Pricing and Physical Channel Choice Strategies for an Omnichannel Retailer Under Consumer Showrooming and Webrooming Behaviors
Jingxuan Geng, Amit Mehra, Subodha Kumar
Under review at Information Systems Research after two rounds of review at Management Science
The competition between omnichannel retailers and online retailers has become increasingly complex due to consumers’ showrooming (i.e., browsing offline before purchasing online) and webrooming (i.e., browsing online before purchasing offline) behaviors. The omnichannel retailer needs to consider these behaviors when deploying its offline channel. Despite its growing importance for an omnichannel retailer, it has not been rigorously analyzed. We fill this critical gap by analyzing the omnichannel retailer’s pricing and profits when consumers display showrooming and webrooming behaviors. We propose the showroom (where consumers can only evaluate products but cannot purchase) as an alternative to stores. We show that although the showrooms provide fewer services than stores, the omnichannel retailer can charge a higher price (compared to when it operates a store where consumers can both evaluate and purchase). Furthermore, the showroom deployment becomes more profitable for the omnichannel retailer when there is a higher showrooming cost or there is a lower fraction of consumers who can enjoy the webrooming benefit. Surprisingly, we find that the superior profitability of showrooms stems not from reduced equilibrium investment costs, as is commonly presumed, but from their ability to generate higher revenue. Additionally, our analysis shows that an omnichannel retailer with a showroom deployment can create ``win-win” conditions with higher consumer surplus and higher profits. These insights can help omnichannel retailers navigate competition from e-tailers by choosing the best offline channel deployment and also assist social planners in identifying deployments that result in higher consumer surplus.