The Idea of Showrooming

According to Wikipedia, the word "showrooming" was coined in the 2010s. The earliest reference I can find is in a Wall Street Journal article dated April 2012, which opens as follows:

"Shoppers who scope out merchandise in stores but buy on rivals' websites, usually at a lower price, have become the bête noire of many big-box retailers."

By September 2012, showrooming is being described as a "commonly held belief", and being dismissed as a falsehood by the CEO of Best Buy.


But the idea of showrooming was mooted many years previously, in discussions between Jeff Bezos and HP. Nick Earle, then an executive with HP, mentioned this in a keynote speech in June 2000.

During his speech, Earle recalled a conversation he had with Jeff Bezos, the founder and chief executive of Amazon.com Inc., an HP client. When Earle asked Bezos to describe a "killer application" from Amazon.com's perspective, he described a handheld device with a wireless link and a bar-code reader that would enable customers to scan in a book from another retailer, find out how much cheaper it is sold at Amazon.com, and then order it online for next-day delivery. "We will make one," Earle promised.

I cited this conversation in 2004, as evidence that Bezos got ecosystem thinking. What I hadn't realised at the time was that he had basically invented the iPhone. And he had had the idea of showrooming, over a decade before the word was coined.

So I asked Nick (via Twitter) whether HP had ever made such a device.

No they didn't!

— Nick Earle (@nearle) August 2, 2017

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David Jastrow, HP Keynote embraces ecosystem thinking (CRN, 15 June 2000). I have corrected the misspelling of Earle's surname.

Thomas Lee, Best Buy's new chief is selling from Day 1 (Star Tribune, 8 September 2012)

Ann Zimmerman, Can Retailers Halt 'Showrooming'? (Wall Street Journal, 11 April 2012) (paywall)

Wikipedia: IPhone (1st generation), Showrooming (retrieved 15 July 2017)

Related Posts: Jeff Bezos and Ecosystem Thinking (Feb 2004) Showrooming (Label)

Updated 2 August 2017

The Price of Everything

The relationship between the retailer and the customer can be beset by calculation on both sides. The retailer is trying to extract enough data about the customer to calculate the next best action, while the customer is trying to extract the best deal.

There is nothing new about customers comparing products and prices between neighbouring shops, and merchants selling similar goods can often be found in close proximity in order to attract more customers. (This is especially true for specialist and occasional purchases: in large cities, whole streets or districts may be associated with specific types of shop. London has Denmark Street for musical instruments, Hatton Garden for jewellery, Saville Row for made-to-measure suits, and so on.)

And as Tim Harford points out, exploitative algorithms are using tricks as old as haggling at the bazaar.

But nowadays the villain, apparently, is eCommerce. As a significant share of the retail business migrates from the high street to the Internet, many retailers are concerned about so-called showrooming. It may seem unfair that a customer can spend loads of time in the high street, wasting the time of the shop assistants and shop-soiling the goods, before purchasing the same goods online at a better price. To add insult to injury, some people not only practice showrooming, but then blog about how guilty it makes them feel.

There is a common belief that the Internet can generally undercut the High Street, and there are several reasons why this belief seems to make sense.

• Internet businesses compete on price rather than service, so the prices must be good.
• An internet store can provide economies of scale - serving the whole country or region from a single warehouse, instead of needing an outlet in each town.
• An internet store can offer a much larger range of goods without increasing the cost of inventory - the so-called Long Tail phenomenon
• An internet store typically has lower overheads - cheaper premises and fewer staff
• An internet business may be run as a start-up, with less dead wood. So it is more agile and less bureaucratic. 

But there are some questionable assumptions here, as well as some counterbalancing concerns.

• The economic and logistical costs of delivery and return can be significant, especially for low-ticket items. With clothing in particular, customers may order the same item in three different sizes, and then return the ones that don't fit.
• Investors previously poured money into internet businesses, and the early strategic focus was on growth rather than profit. As internet business become more mature, investors will be looking to see some decent returns on their investment, and margins will be pushed up.
• And then there is differential pricing ...

One of the key differences between traditional stores and online stores is in pricing. Although high street retailers often drop prices to clear stock - for example, supermarkets have elaborate relabelling systems to mark-down groceries before their sell-by date - they do not yet have sophisticated mechanisms for dynamic pricing. Whereas an online retailer can change the prices as often as it wishes, and therefore charge you whatever it thinks you will pay. According to Jerry Useem,

The price of the headphones Google recommends may depend on how budget-conscious your web history shows you to be.

I heard Ariel Ezrachi talking about this phenomenon at the PowerSwitch conference in Cambridge a few weeks ago. (I have not yet read his new book.)

There is an assumption is that the internet is a blessing when it comes to competition. Endless choice. Ability to reduce costs to close to zero. etc ... What you see online has very little to do with the ideas we have of market power, market dynamics, etc. everything is artificial. It looks like a regular market, with apples or fish. But because it’s all monitored, it’s not like that at all. What you see online is not a reflection of the market. You see the Truman Show — a reality designed just for you, a controlled ecosystem. (via Laura James's liveblog)

In his play Lady Windermere's Fan, Wilde offered the following contrast between the cynic and the sentimentalist.

Lord Darlington: What cynics you fellows are!
Cecil Graham: What is a cynic?
Lord Darlington: A man who knows the price of everything and the value of nothing.
Cecil Graham: And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything, and doesn’t know the market price of any single thing.

According to one of the participants at the PowerSwitch conference, some eCommerce sites quote higher prices for Apple users, based on the idea that they are less price-sensitive and can afford to pay more. In other words, the cynical Internet regards Apple users as sentimentalists.

If there is an alternative to this calculative thinking, it comes down to reestablishing trust. Perhaps then retailers and consumers alike can avoid an artificial choice between cynicism and sentimentalism.

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Update (2020) added a link to a new paper by Frederik Borgesius, which looks at some of the legal as well as ethical implications of differential pricing.

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Emma Brockes, I found something I like in a store. Is it wrong to buy it online for less? (Guardian, 3 May 2017)

Frederik Zuiderveen Borgesius, Price Discrimination, Algorithmic Decision-making, and European Non-discrimination Law (European Business Law Review, 2019/20)

Ariel Ezrachi and Maurice Stucke, Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy (Harvard University Press, 2016) - more links via publisher's page

Tim Harford, Exploitative algorithms are using tricks as old as haggling at the bazaar (Financial Times, 5 October 2018)

Laura James, Power Switch - Conference Report (31 March 2017). Further links including video via Power Switch Conference (March 2017)

Joshua Kopstein, Is Amazon Price-Gouging You? (Vocativ, 4 May 2017) via @charlesarthur

Jerry Useem, How Online Shopping Makes Suckers of Us All (Atlantic, May 2017)

Price-bots can collude against consumers (Economist, 6 May 2017)

The Dilemma of Showrooming, (Daniels Fund Ethics Initiative, University of New Mexico)

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Related posts: Online pricing practices to be regulated? (October 2009), Predictive Showrooming (December 2012), Showrooming and Multi-Sided Markets (December 2012), Showrooming in the Knowledge Economy (December 2012), The Price of Fish (January 2013), Power Switch Conference (March 2017), The Idea of Showrooming (July 2017), Shoshana Zuboff on Surveillance Capitalism (February 2019)


Updated 11 July 2020

Showrooming in the Knowledge Economy

In the knowledge economy, service providers often give away selected portions of their intellectual property, in the form of webinars, white papers, blogposts, free downloads or whatever. They then hope to generate revenue from other products and services. So the free IP acts as a kind of showroom.

Many knowledge consumers regard this as an open invitation to a kind of knowledge showrooming, surfing the web and mopping up enough pieces of knowledge to avoid ever having to pay for knowledge products and services. Meanwhile, most large employers have clamped down on all expenditure, so it is often easier for well-paid staff to spend several hours fruitlessly browsing the internet than to get approval for $100 to buy a report or a subscription.

(Meanwhile, many people have even given up reading real books, and some kids seem to expect to go through college without ever opening a book, hoping that they can make do with the garbled summaries they can find on Wikipedia and elsewhere. Unfortunately, this tendency is reinforced by the fact that an increasing number of real books seem to have been researched in the same way.)

I confess that I have avoided paying for things sometimes. For example, if I can find a working draft of a paper online, I am generally reluctant to pay to read the final version, especially as (a) it may be almost indistinguishable from the draft version and (b) the author is unlikely to see any of the money.

Here's an example of knowledge showrooming. Supposing you want a method and a tool and some templates and some training and some support. If you get them all from the same company, you should expect to pay for at least some of that. But if you can find one company that lets you download a free software tool, and a second company that publishes its method on its website, and a third company that is offering free training events (probably funded by companies that are trying to sell tools and methods), this seems to offer a tempting solution.

Of course, having spent several hours finding this stuff, it may take you a lot longer to get all these disparate pieces to work together; and even if you succeed, your productivity using this mashed-up solution may leave a lot to be desired. However, time is generally valued less than money, so many knowledge consumers and their bosses may be quite satisfied.

On the supply side, given that there is absolutely no prospect of any agreement between knowledge providers as to which elements should be free and which should be charged-for, knowledge providers are effectively undercutting each other.

(I have unhappy experience of this myself. In the late 1990s, I developed a detailed methodology and associated training for developing component-based business solutions. Although I did sell some training, the software vendors started giving their methodologies away for nothing, in order to sell greater volumes of software. Even though I thought my methodology was better, I just couldn't compete with free.)

Universities are now struggling with the implications of publishing lecture notes and other course materials online. Does this undercut the value of a real degree? Or can they construct some kind of remote/online learning experience and expect to charge serious money to distance learning students?  @RogerShank is sceptical, and so am I.

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Roger Shank, Why are universities so afraid of on line education? (November 2012)

See also my post Showrooming and Multi-Sided Markets (December 2012)

Showrooming and Multi-sided Markets

As a retail phenomenon, #showrooming exposes a conflict of interest between online and traditional retailers. Many shoppers will examine a product in a traditional store, and then buy it from an online retailer or discount warehouse. The first retailer incurs costs - including cashflow, wear and tear on the product, as well as unproductive use of staff time and knowledge - while the second retailer takes the revenue.

To complete the story, there may be another class of customer, who is happy to buy the ex-demonstration product from the first retailer at a discounted price. Thus there are five distinct roles in this game: the product supplier, the first and second retailer, the first and second customer. (In addition, if the customers are using their mobile phones in the stores, we should add the players in the mobile ecosystem.)

The earliest manifestation of this I can remember was buying records. You could listen to an LP in the record store, and then get a pristine copy (without the shop assistant's fingerprints) by mail order from a company appropriately called "Virgin".

Many retailers believe they lose out from this phenomenon, and some have attempted to prevent it. (Ever wondered why you don't get a good cellphone signal inside a large store?) Earlier this year, both Target and Wal-Mart decided to stop stocking Amazon devices, although continuing to stock Apple devices. More recently, Wal-Mart has changed its position, and now claims to embrace showrooming.

By singling out Amazon, Target and Wal-Mart were making it clear that it is Amazon's role as a retailer that they regard as a competitive threat. Although Apple also sells its devices online, it is presumably not regarded as an equivalent threat. In which case, banning Amazon products looks like a gesture of despair rather than an effective tactic.

Thinking of this as a multi-sided market prompts us to look at the direct and indirect flows of value between the players. It is as if the first retailer is providing an unpaid "service" to the second retailer, and the first customer is providing an unpaid "service" to the second customer. At present these are not genuine services, but it is possible to conceive of an ecosystem in which the product supplier or second retailer paid some form of commission to the first retailer. For all I know, that may already happen in some sectors.

Wal-Mart hopes to control showrooming by encouraging its customers to use its own mobile app, which attempts to steer customers towards its own online store. I wonder how many customers will accept this control, and how many will take the trouble to resist it.

Some large High Street retailers seem to have given up the idea of stocking goods: if you like something on display, you can order it. This has long been true for large furniture items such as beds, but is becoming more common for smaller items, as Simon Heffer complains.

Meanwhile, showrooming can work both ways. Last week I ordered a book from my local bookshop, having previously looked it up on Amazon. It was 5pm Friday when I placed the order, and they phoned me at 11am on Saturday to tell me it had arrived. (If I'd ordered it from Amazon, paying extra for 48 hour delivery, when would it have arrived? Monday, Tuesday?) So that's showrooming in reverse.

Finally, instead of selling individual products, the showroom itself can become the experience. @KBlazeCarlson sees IKEA as a prime example, and quotes Alan Penn, professor of Architectural and Urban Computing at UCL, describing the IKEA experience as "psychologically disruptive". "Part of their strategy is to take you past everything," he says. "They get you to buy stuff you really hadn’t intended on. And that, I think, is quite a trick."

Chris Petersen adds, "Instead of product centric merchandising, IKEA’s showroom is perhaps the ultimate place merchandising, where the consumer solution is focused on the most personalized dimension – the consumer’s own lifestyle and living space." Whether IKEA can replicate this experience online in the virtual world, as suggested in Patrick Nelson's piece, is another matter.

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Kathryn Blaze Carlson, Enter the maze: Ikea, Costco, other retailers know how to get you to buy more (National Post, June 2012)

Dani Deahl, Amazon granted a patent that prevents in-store shoppers from online price checking (The Verge, 15 June 2017)

Simon Heffer, My futile hunt for a lamp in John Lewis reveals why the High Street is doomed (Daily Mail 15 January 2013)

Brett Molina, Is 'showrooming' behind Target move to drop Kindle? (USA Today, May 2012)

Patrick Nelson, Brick-and-Mortar's Showrooming Scourge (E-Commerce Times, Nov 2012) via First Insight

Sarah Perez, Amazon, now a physical retailer too, is granted an anti-showrooming patent (TechCrunch, 16 June 2017)

Chris Petersen, To beat showrooming … change the showroom! (IMS results count, June 2012)

Marcus Wohlsen, Walmart.com CEO: We Embrace Showrooming (Wired, Nov 2012)

Amazon's Showrooming Effect And Quick Growth Threaten Wal-Mart (Forbes, Sept 2012)

Related posts: Showrooming in the Knowledge Economy (December 2012), Predictive Showrooming (December 2012)

Updated 16 June 2017