The Threat and Opportunity of Showrooming
BY: JERRY RACKLEY ON FRIDAY, MAY 10, 2013
It was a global news item earlier this year when a specialty grocer in Brisbane, Australia began assessing shoppers a $5 fee for “just looking”. Charging a fee to people who want to browse through a retail establishment is anathema to retailing best practices, after all, people have to enter the store before they can buy something. Or at least that was the case until the internet disrupted the old retail model.
The trigger for this $5 browsing fee is the phenomena known as “showrooming” – the act of a consumer visiting a retail establishment to physically view or inspect a product before purchasing it less expensively online. I can understand the indignation of the retailer, and it’s not just the mom and pop retail operations that are suffering. Best Buy and other big box retailers are serving as showrooms for Amazon.com or other online retailers, and losing business as a result.
Assessing a fee– or some other punitive measure – for people who want to browse through your store is a knee-jerk reaction that isn’t going to make the problem go away for the brick and mortar crowd. To these embattled retailers, it seems like all the advantages belong to the online merchants. This view, however, is incorrect. Like any competitive business environment, each side has strengths and weaknesses, and the ground on which the battle is fought is constantly shifting.
Consider any local brick and mortar retailer, who has purchased or leased a retail location, is contributing tax revenue to the local economy, hiring local employees, living in the community, purchasing supplies locally and in general being a good corporate citizen. These retailers are economic engines whose success ripples through a community for the benefit of all. Their failure also ripples through the community. They have literally made a capital investment in their retail presence, so we aren’t surprised if they must charge a little more to cover their overhead.
By contrast, the online merchant sells online and fulfills orders through a super-efficient supply chain. They have overheard too, but they have it in different areas and can benefit from economies of scale the local merchant can never hope to duplicate. To the consumer, it appears that both online and brick and mortar retailers are selling the same products, but vastly different business models are in use.
Let’s go back to the Brisbane grocer who assessed a $5 fee for just looking. While most local merchants understand the frustration that triggered this fee, it is absolutely the wrong response. It’s a fundamental reality in retail that store traffic correlates to sales. No traffic, no sales. Charge a fee (or do something else to discourage looking around), and you’ll see store traffic drop.
So what is the local brick and mortar retailer to do? It can’t compete on price with the online players. Where it can compete is in terms of impressions. In marketing terms, an impression is simply an encounter with a customer. We measure these for advertising, web visits and they also apply to in-person store visits. The goal is always to convert as many impressions as possible into sales. In my opinion, the brick and mortar retailer has the best opportunity to experience the highest conversion rates. Why? Because their impressions occur face-to-face, the venue that enables the most persuasive type of encounter.
The local merchant can compete very effectively with the online retailers, but it may require a cultural change to do so. Here are things that brick and mortar retailers must do to exploit the impressions advantage they have:
- Recognize that you’re not competing on price. The online retailers will almost always have a price advantage. If you can match it or come close, fine. But competing on price is usually not a winning business strategy.
- Never apologize for higher prices. When a customer does mention they can purchase more cheaply online, don’t apologize. If anything, acknowledge the truth of it. Equip your employees to respond thoughtfully and intelligently to this objection. A good response usually goes something like this: “We do charge a bit more for some of our products. We find that our customers enjoy the expertise we offer in helping them make good purchase decisions, the quality of our service and the convenience of doing business locally – these are worth something to most of our customers. In addition, we love having the financial success that not only lets us provide a few jobs in the community, but pay taxes that support our local schools, buy the things we need locally and volunteer in our community.” In other words, what you’re saying is that even that customer isn’t necessarily better off because they saved a few dollars buying online.
- Recognize that “sales” is a verb, not a noun. You’re not entitled to anyone’s business. When a customer walks in your store, take full advantage of the impression you are getting. Understand what motivated them to come in, what they need, when they need it and why. Because you have a face-to-face encounter with a customer, you’re able to execute a complete sales process that not only identifies the needs, but also smokes out the objections. The $10 an hour part-time clerk you hired probably doesn’t know how to do this, so training is required, but it’s not difficult to learn.
- Understand what you are competing on: the ability to have a better relationship with your customers. People buy from people they like. The impressions you get allow you to know your customers better, serve them better and convey your expertise directly to them. These are the relationship difference-makers that give local merchants an advantage over the online retailers.
A successful local business is an asset to the entire community. The online retailers have some advantages, but not all of them. Local brick and mortar retailers should always have the relationship advantage. The problem for many local merchants is that they never had to learn how to fully exploit this advantage. The business model of just having your doors open and expecting customers to wander in and buy is misguided. Instead, take advantage of every impression to build relationships that grow your business. If you do, you’ll have nothing to fear from the showrooming.