Getting Phygital Right

Phygital retailing has been around for years, but only since the pandemic hit have retailers started to take it seriously. Shoppers have spoken, and now more than ever, they expect their activities between channels to be fully integrated. This means whatever the device or method of interaction, they can browse, compare item features and pricing, make purchase decisions, finalize purchases, and ultimately buy or place an order for delivery in a consistent and personalized manner.

It’s all about being responsive to each customer’s immediate, personal needs, gauging their reactions and behavior, and correctly anticipating their future preferences. How your customer interacts with you… their chosen channels and means of communication… are merely spokes that all connect to a central, phygital hub. With the right phygital strategies, tools, and technology, retail brand growth and sales expansion are assured.

But, the fact is most retailers are still fiddling around with phygital, and few are getting it done the right way. So, it may be helpful to backtrack a bit and define the term. Simply put, it’s an equation.

But let’s start with defining the term. When you start with the physical, in-store shopping experience and then add the digital, online consumer experience to the mix, you have an equation that goes something like this:

DIGITAL + PHYSICAL = PHYGITAL

It’s a literal combination of the words physical and digital. I don’t usually embrace cute (and borderline corny) names like this, but in this case, it’s actually an accurate way to describe an important trend.

Once we all get comfortable with the word, retail sales executives and sales managers may be left wondering, “What does that mean, practically speaking?” The answer is simple. It’s the straightforward blending of digital shopping; for example, ordering something from a retailer on your phone, with the physical, such as visiting the store in person and picking it up (BOPIS).

The MarketSource research team found some late-breaking insights that shed light on the status of phygital retailing in America. For instance:

  • The 2022 Omnichannel Retail Report by The Flexe Institute shows that 95% of retailers believe online sales will stay the same or increase over the next year.
  • Forecasts suggest the current $930 billion eCommerce industry will continue its growth trajectory through 2025 and beyond.
  • Six in 10 respondents to a recent survey said they prefer to perform more than half of their shopping online.

But…

  • Two-thirds (67%) said what they miss most about in-person shopping is interacting with products and knowing what they’re getting. And, eCommerce sales still equate to just 15.3% of total retail sales.
  • Brick-and-mortar commerce spending accounted for 85.7% of all retail sales in the first quarter of 2022, according to the Quarterly Retail E-Commerce. [Industry Roadmap: Retail, July 2022]
  • 6 in 10 shoppers favor brands that have a physical location, and 71% of shoppers spend more in-store than online. [Industry Roadmap: Retail, July 2022]

The main reason people shop online is convenience. They can save time, avoid driving in traffic, and get instant price and product comparisons. And many shoppers, particularly younger ones, simply enjoy the browsing experience.

As George Gottle, cofounder of UXUS, a global retail brand agency, wrote in a July 2022 article in Fast Company: “Physical stores can therefore still play a critical role in pushing business objectives and commercial targets forward. This potential can be maximized by ensuring stores score high by ensuring customers have the most positive overall experience of the store when they visit, which in turn increases the chances they will make repeat purchases and visits.”

Shifts in consumer behavior demand retailers make corresponding shifts in their selling strategies. If the convenience of technology-driven shopping makes sense online, those same shoppers welcome leading-edge technology that enhances the in-store experience, too.

Clearly, shoppers desire, and expect, the electronic and digital aspects of online shopping to follow them into the store. And it’s obvious that the melding of the physical with the digital into a unified phygital experience can add value to the shopper’s life and drive sales. The value increases as the experience is more personalized and more customized… which phygital tools and technology can help foster.

Two Key Components to Phygital Success

However, the ability of retailers to meet phygital expectations in the real world is another story.

In a recent McKinsey.com podcast, Tyler Harris observed, “Omnichannel customers shop 1.7 times more than single-channel shoppers. They also spend more. The in-store customer, going forward, will be someone who is hitting all the different channels and touchpoints that a brand or retailer has. That means consistency and connectivity between all those channels will be really important.”

To truly win with phygital, retailers must address two key facets of the experience. If these aren’t properly addressed, you will have less satisfactory results.

1. The physical experience is primary.

Digital comes second. A studioID survey commissioned by Waze in April 2022, shows that retailers broadly agree with this approach, as 73% of brand and agency leaders feel it’s a critical or high priority to increase in-store purchases.

After all, it’s a human who is clicking on all those buttons on their phone or computer in the first place. Consider the physical interactions that your ideal customer desires and, with this human factor in mind, enhance those interactions with digital elements that reinforce an overall positive experience.

You have to consider those physical elements as a priority and not fall back on automation to solve all your problems. Use automation to augment the experience. For example, when customers click on a “chat now” button on a website, they expect to initiate a conversation with a human who will answer their questions on behalf of your brand or store. But if they are merely greeted by a software-run bot, they will be disappointed because of its inherent limitations. This can so frustrate customers that it can push them to a competitor.

You can ensure a positive interaction based on an intuitive, balanced blending of technology into the experience. For instance, customers greeted with a bot can be made aware that if it can’t answer their question, a real person will jump in. Knowing that if the question stumps the bot, after a “swing and a miss” they will connect to a real person, gives customers comfort.

Figuring out when the real begins and ends is the first part. Automating around it is the second part. This brings us to our second key facet.

3. Appealing to emotion is a must.

Once you’ve created a satisfying physical interaction that integrates with supportive digital automation, you must consider the customer’s emotional connection with you. How did the buyer initially find you? What do they expect from you when they arrive at your online site or storefront? How do you curate an experience that will leave customers happy and, hopefully, wanting more from your brand?

Many retailers are so focused on the mechanics of getting other things done—and distracted by having to navigate supply chain worries and hiring woes—that they let the ball drop when it comes to paying attention to mining the full potential of positive customer interactions. The goal is to influence customer behavior such that they want to buy from you now and will remain loyal to you in the future. The best way to influence behavior so that they connect with you and stay with you is through the creation of an emotional connection to your brand.

It’s Not the Channel, it’s the Conversation

There’s a habit that retail and brand marketers and sellers should break right now: stop thinking in terms of channels.

I understand this traditional attitude as much as anyone, having spent eight years at a company by the name of Channel Partners. Naturally, separate online and physical stores exist, and most physical stores also provide an online shopping option, but when consumers engage with these stores, they don’t differentiate them as channels. From their perspective, they are engaging with a single you: your brand, your product, your experience.

Put yourself in a customer’s shoes. Imagine how annoying it would be if you bought something online from a retailer, and then made a visit to the retailer’s physical storefront to return the item, only to be denied and told to package it up and ship it to a special returns department yourself. The store associate explains, “Oh, we’re two different channels and we can’t work well together.” Who wouldn’t resent being treated this way?

Customers don’t differentiate between channels. They are engaging with YOU: your brand, your product, your experience.

Thus, the retail world has actually expanded, bridged beyond omnichannel, and morphed, logically, into a phygital world. It’s no channel, or all channels. (Or maybe omni-omni channel?) The channels may operate separately but are completely invisible to the customer.

All kidding aside, the point is this: The different channels may actually have to exist, and may operate separately somewhere behind the scenes, but they must be completely invisible to the customer and they must work together cohesively and fluidly. That means retailers must always regard them as inextricably intertwined and combined.

Separate Pieces of the Same Puzzle

The puzzle of retail sales planning is about pulling the pieces together to create a unified experience for customers. It might be compared to planning for a winning basketball team. Each player on the team is assigned, in advance, a unique strategy to follow throughout an entire game; but success depends on adapting individual player strategies in a way to connect each player with other teammates. Working together, teammates execute particular plays to win the overall game.

Retailers can plan for phygital success in a similar manner. Start by assessing what winning would look like for your company. Define your true goal for phygital. Besides improving the customer experience, are you aiming to lift revenue, streamline operations, improve customer loyalty, increase sales volume?

Then, take stock of the key functional areas (such as sales, customer service, inventory control, data management, etc.) that will contribute to the desired result. Assure your human elements and physical touchpoints are coordinated and working smoothly. Next, align all of the functions and elements to make sure they are communicating and connected one to the other for strategic execution to achieve your overall goal. Finally, augment with digital and align both to maximize the emotional element for your consumers.

This may be a simplistic view of how to get phygital off to a satisfying start—and in reality, it is fairly simple—but many retail companies and brands are still grappling with the transformation after decades of internal channels competing and using different pricing, sourcing, returns, etc. The good news is that these companies are already aware of and working to solve the problem by mechanically uniting channels. But they won’t become fully phygital until they take a step back and home in on the key fundamentals, i.e., putting physical experience first and ensuring an emotional connection.

And don’t assume e-tail growth is ahead of physical brick-and-mortar growth and try to build a digital strategy first. In fact, in 2021, physical store growth outpaced ecommerce sales, coming in at 18.5% year over year, compared to 14.2% for e-tail.  Resist the urge to invest in all kinds of emerging technologies, or grow two separate strategies—which doesn’t make rational sense once you understand the optimal value to both you and the customer of linking the two under one operational umbrella.

Make Yours a Phygital-First Store

Winning the fight for market share demands that retailers create a unified phygital strategy. As phygital tools and technology evolve, retailers must evolve with it or be left behind. Otherwise, you’ll miss a huge opportunity to differentiate your brand, step ahead of the competition, and build brand loyalty.

Digital companies are figuring out the physical world, as seen in Amazon opening stores and taking returns at Kohl’s. Physical companies are upping their game in the digital world, as demonstrated by Walmart and Kroger diving into online grocery shopping.

Fashion and beauty companies are well into virtual try-on technology, but there are so many other aspects of phygital that are still being developed and tested. Specialized applications of augmented reality (AR), for instance, may soon be a common digital overlay to help customers make purchasing decisions. AR-driven apps can help customers navigate store aisles, tap into discounts, and make product comparisons. And the fact is, autonomous cars and robots delivering packages are different facets of the phygital experience. These phygital means of engaging are destined to be the future of every retail or e-tail engagement.

At MarketSource, we have assisted many large, recognized retailers in building brands and accelerating sales. Although they are fairly sophisticated in terms of their management expertise, they understand that creating a positive phygital experience spanning all of their customer touchpoints is a challenge that is often best left to professionals with proven expertise in this area. Over the past several years, we’ve provided retailers and brands with the right people and the right technologies to deliver the right customer interactions at the right time. As we pass along our specialized knowledge, we build close working relationships with our clients and have the opportunity to share in their successes with our programs.

Phygital is a cute name that sums up a concept that will shape the future of retail. It merges the physical and digital world and even puts the physical first, where it belongs. As is true for all impending social shifts, if you’re not knee-deep in figuring this out now, you may be left behind.

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Author: Steve Wilson

Author: Steve Wilson

Steve is Executive Director of Retail Strategy and Operations at MarketSource. He has been helping steer the strategic direction of MarketSource’s retail business unit since 2010, with oversight including operations, new services and capabilities, and reporting and analytics. Steve has over 25 years of experience designing, implementing, directing, and operating retail programs focused on driving customer experience and sales.

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