Retail in motion: the future is phygital

Omnichannel is not leading to the sought-after customer loyalty.
The future belongs to Phygital Commerce, with digital solutions for the physical shop.

• Phygital Commerce combines technological aspects with physical aspects and ensures a better and more personal customer experience.
• With Phygital Commerce, the finest aspects of online and offline shops are combined to meet customer needs.
• Phygital Commerce is the next step after 'Unified Commerce': where unified commerce focuses on data availability and customer recognition across all channels, Phygital Commerce ensures that customer needs and experiences are better met.
• The Shopping Tomorrow expert group is publishing a Blue Paper on Phygital Commerce in the autumn. Boer & Croon will organise an event where the findings of the blue paper will be presented.

The high street landscape is changing, what does the consumer want and need?

That the high street is under pressure, in the wake of the pandemic and the recent increases in rents, cannot be disputed. However, this does not mean that physical shops no longer have a right to exist. In fact, according to the latest figures from Statistics Netherlands (CBS), after a period of considerable decline, 655 physical shop locations were added over the past year (+0.8%). Yet it does mean that retailers need to get to know their customers better, respond to their needs and develop new business models. That has always been the case. Except that developments are faster and more far-reaching than in the past.

Imaginary value increases the price that consumers are willing to pay for a product.

According to Cor Molenaar, Professor by Special Appointment at the Department of Marketing Management at Erasmus University, shopkeepers must move towards a new revenue model for their physical shops. This is no longer based on the difference between the retail price and the purchase price, but on things like customer service and hedonism. In the past, all communication was price-based. Nowadays, communication is increasingly being based on feelings and needs. Only when the product (and service) does not stand out will the price play a role (and the high street will usually lose out to online). Ultimately, the consumer pays for the core product + the imaginary value (brand, image) + the service (drinks on an outdoor café are more expensive than in a supermarket).

Shopping is all about experience, it should be fun and it is not about making the most efficient purchases.

In short, the physical high street is undergoing a transition from a supply economy into a demand-driven economy. The four Ps (product, price, place and promotion) are becoming less relevant. You will usually find cheaper deals online. These days, people tend to go out less and less to buy something quickly and efficiently (I know what I want, and buy it at the most competitive price), but rather to shop (I don't know what I want, but I want to be inspired, get advice and be entertained). Within Phygital Commerce, this means that we keep the physical shop as a base, but employ digital means for a total customer experience. We call the combination of physical shops and digital resources Phygital Commerce (physical + digital = phygital).

A shop is the personification of brand/product and imaginary value.

Instead of the prices, the brand or the shop itself is the focal point. What does the company stand for? Are they committed to sustainability? Do they just talk the talk, or are they really working towards a better world? That image doesn't necessarily have to be a lofty one. It could just as well be a connection with a real life soap star. What matters is that less is communicated about the product, and more about the theme.

A crucial element in this new model is good personnel, who are not only able to provide expert advice, but also possess the right kind of social skills. After all: people go to shops for the experience. For advice, inspiration and entertainment. This is where retailers often go wrong: because as rents and purchase prices go up, they think they can only survive by skimping on staffing costs.

The physical shop and online shop are focused in different ways on fulfilling needs and must therefore offer other kinds of comforts and functionalities.

Simply transferring the physical shop activities online is consequently not the solution: whereas online ordering is aimed at convenience, it scores poorly when it comes to experience, inspiration and advice. Plus, mostly young people buy a lot through Instagram, Tik Tok or on the basis of recommendations from influencers (peer2peer instead of brand2peer). Others, notably Generation Z, orient themselves on the Internet, but end up buying in a physical shop because they have more confidence in the latter and can go there for advice and extra service. Not enough retailers are capitalising on this.

The CBS expects that the number of physical non-food shops will decrease drastically over the coming years. Their place will be taken by shops selling food. Or hybrid concepts such as bookstores where you can also go for a sandwich and a cappuccino. The future of the high street is in the hands of young enthusiastic entrepreneurs who run boutiques with unique products. Instead of competitive prices, they invest in their customers: they know them through and through and build a relationship with them.

Unified commerce including customer data provides insight to help identify and fulfil needs.
The latter is a development that applies to the entire retail sector: a progressive shift from marketing communication to marketing intelligence. This means that systems must be set up in order to collect relevant customer data, analyse it and use it to strengthen the relationship with the customer. This is already happening online, and now it needs to be done offline to make sure the customer information is complete.

Collecting offline customer information to gain a better understanding of the customer and be able to help them.

Because meanwhile, the retailer is collecting more and more data from the customer (insofar as they have given their consent), which makes it possible to anticipate their needs during future encounters. Or, for example, if a new product is launched that data shows is within the customer's area of interest, they can be informed about it.

This data can be collected through the use of loyalty cards, loyalty programmes, or simply by asking for it. If a customer feels a sense of connection to the shop and trusts that personal data will enable the shop to provide them with better service, the customer is often willing to provide that data.

Phygital Commerce fulfils the channel-independent customer needs.

For the consumer, this integration of retail channels should be completely intuitive. Complicated login procedures must be avoided. This is the only way to provide the consumer with the ultimate service that instils confidence and builds a long-term relationship with the retailer.

Within a relatively short time, retail has developed from single channel (only a physical shop) via multi channel to omni channel (all conceivable off- and online channels). Unified commerce was achieved by integrating these channels at the data level. The final step (for the time being) in the evolution of retail is called phygital commerce. In this, customer needs are independent of the division between online and offline. Phygital commerce is demand-driven and offers the consumer the best of both worlds: the practical aspect of being able to make a quick purchase at the right price and the emotional experience of shopping. Examples of this are flagship stores, such as the Apple Store, where consumers buy directly from the brand owner and are not only immersed in a brand experience, but can also go there for all their questions and customer service. If the brand appeals to them, they may then choose to buy products online. For questions, they can go to the store (experience, trust), or opt for a chat or facetime call with a knowledgeable staff member.

Therefore, where unified commerce integrates the availability of customer data, phygital blurs the boundaries between online and offline. The customer's needs are key and as such, phygital commerce is fully demand-driven. The consumer is always presented with a choice between convenience and experience. Between a quick and sterile click-and-pay, and personal advice. And that choice is fluid: it can be changed at any time.

Nike sells many of its products exclusively online through its websites. With a sophisticated membership programme, they have found a way to stay in close touch with the customer. When you sign up via the app, you have to fill in an extensive profile. This app allows them to see how much you exercise and what your running style is.
For instance, they let you design your own shoes, which is how they get to know your favourite colours and other preferences. This is how (also referred to as a mass personalisation strategy) Nike creates an intimate connection with its customers and can make highly targeted recommendations on new products.

Every retail channel has its advantages, and with that, certain limitations as well. If you want to buy a couch from IKEA, you can visit the showroom to experience how it feels. You can compare the different types of upholstery online. A total experience can still be approximated by integrating these channels as seamlessly as possible.

Phygital commerce is still in its infancy, but all indications are that this will be the future of retail. With phygital commerce, we are going back to the shop floor, because that is the basis. From that perspective, we then add all the technological resources that are available to us. In our upcoming publications, we will discuss in more detail the hurdles that still need to be cleared in order to make the seamless customer experience complete.