Case Study: Can Retailers Win Back Shoppers Who Browse then Buy Online?

Bertice Jenson couldn’t believe how shameless they were. Right in front of her in the Benjy’s superstore in Oklahoma City, a young couple pointed a smartphone at a Samsung 50-inch Ultra HD TV and then used an app to find an online price for it. They did the same for a Sony and an LG LED model, as the Munchkins from The Wizard of Oz danced across all three screens. “Excuse me,” Bertice said. “I see what you’re doing. Don’t you think that’s kind of … unfair?” The two shoppers looked at each other as though this hadn’t occurred to them. “We’re only comparing prices,” the young woman said, stroking the West Highland terrier nestled in the crook of her arm. “But the app—it’s Amazon’s, right?” Bertice asked. “Once you figure out which TV you want to buy, you’re going to order it from Amazon.” “Probably,” the young man said, shrugging. “But Amazon … ” Bertice couldn’t articulate what she wanted to say. “See, Amazon … What I mean is, this isn’t Amazon’s showroom. Benjy’s doesn’t display these products and staff these stores for the benefit of Amazon. We want you to buy from us.” They looked at her blankly. “Oh, you work here?” the woman asked. Bertice wasn’t dressed like the sales staff, and the couple had no way of knowing that she was the daughter of Benjy’s founder or that she’d been recently appointed to chair the board of the $40 billion electronics and appliance retailer. She was now making a routine drop-in visit to one of the chain’s 2,000-some stores. But that wasn’t worth explaining. “Never mind,” Bertice said. “Just be aware that what you do has consequences. This real-live shopping experience you’re having here at Benjy’s is helping you decide which TV to buy. And if you order from Amazon, you’re basically stealing that experience and cheating us.” She knew she sounded shrill. The couple looked as though they expected her next words to be, “I’ll get you, my pretties, and your little dog too!” Caught in the Middle Bertice wasn’t accustomed to playing the Wicked Witch. Although she prided herself on her financial toughness, she was a natural mediator. Her father, one of America’s most prominent African-American corporate leaders, had always counseled her to be even-tempered and even-handed, and she had been—through four years at a mostly white high school, six years in mostly male undergrad finance and MBA programs, the 15 years she’d spent working her way up the ladder at a top-tier accounting firm, and especially the decade she’d been on the board of Benjy’s. Bertice was now preparing to mediate between her father and the company’s CEO, who had very different ideas about how to respond to what Bertice had seen in Oklahoma City: “showrooming.” Customers like the couple with the Westie weren’t unusual. More and more people were coming to Benjy’s to look at products but then buying them from online competitors whose lack of a bricks-and-mortar presence enabled them to offer discount prices. Research showed that 83% of people shopping for electronics and appliances were now practicing showrooming. The chain’s sales had nosedived as a result; the most recent quarterly loss was nearly $700 million. “Baby, baby, baby,” Ben said as he hugged his daughter in the 16th floor hallway. “I’m 41 years old, Daddy,” she chided him playfully. “I didn’t hear that,” said a voice behind her. It was the CEO, Stanley, or “Farb,” as everyone called him. Smiling, he shook hands with both Ben and Bertice. “Why don’t we move into the boardroom?” Bertice said. “I think everyone else is here.” After the usual pleasantries, Bertice jumped right in: “Showrooming is a serious problem for most retailers, but particularly those of us in electronics. Amazon keeps making it easier for shoppers to search, find, and order a product online. We need to decide on a counterstrategy. Farb, I know you’ve prepared a presentation for us.” The projector was balky, and Ben took advantage of the pause to put his own views out there. “I think it’s obvious that we need to play both offense and defense. Offense should include providing more-aggressive discounts through the Benjy’s app and matching online prices. We also need to get more suppliers to impose minimum advertised prices on their online retailers, so that there’s a floor price for every product, online or off. We’re already working on that. There was murmuring around the table. Apparently this was news to some of the directors. “But there are ways to thwart object-recognition software,” Ben continued. “We create display structures within the stores that confuse the apps while still showing off the products. There are consulting firms that specialize in this. The costs are relatively minor and well worth it. Personally, I think this tactic is a no-brainer.” Case Study Teaching Notes Sunil Gupta and Thales S. Teixeira teach cases about showrooming in their digital strategy and executive education classes. Here Gupta shares some thoughts. What drew you to this story? I teach a case on Amazon and showrooming, but I realized we should cover the topic from the perspective of the brick-and-mortar retailer too. If technology is disrupting your business, what should you do? What suggestions do students make? Match prices, use anti-showrooming tactics, improve customer service, ask manufacturers to create exclusive SKUs, focus on installation and repairs, emphasize instant gratification. But there are problems with those approaches; this case highlights a few. What lessons do you hope to teach? When the market changes, companies must reconsider how they create and capture value. Would consumers miss Best Buy if it disappeared? Yes, because many like to see and touch products. Would manufacturers miss it? Those that don’t have stores would. So Best Buy is creating value. How do you capture it? Ask the manufacturers to pay a fee for showcasing. “Bertice,” the CEO said. She realized that she was letting her father dominate the conversation. She asked Ben to hold off, now that the projector was working, and she gave Farb the floor. “The way they shop is killing us,” Ben interjected. Bertice spoke up: “Let’s hear him out, Dad.” Farb gave her a grateful look. “TVs and laptops may seem like commodities that people want to buy only at the lowest possible prices, but so did coffee before Howard Schultz made Starbucks a destination. Why shouldn’t Benjy’s do the same—showcase only the highest-value products and educate customers about them, instead of letting them flounder in an overwhelming, uncurated retail landscape?” “You’re sounding naïve, Farb,” Ben said. “People will still showroom if they find better deals online.” “We could still match prices,” the CEO said. “How could we afford that?” Bertice asked, keen to break up the back-and-forth between the two men. “There’s no precedent for that in electronics retail,” Ben countered. “It’s a nonstarter. You’ll ruin relationships that we’ve spent decades building. And you’re talking about huge business-model changes that, even if we wanted to make them, would take months—maybe years!—to implement. We need a solution now!” Several board members nodded in agreement. Bertice could sense that Farb was ready to respond and that her father was up for a fight, but she knew it wouldn’t be a productive one. “Farb, you’re proposing a pretty radical change and it’s a lot for us to digest,” she said quickly. “Dad, it would also be useful to have more detail on those countermeasures you mentioned. So let’s table this discussion for now and get through the other items on our agenda. Farb can send around his deck, with plenty of supporting data, and we can all take some time to review the information. If everyone is amenable, I’d like to arrange a conference call next week to discuss only this and decide on a course of action.” New Ways to Make Money The next day, Bertice was in Huntsville, Alabama, to join in the ribbon cutting for a redevelopment project. Several big-box superstores—including a Benjy’s—had been closed and replaced by a mixed-use residential-retail community. Benjy’s still had a presence but a much smaller one. “Welcome to Benjy’s,” a store employee said when she walked in. “Did you come here today looking for something specific?” So customers weren’t responding to price-matching, and they were being chased away by excellent service. All this put her in mind of Oz again. This time she didn’t feel like the Wicked Witch; she felt like Dorothy, uprooted by a whirlwind and thrown into a world that made little sense. But no ruby slippers were going to help her get back to the old predictability of retail. She would have to figure out herself how to move forward. Question: Should Benjy’s fight the showroomers or welcome them? The Experts Respond Roberto Leao is a finance executive for a global retail organization. Based on the environment outlined in the case study, one can see why Ben Jenson wants to shore up the company’s defenses. Without a strategy, he’s probably concerned that showrooming may hurt profits. And some of Farb’s ideas for going on the offense, such as having suppliers provide Benjy’s with exclusive products, seem useful. You have to do that the right way, though. For a “unique to Benjy’s” initiative to be effective, the products would have to be well differentiated from anything that could be found online. Adding a few bells and whistles wouldn’t be enough. Benjy’s must also keep in mind that many retailers already offer exclusive products—it’s not a novel idea. One relevant piece that the company is missing is direct feedback from existing and potential customers as to why some visit stores while others shop online and why some of them showroom while others don’t. Ben seems to assume that price is the main factor driving customers to online competitors. But perhaps it’s something else. Maybe availability is the problem; a few ill-timed out-of-stock situations can have a big impact. Or maybe it’s the product assortment or some other aspect of the shopping experience. The answers could help Benjy’s figure out how to win over showroomers and how to better cater to people who like shopping in physical stores. One relevant piece that the company is missing is direct feedback from existing and potential customers. Those answers, too, could highlight avenues of opportunity, backed by customer research rather than just Farb’s intuition. Perhaps Benjy’s could indeed build competitive advantage by focusing more on the curation function and increasing its emphasis on service. Consumers do appreciate interacting with informed sales reps, trying out products firsthand, and getting items immediately: You see something, you like it, and you take it home. That said, all those in-store initiatives would need to be seamlessly integrated with an online strategy so that each experience complements the other. Customers shouldn’t think “Benjy’s online” or “Benjy’s brick-and-mortar,” but just “Benjy’s.” The company should use its website to expand on the in-store assortment and help customers find the best product and the best quality without having to do a lot of independent research. That’s where the opportunity lies. Steve Conine is the cofounder and chief technology officer of Wayfair, an online retailer of home furnishings and housewares. I like Farb’s idea of transforming the Benjy’s stores into paid showrooms for manufacturers. I don’t know whether the concept could work financially, but at least he’s thinking outside the box. The CEO is right when he says that the world of retail has dramatically changed. And like other physical stores that sell branded products, Benjy’s may need to rethink its traditional business model if it wants to survive. I help lead a company that facilitates online sales of furniture and furnishings—items that many people would have once said they’d never buy online. Who could commit to a multi-thousand-dollar purchase of a sofa, say, without sitting on it and feeling the fabric? Low awareness of manufacturers’ brands is another factor stacked against our business: Few people are going to hunt online for a particular sofa maker’s products the way they’d hunt for a Samsung phone or a Stephen King novel. It’s true that the vast majority of furniture sales still happen off-line, and Wayfair even experiences a good deal of reverse showrooming, with consumers coming to our site to research products and then going to physical stores (not ours, since we don’t have any) to buy items similar to those they’ve seen online. Yet more and more people do buy sofas—and every other kind of product—online. That’s because we and other online retailers are improving the shopping experience, the prices are compelling, and digital customers don’t have to spend their weekends driving around and visiting showrooms. If I were an executive of any business stuck in the brick-and-mortar world, I’d be really worried. I wouldn’t be spending my time thinking about how to better defend my rapidly shrinking physical territory, as Ben is. You can go only so far to obfuscate the specific brands and models you’re selling and thwart the price-comparison apps. So instead I’d be trying to create an exciting online business that would meet my customers’ needs and capture their imagination. If I were an executive of any business stuck in the brick-and-mortar world, I’d be really worried. An online Benjy’s might not be able to compete with Amazon on certain parameters, such as price and assortment, but it might be able to carve out an advantage by learning to do things differently—for example, by providing a better interface. Most online retailers are good at showing you what they’ve got and filling your orders, but they’re not as good at selling or responding to vague queries; Benjy’s could try to fill those gaps. Doing so isn’t impossible. Wayfair has gotten pretty skilled at online selling—we do our own inspirational photography of our products—as well as fielding unfocused inquiries. Benjy’s could also explore becoming a resource site for knowledge about electronics or appliances or other items it sells. That’s what Wayfair did: We made ourselves, in effect, the Wikipedia of furniture, so thousands of visitors come to us for information. That’s fine—over time, by providing ever-better consumer education and third-party reviews, we’ve encouraged people to shop our site as well as learn from it. And if you have a huge number of page views, your conversion rate doesn’t have to be very high. You can still make money if even a modest percentage of visitors actually buy. The past couple of decades have demonstrated that the macro trend is going against the retail chains that depend on physical stores. Those of us in e-commerce, even though we face numerous obstacles, tend to feel that we’re headed in the right direction—that the wind is at our backs. The leaders of Benjy’s can save themselves a lot of wasted energy by turning around and making use of that wind to get out ahead of their competition. HBR’s fictionalized case studies present dilemmas faced by leaders in real companies and offer solutions from experts. This one is based on the HBS Case Study “Showrooming at Best Buy” (case no. 515019), by Thales Teixeira and Elizabeth Anne Watkins.

Case Study: Can Retailers Win Back Shoppers Who Browse then Buy Online?

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