When Showrooming Increases Retailer Profit

Journal of Marketing Research: August 2018, Vol. 55, No. 4, pp. 459-473. DOI: 10.1509/jmr.17.0059

Posted: 11 Oct 2016 Last revised: 26 Jan 2019

See all articles by Dmitri Kuksov

Dmitri Kuksov

University of Texas at Dallas - Naveen Jindal School of Management

Chenxi Liao

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: February 5, 2018

Abstract

Showrooming, the phenomenon of consumers visiting a brick-and-mortar (B&M) store to learn about products but then buying online to obtain lower prices, is attracting increased attention both in business practice and in academic literature. It is considered a major threat to the B&M retailers, and determining “how to fight it” seems to be the only consideration. However, the manufacturer’s need for retail informational services has always been one of the essential reasons for retailers to exist and is a means for retailers to achieve profitability. The popular arguments about the threat of showrooming ignore the strategic role of the manufacturer in the distribution channel. This article analytically shows that when the manufacturer’s decisions are considered (i.e., when the manufacturer–retailer contract is endogenous), consumers’ ability to engage in showrooming may lead to increased, rather than decreased, profitability for B&M retailer(s). Thus, retail efforts to restrict showrooming behavior may be misguided. This result holds even if the manufacturer is restricted to wholesale-only contracts and is not allowed to price discriminate between channels.

Keywords: Showrooming, Free Riding, Service, Retail Competition, Channel Coordination, Game Theory

Suggested Citation

Kuksov, Dmitri and Liao, Chenxi, When Showrooming Increases Retailer Profit (February 5, 2018). Journal of Marketing Research: August 2018, Vol. 55, No. 4, pp. 459-473. DOI: 10.1509/jmr.17.0059 . Available at SSRN: https://ssrn.com/abstract=2849884 or http://dx.doi.org/10.2139/ssrn.2849884

Dmitri Kuksov

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road
Richardson, TX 75080-3021
United States

Chenxi Liao (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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