Monetizing Showrooming

Abstract

This paper explores how a strategic B&M retailer monetizes its showrooming service and how this affects a brand's incentive to use the service, consumer surplus, and social welfare. We build a stylized model in which the retailer decides the showrooming fee, and the brand decides whether to pay the fee to showcase its product in the retailer's offline channel in addition to its own online channel and separately sets the optimal prices for both channels. Consumers who face the uncertainty of the product value are assumed to have different levels of hassle costs of buying from the online channel and choosing which channel to visit. Our equilibrium analyses show that the brand has an incentive to use the retailer's offline channel to achieve an intended market segmentation based on hassle cost levels. Interestingly, the retailer's optimal profit and the brand's optimal prices both increase in search cost. Showrooming decreases consumer surplus when the value of a good match is relatively low or high, and a “Win–Win–Win–Win” situation in which all stakeholders (the retailer, the brand, consumers, and the social planner) benefit from monetizing the showrooming service may exist. Our paper also explores the role of a price-matching policy and service costs incurred by the retailer. Relevant managerial implications are discussed.