores.

Showrooming means people simply come to these offline stores , scan products and buy it online as it usually gives discounts etc on the same product.This has become a big problem for retailers. I was reading how India’s retailers are trying to fight this problem by making sure the same products are not available in the online stores.

Anyways, so what do these authors suggest?

Customers often evaluate products at brick-and-mortar stores to identify their “best fit” product, but end up buying this product not at the store but at a competing online retailer to take advantage of lower prices. This free-riding behavior by customers is referred to as “showrooming.” We analyze three strategies to counter the effect of showrooming that may improve profits for the brick-and-mortar stores: (a) price matching, (b) making product matching harder between the brick-and-mortar store and the online retailer, and (c) charging customers for showrooming. We show that only the last two strategies may improve profits of the brick-and-mortar stores. We also present an analysis to illustrate when a particular strategy, (b) or (c), does better than the other.

..We also show that the making product matching difficult strategy is better than charging a fee for showrooming for high value products or products with relatively higher digital attributes (e.g. electronics, jewelery and watches) while the reverse is true for products with relatively lower values or those with low digital attributes (e.g. books and clothes). These theoretical results provide guidance to BM stores that seek to safeguard their profits in the face of increasing competition due to showrooming behavior of customers.

So stores that sell things like clothes and shoes should charge a price for entering and then reimburse the same (via couponds, parking waiver) in case the consumer makes a purchase. Whereas for the high end digital goods it makes sense to make product matching difficult.

Will be interesting if any store tries out these strategies to see whether they work or not..



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