Pricing and Physical Channel Choice Strategies for a Multi-channel Retailer Under Consumer Showrooming and Webrooming Behaviors

Jingxuan Geng, Amit Mehra, Subodha Kumar

Under 2nd round review at Management Science

The competition between multi-channel 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 multi-channel retailer needs to consider these behaviors when deploying its offline channel. Despite its growing importance for a multi-channel retailer, it has not been rigorously analyzed. We fill this critical gap by analyzing the multi-channel retailer’s pricing and profits when consumers display showrooming and webrooming behaviors. We propose the showroom (where consumers can evaluate products but cannot purchase) as an alternative channel that a multi-channel retailer can use. We show that although the showroom deployment makes the multi-channel retailer charge a lower price (compared to when it operates a store where consumers can both evaluate and purchase), it may provide higher profits. Furthermore, the showroom deployment becomes more favorable for the multi-channel retailer when there is a lower showrooming cost or a lower percentage of consumers who can enjoy the webrooming benefit. Additionally, the multi-channel retailer has incentives to strategically reduce the online purchase cost to change its optimal deployment from a store to a showroom. Finally, our analysis shows that while a multi-channel retailer with a showroom always results in lower consumer surplus, it may lead to higher social welfare. These insights can help multi-channel retailers navigate fierce competition by choosing the best offiine channel deployment and assist social planners in identifying deployments that result in higher social welfare when consumers exhibit both showrooming and webrooming behaviors.