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  • David Howell

When Worlds Collide: A Phygital Future?

The digital and physical retail spaces have been converging for over a decade. As the age of the phygital consumer continues to evolve, how can enterprises ensure they are on the cutting edge of these retail spaces?

Phygital is the connection of the physical world with digital spaces. The pandemic accelerated online shopping behaviour that shows no sign of slowing. Today, consumers want more information about the products they buy, often turning to their phones to access this data before they make their purchasing decisions. The most successful businesses will be those that can seamlessly interpret their customers’ needs and connect them to this information. Adding a digital experience or component to a physical product has been developing for several years. Using QR codes, for example, to tell coffee lovers where their favourite brand was grown is massively influential for engaging with individual customers. As consumers tend to begin their purchasing journey online, ensuring they have a seamless experience as they move to a physical store and back to digital channels is the challenge to make phygital effective for your business.

2023 Global Consumer Insights Pulse Survey [SOURCE: PWC]

Connecting spaces like the Metaverse to your business’s omnichannel will lead to a phygital experience for your customers. For example, the Nestlé Milkybar Wonders of Ocean campaign used AR to connect the brand to personalised messages and experiences. Ray-Ban Stories glasses delivered interactive mini-games and illustrated how AR can connect physical and virtual spaces.

Speaking to Silicon UK, Greg Hanson, GVP and platform specialist EMEA and LATAM at Informatica, commented: “Phygital is about bringing and leveraging accurate data to drive a consistent, differentiated experience across all channels. This approach allows businesses to serve customers with speed and simplicity. Relevant, optimised journeys delivered across physical and digital channels guide customers from discovery to transaction, meeting customers demand for convenience. The move towards phygital has also accelerated the shift from transactional based activity to building long-term customer relationships that drive greater loyalty.”

Customers want integrated experiences that span the physical and digital retail spaces. As companies connect these channels, how they also connect with other businesses to help them achieve the seamless integration they need requires a strategic approach to phygital.

Getting phygital

Silicon UK spoke with Jacqui Ownes, Head of Lifestyle Retail at Google, and began by asking how artificial intelligence and machine learning will shape the customer experience in e-commerce.

Jacqui Ownes, Head of Lifestyle Retail at Google

AI and ML enable retailers to show up for consumers in three really smart ways,” Ownes responded. “First, Google’s AI enables retailers to run Search ads that adapt to show more relevant messages to customers over time. Secondly, implementing data-led bidding strategies considering real-world location data equips retailers to connect digital and physical consumer behaviour better. Lastly, AI-powered campaigns leverage insights to tap into a consumer’s discovery mindset to deliver relevant ads at the right time.

“As well as furthering efficiency, AI helps to balance efficiency and growth. Through the personalised recommendations and bespoke marketing that AI provides, it marks a shift in how consumers interact with retailers, enriching consumer interactions across the purchasing cycle. This results in improved customer sentiment and overall experience.”

What are the key trends in personalisation and customisation that e-commerce businesses should pay attention to?

“When retailers consider effective personalisation, understanding and navigating more complex online customer journeys is more challenging. Consumers are using more channels and asking more detailed questions than ever. To respond, online retailers should leverage the power of AI to seek out relevant untapped or incremental conversion opportunities effectively.

“But it’s more than just customer journeys that are becoming more complex. Increasingly, we’re seeing traditional value categories, such as brand reputation and quality, blurring and shifting as shoppers prioritise the values or attributes that are most important to them as individuals. YouTube’s latest Trends and Culture report found that 65% of Gen Z agree that content that’s more personally relevant to them is more important than popular content.”

What are the significant challenges and opportunities for e-commerce businesses regarding data privacy and security?

“Trust will remain paramount for customers. According to our research, consumers view poor privacy experiences online as almost as damaging as data theft. Online retailers have a duty to ensure customer safety and privacy, regardless of the platform or channel they engage on. E-commerce businesses that demonstrate taking the necessary steps to protect customer data will be more likely to win consumer trust and respect.

“Consumers should be free to enjoy the benefits of relevant advertising or online content without worrying about what personal information is being collected and by whom. Online retailers should harness more first-party data to stay in step with consumer expectations for more privacy. This shouldn’t feel like an obligation but an opportunity. First-party data related to consumer buying behaviour is the gold dust for a more refined, relevant and personalised shopping experience.”

How will the concept of “phygital” retail shape the future of e-commerce?

“An omnichannel strategy is directly tied to reaching the growing number of UK shoppers seeking inspiration online before making a purchasing decision. Thinking in omnichannel terms puts retailers in a position to turn ambitions for driving profitable business growth into results. We’ve found that almost a third (30%) of UK shoppers browse online to decide what they will buy before heading into a physical store to make the purchase. This speaks to the continued blend of physical and digital touchpoints that populate a customer’s purchase journey.

“Retailers can capitalise on this behaviour by taking a truly omnichannel approach that accounts for product discovery and inspiration-gathering phases in the customer journey. Combining this with local product information lets consumers know which stores have availability of the products they want at the right moment while they research online.

“Not only does this allow retailers to be present across the whole consumer journey, but it also connects these critical data points to measure the impact of both online and in-store outcomes.”

What are the implications of changing consumer behaviour and expectations on the future of e-commerce?

“Technology will continue to make the lives of consumers and their e-commerce user experience more frictionless. More consumers will demand and expect personalised and convenient shopping experiences in the coming months and years, and retailers must adapt accordingly. Those prioritising omnichannel strategies when engaging with customers how, when and where they want to shop while capitalising on AI to deliver personalised experiences will be best placed to influence future consumers. In the future of e-commerce, accounting for every stage of the customer journey will be essential to successful customer centricity.”

Making connections

To make phygital a reality for your company, having all stakeholders moving in the same direction of travel is critical. As Informatica’s Greg Hanson points out, this means every business connected to your enterprise: “A phygital approach fundamentally requires a deeper partnership between all parties in the supply chain. This is because supply chain dynamics will drive a better omnichannel experience. It requires a higher level of integration and automation and a seamless flow of data back and forth. ”

Also, phygital accelerates the development of enhanced physical shopping experiences as Zsuzsa Kecsmar, Chief Strategy Officer at Antavo, describes: “We will see the rise of the “smart store”. In such a store, you can expect to see the use of more advanced technologies like smart mirrors and automated concierge systems – able to check stock availability, location and sizing – to support customers whilst shopping. There are also positive technology experiences upon entering and exiting stores with beacon technologies for nearby customer communications, checkout free shopping and digital loyalty cards connecting your online and in-store purchases. Even AI systems do the whole check out for you – scanning your basket, totalling it up and aiding you with any difficult to scan items.”

Integrating the physical and digital retail spaces is also an excellent opportunity for businesses to gather vital data to enhance these spaces and channels. “Through the collection and analysis of data derived from digital interactions, businesses gain the capability to craft laser-focused and personalised advertisements,” comments Suhaib Zaheer, Senior Vice President and General Manager of Cloudways. “This precision significantly increases the likelihood of capturing the attention and interest of potential customers. Additionally, phygital strategies ensure that product information, pricing, and promotions are consistent across physical and digital platforms, reducing confusion and fostering trust.”

Zaheer continued: “Phygitally-enabled businesses also cater to a diverse range of customer preferences by offering a comprehensive selection of payment options. From traditional cash and credit cards to digital wallets and online payment platforms, customers have the freedom to choose the method that suits them best.”

Shopper habits image

One of the key drivers behind the phygital approach is to remove any friction between the customer and the brand. This is true for enterprises in the B2C space and B2B companies that need to differentiate in their marketplaces. In their report, PWC states: “Diving deeper into consumers’ shopping and behaviour trends, some shifts were evident from the prior survey, conducted early in 2022. When asked about their shopping frequency (daily, weekly, etc.) over the last 12 months across different channels, consumers in the present survey still chose shopping in-store as the most popular channel, holding steady at 43%. Use of mobile phones and smartphones was next (34%), followed by PCs (23%).”

There is little doubt that phygital will have a massive influence on the B2B retail space but will also impact B2B, as many of the traits we are seeing in the consumer space will find equal application for enterprises that can see how phygital could benefit their companies. It’s important to evaluate the moving parts that phygital contains and how these impact the omnichannel approach your business may already be taking. What’s clear for all enterprises is that they must embrace phygital to remain relevant to their customers and commercial partners.


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