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ONE OF THE SIDE EFFECTS of the “showrooming” panic which seems to grip some of America’s big box retailers has been a flood of learned and not-so-learned opinions from learned and not-so-learned analysts and observers.

Showrooming anxiety emerged during the 2011 holiday selling season, when chains like Target and Best Buy were revealed as victims. Shoppers were inspecting and comparing merchandise in their stores, then using mobile apps to find and order the desired items at lower prices from places like Amazon.com and Buy.com. The story had a second surge in media coverage during April, when Best Buy reported soft sales and the departure of its CEO Brian Dunn. There are too many articles to count about this. How important is it, really?

The Pew Internet & American Life Project reported Jan. 30 that about one fourth of shoppers had used a smart phone at least once to check a price in a store during the last holiday period. The release did not specify which types of products were checked most. I’d bet a month of sales that the skew was heavily toward high-consideration purchases like TVs and major appliances.

Nielsen recently released findings that suggest there is indeed a significant variation in impact of mobile device use across retail channels. Nearly three fourths of respondents said they used a smartphone to check prices on a consumer electronic item, while more than half said they had scanned a code with their phone in a CE store. This behavior was much less prevalent in most other product categories – but not zero.

The New Transparency
Clearly there is much more we need to understand about this shopper behavior complex — not only about how shoppers are altering their habits around certain purchases, but also regarding what brands and retailers should do about it.

To that end, DemandTec, an IBM Company, is now sponsoring a RetailWire survey with specific focus on how retail practitioners think brick ‘n mortar retailers should combat showrooming.This is a worthy undertaking with potential to help surface superior thinking about the new era of price transparency:

CLICK HERE to lend your opinions to this latest RetailWire study and help the retailing community gain a better understanding of how pricing transparency and “showrooming” are influencing competitive positions.

We’ll interpret findings from this study here later this summer.

Absent investigations like these, showrooming may remain a buzzword excuse used by unimaginative retailers to explain away their mediocre performance in the face of increasing price transparency. It’s already a hot-button headline word for the herd of analysts and reporters who interpret consumer behavior based on instinct rather then empirical analysis.

I’m concerned that retailers who focus too narrowly on defeating showrooming are at risk of actually defeating their own shoppers. I propose an alternative: Focus on helping them get the best deal possible — from your bricks or clicks.

It could be that showrooming is not all bad, if we pay systematic attention. It could be just the reality check you need on your price image that could enable early corrective action.

Retailers collect slotting, display, and promotional allowances from manufacturers in exchange for putting products on their shelves. In some sectors, the net profits from these activities exceed the net profits from sale of goods. A lost sale, while unfortunate, is not a fatal occurrence. And manufacturers may still have powerful incentives to pay allowances to physical retailers who put their products on display — even if some resulting purchases take place online.

© Copyright 2012 James Tenser
(This article was commissioned by IBM which is granted the right of republication. All other rights reserved.)

WHEN THE GOOD FOLKS at DemandTec asked me to commence writing a series of short commentary pieces on this blog, I accepted the assignment in large measure because the company’s story is a reflection of the story of merchandising analytics in all its facets.

Like DemandTec, an IBM Company, my history as an analyst in what used to be called the “price optimization” sector dates back more than a decade. In 2002 I was asked to try to make this very powerful new retail science more accessible by explaining its benefits and justification in terms other than technical. Price optimization was a new idea, and its target purchasers were wary of its mysterious mechanisms.

Retailers’ objections about the apparent “black box” nature of base price elasticity permeated the sales cycles of industry pioneers, DemandTec’s included. Prospects worried that using computers to model price elasticity and interaction effects to maximize margins was too manipulative. What kind of push-back would they face if shoppers found out?

It took some effort at first, but we correctly reasoned that since optimization is based on measurements of shopper response, it is inherently shopper-centric in nature. Overall, the process tends to deliver more consistent competitive value to shoppers, while retailers maintain sustainable gross margins. These ideas are familiar now, but they were new territory ten years ago.

At about the same time, other pioneers began applying the principles of optimization to other complex merchandising decision processes, notably to the depth and timing of markdowns, and the terms of in-store promotions. Other folks were advancing assortment and space planning tools from the category management side of the house. Pretty soon, it dawned on the smarter people that that the interconnectivity and interaction effects they observed within each of these areas of discipline also exist across these areas of discipline; and not just within the retail organization, but between it and its trading partners.

A simple example might arise when a lower everyday price for a popular item revs up its turnover rate. The existing number of facings may become insufficient, creating intermittent out-of-stocks. The lost sales may tend to distort apparent demand and delay re-orders, and the problem perpetuates. Fold in other concurrent events within the category, such as new item cut-ins and shelf capacity constraints and the problem grows very knotty indeed.

Fly by Wire

When I was first learning about all this, someone I respect explained to me why the mathematical model behind pricing optimization is related to the intricate “fly-by-wire” flight control systems that keep stealth aircraft from dropping out of the sky. Both critical objectives – keeping thousands of interrelated SKUs properly tuned, and keeping multiple interrelated flight surfaces properly tuned – share several traits:

The model is big
The model must be dynamic and continuous
The model must be highly reliable under duress
The model must be continuously updated at a time cycle that is rapid enough to support critical decision-making
The model must be appropriately accessible to decision makers

In one respect, those flight control systems may be simpler than retail demand models – there’s only one cockpit in an aircraft. A retail organization, by comparison, may have dozens or hundreds of individual decision makers and planners and trading partners interacting with the merchandising model through various dashboards. Each needs appropriate analytics and decision support according to his or her role.

To the Cloud

As DemandTec developed and acquired its portfolio of software offerings over the past ten years, it placed evident emphasis on connecting users with the data and with each other in practical and beneficial ways. It was an early advocate of the software as a service (SaaS) application business model, which placed the heavy application power in outside computer servers, relieving clients from the burden of maintaining these systems in-house.

Lately the tech industry tends to refer to service-based computing as “the cloud.” In fact DemandTec’s current positioning, “The Collaborative Analytics Cloud,” reflects that. The explosive growth of major social networks has reinforced this concept, as have some of the largest IT companies. IBM, which acquired DemandTec last February, uses the tagline, “Smarter Commerce on Cloud” to describe its core strategic approach.

The company’s DemandTec Connect™ social layer is a recent development in this regard. The platform leverages social-media-like interaction with embedded analytical applications to help shape collaboration across the merchandising ecosystem. Like any social media network, the platform is cloud-based. Its ability to provide role-appropriate access to a variety of optimization analytics is pure DemandTec.