Competitive Strategies for Brick-and-Mortar Stores to Counter “Showrooming”

Amit Mehra (), Subodha Kumar () and Jagmohan S. Raju ()
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Amit Mehra: Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080
Subodha Kumar: Fox School of Business, Temple University, Philadelphia, Pennsylvania 19122
Jagmohan S. Raju: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Management Science, 2018, vol. 64, issue 7, 3076-3090

Abstract: Customers often evaluate products at brick-and-mortar stores to identify their “best-fit” product but buy it for a lower price at a competing online retailer. This free-riding behavior by customers is referred to as “showrooming,” and we show that this is detrimental to the profits of the brick-and-mortar stores. We first analyze price matching as a short-term strategy to counter showrooming. Price matching allows customers to purchase a product from the store for less than the store’s posted price, so one would expect the price matching strategy to be less effective as the fraction of customers who seek the matching increases. However, our results show that with an increase in the fraction of customers who seek price matching, the store’s profits initially decrease and then increase. While price matching could be used even when customers do not exhibit showrooming behavior, we find that it is more effective when customers do showrooming. We then study exclusivity of product assortments as a long-term strategy to counter showrooming. This strategy can be implemented in two different ways: (1) by arranging for exclusivity of known brands (e.g., Macy’s has such an arrangement with Tommy Hilfiger) or (2) through the creation of store brands at the brick-and-mortar store (T. J. Maxx sells a large number of store brands). Our analysis suggests that implementing exclusivity through store brands is better than exclusivity through known brands when the product category has few digital attributes. However, when customers do not showroom, the known-brand strategy dominates the store-brand strategy.

Keywords: online retailing; showrooming; retail competition; pricing; game theory; competitive strategy; customer behavior (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (46)

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