Zooming in on Showrooming

Showrooming has been one of the hottest topics in retail over the past two years, as shoppers increasingly utilise multiple media and distribution channels.

To give just one example of a hybrid path to purchase: a consumer receiving a colour brochure in their letterbox, attracted by a product might investigate its specifications on the manufacturers website, seek a tangible impression or more information from a bricks and mortar store in their nearby regional shopping centre, do some price comparisons on their smartphone whilst in store, and look up reviews online while they mull over the purchase decision later that night.

Multiple channels, one transaction.

Consumers have clearly embraced hybrid shopping. They see it as an improvement in the shopping experience, identify distinct forms of value in different channels, and seek out particular channels for what they do best.

For bricks and mortar retailers the obvious problem here is free-riding by competitors, who they effectively support by paying the costs of displaying goods in accessible locations. (This is not dissimilar to the complaints newspapers made about Google News, which harvested their content while providing little return.)

It is important to remember, though, that free-riding is not necessarily a one-way street: bricks and mortar retailers can free-ride off the information garnered through online channels. Many shoppers who prefer to buy in store will still research online before purchase. Clearly there are differentials in the costs associated with running different channels, but the bricks and mortar retailer can benefit: pre-purchase online research may facilitate higher conversion rates from store visitation to sales, for example.

One alarming outcome of research into showrooming in America is the suggestion that investing in the shopping environment can further expose a business to the practice because it has effectively created a nicer showroom (and paid for it with higher price points). This study was, though, a comparison between discounters Target and Walmart should not be directly translated to more sophisticated retail environments which thrive on ambience and experiential shopping.

It does, though, highlight the conundrum of showrooming. A survey by BDO in 2012 asked 100 chief financial officers at leading U.S. retailers to identify their primary strategy for countering showrooming:

  • 25 % of CFOs said they were improving their customer service model;
  • 25 % reported expanded options for in-store pickups and returns for online purchases;
  • 17% were focused on product exclusivity;
  • with another 17% looking to match prices with online retailers.

Customer service is clearly crucial to the whole retailing experience, but in terms of showrooming, Kirthi Kalyanam and Andy Tsay from the Leavey School of Business at Santa Clara University, warn that “any type of service that can be utilized without making a purchase remains unreliable in dissuading showroomers from buying from a competitor. A more focused approach would be for a retailer to stay within striking distance of the prevailing online prices and install improvements that better enable closing the sale, either in its brick-and-mortar stores or on its website.”

Some ideas they suggest are;

  • Targeted price matching with strategies such as broadcasting coupons to in-store customers;
  • Product exclusivity and private labelling;
  • Better integration across channels;
  • Models whereby manufacturers compensate retailers who display their goods.

There are clearly challenges to all these strategies, especially the last, but in a period of enormous structural change, retail models will also rapidly adapt.

This article drew on research published by Kirthi Kalyanam and Andy Tsay in ‘Free riding and conflict in hybrid shopping environments: Implications for retailers, manufacturers, and regulators’, The Antitrust Bulletin, Vol. 58, No. 1/Spring 2013.