Arie Shpanya, CEO, WisePricer
Technology is changing the way consumers behave. They are more active on social media and mobile devices. They are more tech savvy and they will continue to grow more so. Facebook has over a billion users and more than 50% of American adults own a smartphone. Buyer behavior has shifted as consumers increasingly use social media to share product recommendations or use their smartphone to check prices. Showrooming is one such trend that has been become increasingly prevalent. How can retailers stay relevant in this changing environment when the rules have changed?
What is showrooming?
Consumers use this practice to check out products in traditional brick-and-mortar stores and then order them online at a lower price. This is often (but not always) the case for higher commitment products that are above a certain price threshold. A recent study from Omnico revealed that one in ten consumers have used their phone to purchase a product from an online competitor while present in the actual store.
Who’s doing it?
In a recent study, titled: Showrooming and the Rise of the Mobile-Assisted Shopper, conducted by Columbia Business School and Aimia, contrary to what you might think, the demographics of mobile-assisted shoppers or “M-Shoppers” as referenced in the study, are quite broad. The following referenced survey results are extracted from this study. One fifth of all consumers use their phones while shopping in stores to make purchase decisions. The gender distribution is fairly even, as is the 64-and-below age distribution among M-Shoppers.
How are they doing it?
It’s all about accessibility. Amazon even has a mobile app for checking prices, which allows you to comparison shop, share the in-store price with Amazon (a smart move on their part to collect more data while they’re at it), and purchase the product directly from the app. Their app is just one of many similar ones. Online retailers can leverage pricing as a huge competitive advantage, especially if they have adopted a loss leader type of pricing strategy like Amazon. Of course not everyone has the cost structure to support this strategy, but overhead for online retailers is lower which allows them to offer more competitive pricing. The difference is that now consumers have quicker and easier access to this data.
Why are they doing it?
The reasons why customers may showroom vary, but two of the main drivers are lower prices (69%) and free shipping from the online retailer (47%).
What does this mean for retailers?
Retailers fear they will become nothing but a step within a competitor’s consumer buying funnel. The potential loss in sales and inability to price match are huge concerns, especially with the higher costs associated with running a brick-and-mortar store. Certain product categories seem especially susceptible to showrooming, such as electronics and appliances, as Best Buy can surely attest to.
In a study conducted by Placed, they conducted a survey of Amazon customers where they were able to track store visits through location tracking. They outline a comprehensive report of the stores most susceptible to showrooming and the results may surprise you.
According to the results, the top three retailers that ranked as most vulnerable were Bed Bath & Beyond, PetSmart, and Toys “R” Us, all ranking above Best Buy. This can likely be attributed to the infrequency of purchase of these types of products, as well as a high need to physically touch or try the products. If you are not operating in these product categories, you cannot necessarily assume you are safe. The types of retailers found to be at risk of losing business to showrooming varied widely, from Costco to T.J. Maxx, and more.
The reasons may vary. For example, Amazon Prime members appear to also have a high frequency of being a part of other membership-based retailers such as Costco, which they may choose to abandon if they begin to see more value in the online shopping experience. The bottom line is, showrooming presents a potential threat to all types of retailers.
What can retailers do to combat it?
Keep calm and carry on. Showrooming doesn’t have to mean the end of traditional brick-and-mortar retail.
The good news:
- Price comparison isn’t the only thing consumers are using their phones for. Often they are searching for product information, user reviews, or coupons, or asking for advice from friends and family.
- They are nearly as likely to use the store’s own website (70%) as another website (75%) to gather product information.
- They are also just as likely to use the store’s own mobile website or app (22%) as a competitor’s website or app (22%) when they choose to purchase online while in a store.
- Consumers may still choose to purchase in-store despite finding a lower price online due to convenience, urgency, and immediacy.
- Consumers do not purchase solely based on price.
Retailers can add value through:
- Online product reviews and product information
- Loyalty programs
- Discounts and exclusive in-store offers
- Upping the convenience factor (free delivery)
- Engaging the consumer and collecting feedback though social media
- Overall cross channel integration
- Elevating the in-store experience (special events, customer service, return policies)
- Integrating the mobile experience (in-store apps such as mobile checkout)
- Integrating the online and in-store experience
Countering this trend by simply slashing prices may not be a sustainable solution and will likely be a losing battle. Retailers must find creative ways to offer value to consumers that online stores cannot, or embrace the showroom concept by integrating their web (and mobile!) and in-store experiences.
Walmart has an in-store Scan & Go app that customers can use for easy self-checkout. The app also helps customers to locate items in-store. For retailers who operate in both channels, this could present new opportunities to create value. Target is a great example of this. The retailer offers exclusive products that can be showroomed in their stores and are made available for purchase on their website. Consumers can get the best of both worlds — the convenience of online shopping and the ability to see the product in person pre-purchase. The future of retail may be more of a convergence of the two rather than a war between them.
Arie Shpanya is CEO of WisePricer, a real-time repricing engine for online retailers. and a guest blogger on Econsultancy, venturebeat, and more.