The term "showrooming" originated when Big Box retailers believed their in-store conversion rates were declining because consumers would come to the store to shop (i.e., see, touch and compare the physical products) but ultimately choose to buy online at cheaper prices. The term has more recently come to include the practice of using smartphones to access online product information—including competitor pricing—while in-store.
The value-erosion myth
When defining a strategy to combat showrooming, it is important for retailers to consider consumer intent. It is not correct to assume that all showrooming is driven by the desire to find the lowest price. In addition to price comparisons, consumers often use mobile devices in-store to do product research and read customer reviews before purchase.
Most consumers inherently understand the value proposition offered by an in-store purchase:
- Walk-out-with-it instant gratification
- Easier returns
- Service after the sale
As such, the showrooming consumer is not necessarily looking for the low-price deal, but rather validation that the in-store price premium reflects the in-store purchase price value. In this era of transparency, price value is the new order-winning differentiator.
Your data is your best asset
So, how does a retailer set the right in-store premium over online competitors to ensure price value perception? The key is an ability to mine data for insight into your customer value definition. Sophisticated analysis of customer purchase history allows retailers to segment customers based on their level of price sensitivity.
Price sensitivity analysis then reveals individual products and product families for which customers are more sensitive to competitive price positioning. It is on the high-price-sensitivity products that a retailer should consider matching a competitor's price. For low-price-sensitivity products, competitive price matching only means money left on the table.
That said, even though price matching is not required for low-price-sensitivity products, they recognize that competitive price positioning is still part of the consumer price value equation. Here again, let price sensitivity be the guide. Products with higher price sensitivity ratings warrant lower in-store price premiums, and, conversely, products with lower price sensitivity ratings warrant higher in-store price premiums. This ensures price value perception even in the face of a transparent marketplace.
Using sophisticated analytics to segment both customers and products based on price sensitivity is a smart way to protect both sales and margin by more accurately predicting the premium consumers are willing to pay for the in-store experiences. When in-store premiums reflect consumer price value, showrooming is not a cause for concern.
Hard-core holiday price tactics
For retailers where nearly 50 percent of annual revenue is made during the fourth quarter, pricing and inventory planning decisions can make or break not just the holiday season but the entire year. Because of this, understanding price sensitivity and its influence on price premiums is critical during the holiday season.
During the holidays, "deal seekers" come out in force early in the season. Getting the most for their money is of utmost importance for a deal seeker, so retailers should plan to drive sales with promotional prices and pay close attention to competitor prices through early December. "Procrastinators," however, arrive on the scene weeks later— often even the week before Christmas. Procrastinators value convenience and time, making them more likely to pay a premium and more willing to buy at brick and mortar stores. While retailers are traditionally good at capturing deal seeker volume with big promotions, they often unnecessarily leave Procrastinator margin on the table late in the season due to stock outs and/or deep discounting out of fear of too much inventory at season end.
Smart retailers leverage an idea used in the airline and hotel industries for decades: reserve product for late demand with higher prices.
By implementing better demand forecasting techniques, pricing analytics and inventory management processes, retailers don't have to sacrifice margin for market share during the holidays.