Showroom Deployment with Consumers’ Anticipated Regret
Abstract
In conjunction with the online sales channel, an increasing number of manufacturers are launching showrooms to address consumer fit uncertainty. Our study examines showroom deployment by manufacturers under two scenarios: manufacturer-operated showroom and showroom-operated in collaboration with an independent operator. We consider two types of consumers’ anticipated regret — “mismatch regret” and “high-cost regret” — and develop two game models wherein either the manufacturer or the independent operator determines the optimal pricing strategies. From the derived equilibria, we obtain three key findings: (1) Regardless of whether the showroom is launched by the manufacturer or an independent operator, there are two pricing strategies: unified pricing when the return cost for consumers is relatively low and differential pricing when the cost is high. (2) Under the differential pricing strategy, the optimal price in the showroom increases with the intensity of consumers’ mismatch regret and decreases with the intensity of consumers’ high-cost regret. Moreover, a showroom that collaborates with an independent operator induces a lower price in the showroom than under the scenario of a manufacturer-operated showroom. (3) Consumers’ mismatch regret has a promoting effect on showroom deployment.
