Store-brand product variety and price decisions under showrooming

Abstract

We study a brick-and-mortar (BM) retailer competing with an online retailer in an experience goods market where a national-brand product is sold through both retailers. Consumers exhibit showrooming by visiting the BM retailer to experience the product and may switch to purchasing from the online retailer. We explore how the BM retailer counters showrooming by introducing a store brand and providing product variety through customization, in considerations of consumer heterogeneities in shopping inconvenience and product taste with asymmetric taste sensitivities towards product brands. We find that the BM retailer prefers to increase store-brand product variety when the national brand has less brand advantage, product customization is less costly, or its operational efficiency is higher. However, the BM retailer’s price decision may not be in sync with its store-brand product variety decision. Interestingly, only when the national brand has less brand advantage will the BM retailer’s store-brand strategy exhibit double-edged effects on showrooming: less (more) showrooming from consumers who have low taste-mismatch costs for store-brand (national-brand) products. Furthermore, although store-brand introduction inevitably cannibalizes national brand sales, this cannibalization effect does not necessarily curtail the BM retailer’s national brand sales due to its interplay with showrooming.