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In a bid to stem the flow of lost sales to internet retailers, store-based retailers are not only changing the way they sell but are also altering the retailer-supplier relationship. From online price-matching through to the extension of private label portfolios, store-based retailers have a wide range of options at their disposal to prevent showrooming. Strategy implementation, however, is likely to prove the difference between a successful store-based retailer and a bankrupt one.
This article is the second in a series on the showrooming phenomenon and its impact on the retail environment. In the first article in the series, Euromonitor International defined showrooming and assessed its implications. This piece will look at the prevention strategies available to store-based retailers.
With droves of consumers turning to the web in search of the best deal, many stores have been turned into showrooms, or display areas devoid of actual sales. The potential impact of showrooming has radically increased due to the growing consumer adoption of smartphones. These devices allow users to install apps which can scan in-store products and search for the cheapest price. The result is fewer sales per store (or sq m), with how to prevent showrooming subsequently becoming a hotly debated topic in retail circles.
With this in mind, this article aims to give an overview of some of the prevention strategies and techniques commonly used by retailers to prevent an in-store sale being diverted to a rival’s website. Strategies can be split into two types – consumer-retailer and retailer-supplier.
Source: Euromonitor International
The vast majority of preventative measures open to retailers fall within the consumer-retailer sphere. In many ways, this makes them easier to implement as third parties are not involved in the process. However, the downside is that many consumer-oriented strategies have a limited impact, particularly given the fact that they can be replicated by pure-play internet retailers.
Loyalty schemes such as store cards and points systems have historically been used as a non-price strategy to prevent consumer migration. This is due to the nominal reward that consumers receive on a purchase. Psychologically, many consumers will insist on ‘building up points’ at a particular retailer. Credit facilities work in much the same way. Play.com launched a branded credit card with Visa in 2009 offering consumers two PlayPoints for every £1 spent on the website, incentivising further spend. These schemes, however, require dedicated resources to establish and can be expensive to implement and maintain.
For big-ticket items, a key consumer-oriented strategy is to provide free or discounted repair and/or servicing for paying customers. In addition to providing support and reassurance for consumers, it reinforces a key concern for consumers when purchasing from pure-play internet retailers, ie the lack of after-sales service.
Many other consumer-oriented strategies exist with regard to deterring showrooming. However, the cost of implementation can be prohibitive or impractical. Price-matching online stores, in theory, would remove the financial incentive to shop online entirely. However, in reality, price-matching pure-play retailers can be problematic as it requires a dedicated team to ensure that rival retailers’ price offerings are comparable.
While consumer-oriented strategies are required to change shoppers’ perception of ‘online value’, longer-term strategies will need the support of suppliers. Store-based retailers provide product visibility as well as advice, which suppliers need in order for their products to be sold. Consequently, it is not unreasonable for large retailers to request assistance with regard to showrooming.
One of the easiest ways that retailers can prevent showrooming is by preventing pure-play retailers from selling the product. Exclusivity has existed in the industry for years and has helped to cement the bond between retailer and supplier. Large retailers should be able to request exclusivity on a limited edition SKU. This would benefit the supplier because the retailer would be more dedicated to selling that particular SKU and the retailer would benefit from the situation because shoppers would not be able to purchase the product elsewhere, thereby preventing showrooming.
The nuclear option for retailers is to pursue private label expansion, particularly under fantasy brand names. This strategy has proved extremely successful for bicycle retailers which have struggled to compete with pure-play internet retailers selling branded products. Whilst it is a larger investment and risks alienating suppliers, it should be considered a last resort for retailers which are experiencing strong signs of the showrooming effect.
Showrooming is likely to become more of a problem for all store-based retailing channels moving forward. Retailers ultimately need to remove or reduce the financial incentive for consumers to showroom by implementing prevention strategies. However, the urgency for retailers to prevent showrooming varies from channel to channel and crucially depends on the products being sold.