Abstract

In a duopoly market comprising an e-tailer and a physical retailer, we develop analytical models to explore the e-tailer’s strategy of introducing a virtual showroom to alleviate consumers’ fit uncertainty. While a virtual showroom can increase online consumer traffic, consumers may instead purchase from physical stores (i.e., webrooming) or reduce offline browsing before buying online (i.e., showrooming). Our findings indicate that consumers with a moderate online hassle cost tend to showroom when offline travel cost is not high, whereas those with a high online hassle cost rely on the virtual showroom for webrooming. Therefore, we identify the conditions under which a virtual showroom should be introduced. Specifically, when the cost of travel to the store is relatively high, the e-tailer can profit from introducing a virtual showroom if its return-handling cost is not too low. Under moderate travel cost, the e-tailer can leverage a virtual showroom to weaken competition if the return-handling cost is not too high, enabling both retailers to benefit. Notably, the impact of product fit probability on virtual showroom strategy decisions reverses between high and moderate travel costs. Under specific conditions, the virtual showroom can achieve a “win-win-win” situation for the e-tailer, the physical retailer, and consumers.

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