Reveal or hide? Impact of demonstration on pricing decisions considering showrooming behavior

Unlike online stores, offline stores can provide product demonstration services, such as product display, product fit, and other kinds of in-store solutions, to help consumers understand the suitability of products. Consumers are increasingly using offline stores to obtain in-store demonstration services and then switching to online stores to purchase the product. This behavior is called “showrooming.” This study considers the pricing problem in a dual-channel supply chain with an online retailer and a manufacturer that owns an offline direct sales store. The manufacturer's product has digital attributes that can be evaluated through both online and offline channels, as well as non-digital attributes that can be evaluated only through in-store product demonstration. We investigate the impacts of the demonstration informativeness on online and offline retail pricing decisions under showrooming behavior. Given the demonstration informativeness and other relevant factors, we then compare the outcomes of the manufacturer's strategies on whether to demonstrate and the retailer's strategies on whether to avoid showrooming. We find that showrooming behavior may be beneficial to the manufacturer that owns an offline store and harmful to the online retailer. When the demonstration informativeness level is medium, the manufacturer will be better off choosing the non-demonstration strategy, and the online retailer will select the non-showrooming strategy. We also show that, in comparison to exogenous wholesale prices, when the manufacturer sets the wholesale price endogenously, it helps the two firms choose the same strategy; moreover, the endogenous wholesale price leads to Pareto improvement in the supply chain.