Consumer self-optimization in a virtual showroom experience and its implications on online product return strategies

We consider an online retailer that sells one product to consumers with product fit uncertainty. In addition to the return strategy, the retailer can introduce a virtual showroom online. Each consumer in a virtual showroom strategically optimizes the experience process prior to the purchase decision-making, which involves the trade-off between the expended effort cost in the product interaction and the obtained product value information. It is found that the virtual showroom simultaneously generates a demand increase effect and a price improvement effect for the online retailer. Consumers with intermediate levels of willingness to pay who leave the market when the virtual showroom is not introduced may purchase the product due to the interaction with the product in the virtual showroom, which can increase the product selling quantity. Consumers who receive positive match information through their self-optimization experiences in the virtual showroom will purchase the product with enhanced confidence, which drives the retailer to improve the retail price. The value of the virtual showroom is enhanced when the retailer has to bear the return loss costs, whereas may be weakened when the virtual showroom’s information delivery ability is endogenously determined with an investment cost. Furthermore, we reveal the impacts of the consumer self-optimization behavior on the interrelationship between the virtual showroom and the return strategies. In particular, when return is not feasible, it is not recommended for the online retailer to introduce the virtual showroom. In this case, a consumer will directly leave the market if the updated product matching probability through the virtual showroom experience decreases. Then, the retailer has to reduce the price to mitigate the demand decrease problem, which ultimately results in the profit reduction.