Download this Paper Open PDF in Browser

Competitive Strategies for Brick-and-Mortar Stores to Counter 'Showrooming'

Management Science, Forthcoming

47 Pages Posted: 15 Jan 2013 Last revised: 10 Feb 2017

Amit Mehra

University of Texas at Dallas

Subodha Kumar

Temple University - Fox School of Business and Management

Jagmohan S. Raju

University of Pennsylvania - Marketing Department

Date Written: January 14, 2013

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. Since customers purchase from the store at lower than store posted price when they ask for price-matching, 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 stores 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. One, by arranging for exclusivity of known brands (e.g. Macy’s has such an arrangement with Tommy Hilfiger), or, two, through creation of store brands at the brick-and-mortar store (T.J.Maxx uses 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: retailing, showrooming, competition, pricing, game theory, competitive strategy

JEL Classification: L81, M31, C72, D43

Suggested Citation

Mehra, Amit and Kumar, Subodha and Raju, Jagmohan S., Competitive Strategies for Brick-and-Mortar Stores to Counter 'Showrooming' (January 14, 2013). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2200420 or http://dx.doi.org/10.2139/ssrn.2200420

Amit Mehra (Contact Author)

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
9728835083 (Phone)

Subodha Kumar

Temple University - Fox School of Business and Management ( email )

Philadelphia, PA 19122
United States

Jagmohan S. Raju

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-1114 (Phone)
215-898-2534 (Fax)

Paper statistics

Downloads
1,427
Rank
10,057
Abstract Views
4,062