By Dr. Todd Bacile | July 29, 2013
Synopsis: showrooming is a new challenge that brick-and-mortar retailers are sizing up as a threat. However, this phenomenon must become an accepted part of retail business models in the era of empowered consumers and ubiquitous information. In this two-part post showrooming is juxtaposed to the power of firms versus consumers in the traditional business model and the modern day’s changing information economy. Click here to read Part one.
The Information Economy
Showrooming is one of many phenomenon to cause a seismic shift in the current information economy. Many people think of an economy as goods and services exchanged between firms and consumers. However, an economy also exists for the exchange of information. An information economy is transparent when all information is easily available on-demand.
Web 1.0 was a colossal shift in media, where additional information was available to the masses of consumers. However, in the Web 1.0 environment firms still had much control over the type of information made available online. Easy-to-use publishing tools and social networks had not yet evolved to allow consumers to easily share information. True information transparency was absent.
The shift to Web 2.0 (and Web 3.0) was a major move toward a transparent information economy. Suddenly, all information – any type of information – about even the most remote goods or services could be shared, tweeted, blogged, yelped, pinned, and published by consumers. The all-inclusive power firms had over available information was now supplanted by the power of connected consumers. In effect, consumers are now driving an information economy based on transparency.
The Political Economy of Information
The political economy of information is an early theory researchers discussed concerning the power of information. In this context, “political” is not related to governmental elections. Greek philosophers used the terms political and politics to mean the practice of influencing other people at the individual level. Stemming from this context is the use of the term “political” in social sciences, which represents the ability to influence the behavior of people in a social structure, such as consumers in a target market.
Traditional business models: The power of firms
These early definitions concerning the ability of one party to influence another party carried over well to a marketing and advertising context via mass media. In the early days of television and radio only the largest firms with available resources could afford broad marketing campaigns in these new media of the time. Like the old adage said, “if it is on T.V. then it must be true,” was believed by many consumers to be a fact. That was power.
In a political economy of information, the group with more information has more power over a group with access to less information. In mass media, firms possessed and controlled more information over a less informed market of consumers. The balance of marketing power was heavily tilted toward companies.
Firms could control a message. Individual consumers could not add information to that message, except verbally in extremely small groups through word-of-mouth. Marketers were in control of information. That was the power possessed over a passive consumer audience. In an information economy, information is the power currency.
Modern day business models: The power of consumers
Showrooming, like connected consumers participating in social networks, is a major power shift from the boardrooms of firms to the mobile devices of consumers. A political economy of information still exists, only now it is consumers who often possess the power currency of more information (or are at least on par with firms). Any business models in use by firms in an attempt to stifle or control the power of connected consumers will be met with strong opposition.
In other words, firms clinging to a traditional business model mentality are failing to adapt to a new electronic business landscape. Such a failure to adapt new strategies will negatively affect the corporate bottom line.
Showrooming, online reviews, social media complaints, status updates, citizen influencers though PeerIndex and Klout, are a few examples of connected consumers creating and accessing more information about goods and services. Decades of firms using a power position to hold and control select information has come to an end in this new age of information transparency.
The Future of Marketing
To date, many firms are still struggling with their loss of power in a marketing and advertising context. Some of the strategies to respond to showroomers, such as price matching, support the philosophy of information transparency. However, a price war may not be the answer. Other strategies, such as information blackout, support a power-play attempt by firms to regain information control. Both types of strategies are not optimal.
One outlook from a noted expert reveals what firms must seek in new marketing strategies moving forward. Lin Humphrey is a mobile marketing researcher, marketing doctoral candidate at Texas Tech University, and was recently awarded the Mobile Marketing Academic of the Year by the Mobile Marketing Association. Speaking specifically about showrooming Lin stated via e-mail, “It’s shifted the power back to the consumer, which forces brands to be more competitive. Price guarantees, easy return policies, added values such as additional warranties at no cost are all things that retailers should be playing up (because the internet retailers are playing on price).”
The key is to offer value-added services. Price matching is a nice move by retailers, but a pure price war between brick and mortar retailers and internet retailers is a war to be won by online firms. As the digital information economy evolves, firms will need to implement strategies other than simple price matching tactics or an attempt to control information access. Create value-added services, value that consumers recognize, and market these added services. That is how to respond to showrooming.
This was part two of a two-part of a showrooming post. You can read part one here. Comments are welcome!
Todd Bacile (@toddbacile) is a showroomer in his free time and a Marketing Professor at Loyola University New Orleans. He holds a PhD in Marketing from Florida State University. Social Media Marketing Magazine ranks him as one of the Top 100 Marketing Professors on Twitter. Questions and comments are welcome.