For showing only, or for selling? The optimal physical store mode selection decision for e‐tailers under competition

Abstract

More and more e-tailers are launching physical stores, in addition to their online presence. Whether and when it is best for the physical channel to be a pure showroom or a selling store remains unanswered. To address this issue, we develop a game-theoretical model wherein two competitive e-tailers decide to launch physical stores for showing only (as a showroom) or for actual transactions (as a selling store). By deriving the equilibrium, we obtain three major findings. First, building a pure showroom or a pure selling store is not always optimal. Interestingly, when the proportion of the store consumer segment is not too high, and the strength of the consumers' brand preference is intermediate, an asymmetric channel configuration occurs in equilibrium, that is, one e-tailer launches a showroom and the other launches the selling store. Second, if the strength of the consumers' brand preference is high relative to the proportion of the store consumer segment, a "prisoner's dilemma" emerges, that is, both e-tailers are worse off in the pure showroom channel configuration. Third, the total consumer surplus reaches the highest level if a symmetric showroom or an asymmetric channel equilibrium occurs. Otherwise, the equilibrium channel configurations are always suboptimal for consumers.

Optimal channel strategies in a supply chain under green manufacturer financial distress with advance payment discount

“…Fan et al. (2019) studied the channel strategy of e‐tailers and discussed the advantages of choosing the physical store as a showroom or a selling shop under competition. However, the above literature does not consider the environmental performance of enterprises.…”

Should an online manufacturer partner with a competing or noncompeting retailer for physical showrooms?

“…Regarding the cooperation and competition with physical showrooms, Fan et al. (2021) focus on the optimal physical store mode selection decision between the physical showroom and the retailing store for competing online retailers. Li et al.…”

“…The product competition Fan et al. (2021) and Li et al. (2020b) focus on is between online retailers.…”

“…Consumers derive an additional utility from the retail service if the product fits, such as product trial, technical, and shopping assistance (Cao et al., 2019; Fan et al., 2021). It is well documented in the literature that retail service significantly affects consumers’ product evaluations (Yan and Pei, 2009).…”

“…Some furniture manufacturers who own online channels collaborate with the retailer HOMETIMES to display their furniture products. Under this collaboration, consumers experience online manufacturers’ products and examine whether the products fit for them in physical showrooms (Fan et al., 2021; Li et al., 2020a). When the product fits consumers’ needs, shop assistants guide the consumers switching to the online channel and buying the product.…”