Physical or virtual showroom? The decision for omni-channel retailers in the context of cross-channel free-riding

This paper studies the impacts of showrooms, both virtual and physical, on omni-channel retailers in the face of consumers’ cross-channel free-riding behaviors. A theoretical model was developed, in which an omni-channel retailer sells substitute products in offline and online channels, and consumers’ showrooming and webrooming behaviors are considered. The high travel cost case was identified, in which some consumers directly buy a product online without visiting the offline store, as well as the low travel cost case, in which all consumers buy a product after visiting the offline store. The results show that, in the high (low) travel cost case, a virtual showroom increases the omni-channel retailer’s profit when the travel cost is low (high). However, if the omni-channel retailer builds a physical showroom, in the high travel cost case, the retailer’s profit increases when the travel cost is low; in the low travel cost case, the retailer’s profit increases when the hassle cost is high. Furthermore, these two types of showrooms are compared when either type increases the retailer’s profit and the optimal showroom strategy for the omni-channel retailer is identified. The results show that if the travel cost is high (low), building a physical showroom is more profitable than building a virtual showroom when the travel cost is sufficiently high (low).