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Retail Showrooming In Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store

Authors: J. Patrick Monteleone, Ph.D., Director, Research Jesse Wolfersberger, Director, Consumer Insights

March 2013

Retail showrooming in Canada: Keeping buyers in-store

Smartphones have changed the way we socialize, travel, check the weather and how we get news. They have also changed how we shop. Showrooming is a trend in shopper behaviour in which customers visit a brick-and-mortar retail location and decide what item to buy, but instead of buying that item in-store, they use their mobile device to find a better price and ultimately purchase online. Physical stores have advantages, among them is the instant gratification of having the purchased product in hand. However, online retailers tend to have a price advantage. With less overhead, they can undercut brick-and-mortar stores, often by a wide margin. GroupM Next and Catalyst, the leader in search marketing innovation, teamed up to conduct research in order to provide brands with an understanding of consumer behaviour as it relates to showrooming in Canada. The question this research attempts to answer is, how much of a discount will compel a customer to make an online purchase? All else equal, consumers would prefer to have an item now, rather than later, so how much of a discount will it take for someone to leave the store and wait for shipping? How many leave for 5% off? What about 10%? How many shoppers will walk for merely pennies? This research also aims to find out if all showroomers are the same, and what demographic and behavioural flags identify a shopper who is likely to leave the store to buy online. A deeper understanding of consumer behaviour in Canada will emerge so that retailers can address the behaviour proactively. In Fall 2012, GroupM Next conducted a similar study about showrooming based on consumer behaviour in the United States. The important differences between these two studies are:

Five of nine products featured were changed, with four retained for comparison. Three additional products were added to test and increase our understanding of consumer
choice dynamics.

Additional testing was incorporated to better understand the roles that product shipping time,
being in-market for a product, presence of children and public transportation use all play in consumer choice. Key insights from the research, including differentiations between Canadian and American consumers, are:

Twenty percent of Canadian consumers prefer to remain in-store and purchase, compared to
10% of Americans.

A majority of Canadians will leave a store and buy online if offered a $15 discount. The same
percentage of Americans will leave a store if offered a $5 discount.
Retail Showrooming In Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store March 2013

 Among Canadian consumers, factors in a consumers purchase decision when faced with
showrooming, in the order of importance from highest to lowest, are: discount, shipping time and familiarity with the retailer.

When two-week shipping is the only option available, 5% more consumers will buy in-store,
compared to one-week shipping.

Among Canadian consumers, being in-market, the presence of children and the use of public
transportation play no role in consumers likelihood of remaining in-store to buy.

Survey results
GroupM Next surveyed 2,000 Canadian shoppers, asking about 12 products across multiple retail categories and at different price points. Respondents were given a hypothetical showrooming scenario in which they could purchase a given product and own it immediately, or they could take a discounted price, leave the store and have the product shipped. The results show that, while customers would rather have the product immediately,
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0% 5% 10% 15% 20% Discount Offered Online (%)
Source: Retail Showrooming in Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store; Catalyst/GroupM Next, 2013

Figure A Impact Online Discounts Have On In-Store Purchases (Canada)

% Purchasing In-Store

a small price difference is enough to entice them to leave the store and buy online. When the online price is just 2.5% lower than the instore price, 74% of Canadian shoppers say they would stay and buy in-store. When the discount increases to 5% off, 63% of customers say they would stay in-store. At a 20%

discount level, only a small number of shoppers (27%) will stay in-store. It is interesting to note that Figure B throughout the study, when it comes to showrooming, there proves to be no meaningful difference in preference or behaviour between English-Impact Online Cost Savings Have On or French-speaking consumers.

In-Store Purchases (Canada)

% of Shoppers Staying In-Store

100% Of the products featured in the survey, Canadian consumers considered purchasing headphones

differently than the other products (the topmost point at each discount level in Figure A). While 80%
70% 60% 50% 40% 30% 20% 10% 0%

90%

Retail Showrooming In Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store March 2013

2
$0 $50 $100 $150 $200 $250

60% 50% 40% 30% there was nothing present in the language of the question asked to suggest it, respondents showed 20% an implied urgency with headphones. It took a larger discount for shoppers to leave the store 10% 0% when buying headphones than any other product. Interestingly, U.S. consumers revealed similar 0% 5% 10% 15% % Purchasing I

20%

behaviour as determined in our research of the U.S. marketplace. Among Canadian consumers, the
Discount Offered Online (%)

research reveals the second most likely product to have implied urgency is a set of tires. The least
Source: Retail Showrooming likely product to have a sense of urgency is a laptop computer. in Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store; Catalyst/GroupM Next, 2013

A similar story emerges when looking at the data by dollar amount. If the price difference between in-store and online is close, shoppers prefer not difference is more than $15, a majority of customers say they would leave. In comparison, our research showed that $5 is the tipping point among U.S. consumers. When consumers are not make choices, made to wait for delivery. However, if the

Figure B Impact Online Cost Savings Have On In-Store Purchases (Canada)

% of Shoppers Staying In-Store 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

$0

$50

$100

$150

$200

$250

decisions

usually

Discount Offered Online ($)

Source: Retail Showrooming in Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store; Catalyst/GroupM Next, 2013

based on a single factor. In this study, consumers were asked to choose between buying in-store and online.

The questions featured varying combinations which included factors such as discounts, three shipping options and familiarity/unfamiliarity with the online retailer. When deciding to purchase, a discount factors for nearly 50% of the decision, while 25% is based on shipping, and 25% is based on familiarity with the retailer. With shipping in particular, when two-week shipping is offered (across all the products), brick-and-mortar retailers gain 5% more consumers willing to stay instore and purchase. We do note that the nature of this survey potentially inflates the price sensitivity of shoppers, as respondents were asked about products for which they may not necessarily be in the market. Therefore, responders may report more price sensitivity than in a real-world situation. Additionally, this was an online study, so in order to participate, all respondents must have some level of Internet acumen. Therefore, there likely exists a percentage of offline-only shoppers who were not included and, logically, that group is unlikely to showroom.

Retail Showrooming In Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store March 2013

What can retailers do?

Showrooming is a growing threat to brick-and-mortar retailers that dont adapt to this increasing consumer behaviour. However, it also creates opportunities both in-store and online for brands. It is likely to become increasingly prevalent as more Canadians take to smartphones and become comfortable purchasing online. There are two ways to prevent showrooming disrupt shoppers from using their mobile devices, or be price competitive once they do. This research identifies that, if a brick-and-mortar store can stay within 10% of the online price, about half of potential showroomers will choose to stay and complete their purchases in the store. Apple is an example of a brand that demonstrates how pricing can curtail showrooming. An iPod is the same price across Apple stores, Best Buys, Apple.com and Amazon.com. The Apple business model is difficult for many brands to imitate, but remains the prime example of successful pricing in the smartphone society. Pricing is a significant way to combat showrooming, but it is not the only strategy. Using a logistic regression model to evaluate the customers decision to purchase in-store or buy online, it becomes possible to find the shopper characteristics explaining a purchase decision. GroupM Next completed such a model which revealed that consumers who are more apt to be showroomers are more likely to be married, make online purchases frequently, are younger, and generally more educated. When those variables are considered together, the resulting profile describes a person who cares almost exclusively about price. When considering targeting, marketers should be wary of driving that group of consumers into stores, as they are likely to showroom and leave. Instead, brands have the opportunity to drive that group to their e-commerce site or other digital property to make purchases. There are a number of Canadian consumers about 20% who choose to complete the purchase in-store, regardless of the discount offered. This is encouraging for retailers, as a core customer base exists who appear unlikely to showroom. The key for marketers is to identify the next 10% the group of customers that are sensitive to price, but can be more easily swayed to purchase in-store. Using the model, the group of marginal showroomers has the following characteristics:

Retail Showrooming In Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store March 2013

 Slightly more likely to be female Average age of 58 Median income of $50,000 annually 50% have some college education or higher 53% make online purchases once per month
Marketers looking to respond to showrooming could target this profile in order to attract shoppers who are more likely to stay and buy in the store. Finally, showroomers exhibit behavioural cues. The model identified customers who compare prices in-store are more likely to showroom and leave. It shows that shoppers who are price shopping in the store are one step away from pulling out a mobile device and checking online prices. Using this information, retailers can train associates to watch for this behaviour and intervene at key decisionmaking moments. Additionally, the model revealed that sales associates can be influential. Canadian customers who interact with an associate are more likely to stay and purchase in-store. Conversely, customers who price-check using their mobile device are less likely to stay. These two behaviours cancel each other out. By engaging the shopper, the associate disrupts the mobile behaviour and increases the chance of the customer staying in-store and buying a product. Several retailers have taken action to turn showrooming into opportunity. Future Shop, Canadas largest consumer electronics retailer, provides easy access to locations, reviews and prices on its mobile application, encouraging showrooming in a controlled way. Future Shop also has a robust price-matching policy that beats competitors prices by 10%. Loblaws, Real Canadian Superstore and Home Depot all price match competitors flyers and promotional discounts. Retailer Target offers exclusive in-store items, and, as it enters Canada in 2013, may extend its aggressive pricematching policy beyond the holiday season. With the right pricing, in-store strategy, digital presence and engagement with the consumer at the touch points where they shop, brick-and-mortar retailers can compete in the smartphone era.

Methodology
GroupM Next and Catalyst, in conjunction with Global Market Insight (GMI), surveyed 2,000 Canadian shoppers, asking about 12 products in multiple retail categories at varying price points, with different shipping times. Shoppers surveyed were given hypothetical purchase decision scenarios in which they could purchase a given product and own it immediately, or they could take a discounted price, leave the store and have the product shipped with varying shipping times.

Retail Showrooming In Canada: Winning The Consumer & The Price Of Keeping Buyers In-Store March 2013

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