Brick-and-mortar retailer’s competitive strategy with consumer information under showrooming

Abstract

We study a brick-and-mortar (B&M) retailer competing with an online retailer in the same product category under showrooming conditions. Showrooming takes place when consumers visit the B&M retailer to resolve product fit uncertainty first and then buy the best-fit products at the online retailer. In terms of mitigating the showrooming effect, we examine a promotion strategy with which the B&M retailer acquires consumer information from data brokers and makes a promotional offering to a targeted segment of traceable consumers, and investigate how the B&M retailer can benefit from this promotion strategy via a two-stage game-theoretical framework. We show that there is a threshold for the number of traceable consumers above which the promotion strategy begins to benefit the B&M retailer. When in the B&M retailer’s best interest, there exist two equilibria: one in which some traceable consumers showroom and the other in which no traceable consumers showroom. Less showrooming always takes place in the former equilibrium but more showrooming could occur in the latter equilibrium, as compared to the non-promotion strategy. Furthermore, a higher level of product fit uncertainty increases the B&M retailer’s demand and profit while inducing more showrooming in the latter equilibrium. Thus, showrooming driven by product fit uncertainty could leave the B&M retailer better off under the promotion strategy.