Dual-channel Retailer's Showroom Pricing and Service Decision Based on Numerical Simulation

Abstract

At present, more and more retailers offer customers a seamless shopping experience through all available shopping channels to enrich customer value propositions and improve operational efficiency. The omnichannel offline showroom improves market demand and reduces the online return rate by providing the ultimate experience service, and at the same time reduces inventory cost by storing goods in remote areas or distribution centers. In this study, we identify optimal pricing and experience service decisions as well as the effects of the showroom on demand and profitability when a dual-channel retailer opens a showroom. Through numerical simulation and analysis, we find that, when the cost factor of an experience service effort reaches a certain threshold, opening a showroom channel will increase dual-channel retailers' total demand and total profit and reduce the online channel demand, and the reduced demand in the online channel will be transferred to the showroom channel. Furthermore, after opening the showroom channel, the total demand and total profit can be maximized through joint optimization decision-making to increase pricing and improve experience service levels. In addition, optimal pricing and the maximum profit decline as the online return rate increases, and the optimal experience service increase as the online return rate increases.