Only One Type of Consumer Has the Power to Determine Prices

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One type of consumer is often forgotten in discussions of pricing strategies in the retail market: the showroomer. In its simplest terms, showrooming is when consumers inspect a product in person in a store, even if they do not initially intend to buy it there, before ultimately purchasing it from a different seller that offers a lower price. Recent research has revealed that this single type of consumer can be the major influencer of price.

According to the research, published in the journal Marketing Science, the price-sensitive showroomer may be the only type of consumer that actually compares prices across different retailers. With the rampant search capability of the internet, consumers now have the luxury of purchasing a product online for lower prices if retailers do not meet their expectations.

The research conducted by Heski Bar-Isaac from the University of Toronto and the Center for Economic and Policy Research in London, and Sandro Shelegia from the Center for Economic and Policy Research in London, Pompeu Fabra University, and the Barcelona School of Economics, assessed the behaviors of three different types of retailers: those with deeper product selections, those with less product selection (or shallow product selections); and online retailers that provide deep product selections, but little opportunity to assess fit.

The researchers found that showroomers are primarily attracted to the “shallow” retailers—where the selection of products is not as deep—to find the best fit. Additionally, deep selection retailers, who knowledge that showroomers will likely buy their product as long as it fits their needs, charge a higher price than shallow retailers that are more price sensitive.

The authors of the study concluded that this single type of consumer is the most influential in price determination. Although most people aren’t likely to search multiple stores for the most perfect match and an ideal price, the size of this group has enough of an effect on marketplace prices overall. This awareness emphasizes the power of showrooming and the importance of focusing on lower prices for consumers that are reluctant to leave stores empty-handed.

The Institute for Operations Research and the Management Sciences is a professional organization that focuses on operations research and the management sciences, two fields of study that are responsible for creating and employing effective models for decision-making. The organization is comprised of 50,000 members from 103 countries and works to promote the development and application of the management sciences and operations research to the management of private and public enterprises. They offer courses on various topics, such as artificial intelligence and computing, management science, marketing and operations research, and provide resources such as a database of research and a library of management sciences.

Heski Bar-Isaac is a Professor at the University of Toronto and the Center for Economic and Policy Research in London. He is an Associate Editor for Marketing Science and serves on the editorial boards of Management Science, the INFORMS Journal on Applied Analytics, and two other scientific journals. Bar-Isaac focuses on marketing analytics and conducts research on topics such as consumer behavior, pricing, and new product development. He has also been involved in a number of research projects pertaining to these areas.