Back Does showrooming determine the price of items and is it really a threat to retail trade?
Does showrooming determine the price of items and is it really a threat to retail trade?
A study by Sandro Shelegia (UPF) and Heski Bar-Isaac (University of Toronto) establishes various categories of stores and consumers, and argues that it is the mixture of these factors that determines the effects of showrooming. The authors conclude that only one type of consumer, less picky and who, if necessary, will visit several establishments with a limited assortment to find an offer adjusted to their preferences, determines the price of the products.
Have you ever been to a shop to try on a pair of shoes only to buy them somewhere else? Or has a salesperson informed you of the advantages of different printers before buying a cheaper version online? If so, you’ve engaged in showrooming.
Showrooming is the practice of visiting brick-and-mortar stores to research a product before buying it elsewhere at a lower price. It allows consumers to see and try out the products before spending their money. But what influence does this common practice have on determining the price of items in the retail sector? Is it always bad for the store?
A study published in Marketing Science by the researchers Heski Bar-Isaac (University of Toronto and Center for Economic and Policy Research, CEPR), as first author, and Sandro Shelegia, a professor at the UPF Department of Economics and Business, also linked to the Barcelona School of Economics (BSE) and to the CEPR, offers the keys to understanding this phenomenon.
The authors present a research model that allows considering the characteristics of consumers and the different models of stores, and treat showrooming as a phenomenon that, depending on all these variables and combinations, can lead to higher or lower prices.
The authors present a research model that allows considering the characteristics of consumers and the different models of stores, and treat showrooming as a phenomenon that, depending on all these variables and combinations, can lead to higher or lower prices. “The role of the combination of consumer buying patterns, i.e., the way consumers research to find out which products suit them best and which prices are available, is key to retail pricing”, they explain.
Does showrooming always harm the retail sector?
Showrooming, along with online shopping, has long been perceived as being a threat to the retail sector. According to the authors, it is easy to understand the reasons behind this concern: some experts, for example, have argued that this practice is what led to the disappearance of RadioShack and CircuitCity, two US companies selling consumer electronics products.
“The reality of this phenomenon could be a little more complicated than was originally thought”
In addition, several studies have shown that traditional establishments suffer the consequences of this type of consumer behaviour. Showrooming subjects retailers to price pressure, intensifying competition and reducing profit margins.
However, according to the authors, this is not always the case: “In recent years we have seen boutiques that encourage showrooming flourish, like MediaMarkt, and companies like Amazon, which have invested in brick-and-mortar stores. This suggests that the reality of this phenomenon could be a little more complicated than was originally thought”, they reflect.
Various types of shops
The research by Heski Bar-Isaac and Sandro Shelegia differs from previous studies, which assumed that there is only one type of store where consumers can get information about the suitability of a product. Instead, the research model they have used takes into account three different types of establishment.
The first type, deep stores, carry many varieties of products within a certain category but tend to charge higher prices, because they know that the people who visit them are more likely to make a purchase. Picky consumers tend to shop in these outlets, like Fnac or MediaMarkt, for example, which have many types of TVs so that consumers can find the model that suits them best.
The second type, shallow stores, offer many different types of products but few brands within each category. These types of establishment tend to have lower prices and attract less-demanding consumers. Carrefour or Alcampo would be examples of shallow stores.
Finally, online stores offer the widest variety of products (and usually at the lowest prices), but do not allow consumers to try them out.
“The mix of consumers at these three store types affects the prices of their products. The effects of these prices, at the same time, extend to the entire retail sector in general”, they maintain.
Diversity of consumers, with a single category that determines prices
The research model created by the authors takes into account different types of consumers: “Some consumers were pickier than others and preferred to shop in deep stores, while others engaged in showrooming. More importantly, the showroomers did not compare prices, but researched in advance and knew exactly what products and prices to look for”.
The authors claim that some buyers did not showroom because they felt guilty about buying a product elsewhere after a salesperson had spent time selling it, or because they did not have time to visit many different establishments.
“Our research found that this group of undemanding consumers is the only one that compares prices and, according to their size and composition, plays a key role in pricing”
But other consumers were not so demanding and chose to go to a “shallow” store, with a limited assortment, with the intention of making the purchase in this establishment, provided they found a product that met their preferences and for the expected price. If they did not find a suitable variety, they went to another store of the same characteristics.
“Our research found that this group of undemanding consumers is the only one that compares prices and, according to their size and composition, plays a key role in pricing. Their choices and behaviour determine the prices of products in any sector”, they assure.
Effects on retail prices
Thus, the study dispels the assumption that showrooming necessarily lowers retail prices. “Our research has found that the opposite may occur: showrooming can, in fact, increase prices”, they assert.
“Our research has found that the opposite may occur: showrooming can, in fact, increase prices”
Since many consumers (including those who showroom in the establishments where they end up making their purchase) do not compare prices, stores can raise them -if only slightly- to make bigger profits.
“As this practice becomes more widespread and easier to engage in thanks to online shopping, prices could rise across the retail sector, depending on sensitivity to prices and the overall mix of different types of consumers”, the authors note.
A subtle phenomenon that demands maximum caution
Ultimately, it is the variety of different types of stores that determines how people shop, and it is consumer purchasing patterns that determine prices. “Although the perception of the threat of showrooming has led to important policy proposals, our study suggests that its effects are subtle”, Heski Bar-Isaac and Sandro Shelegia affirm.
According to the authors, one important conclusion of their research is that understanding showrooming requires reflecting on the impact that this practice has on consumers’ purchasing patterns and on the response by stores. “Retailers, policy makers and observers should be cautious about exaggerating the role that showrooming plays in lowering prices and changing the retail landscape”, they conclude.
Reference work: Bar-Isaac, H. Shelegia, S. (July 2022). “Search, Showrooming, and Retailer Variety”, Marketing Science
Article by the authors in The Conversation: (25/04/2023) “New research reveals how a single consumer group has the power to influence product pricing”.
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