What is Phygital? The Future of Retail


What will be covered?

What does phygital mean? 

Phygital is a portmanteau of physical and digital, which blend offline and online environments to deliver an enhanced customer experience. Phygital is made up of “three I’s”:  

  • Immediacy: (digital) being readily available regardless of channel 
  • Immersion: (digital) the customer embarks on a journey of immersion and discovery 
  • Interaction: (physical) humanising the technology experience by creating a digital dialogue between the customer and brand 

McKinsey Senior Partner, Eric Hazan, shares his thoughts on the phygital

We are entering the world of phygital, where there is not a physical world or digital world in retail, but rather a completely connected one

Since the easing of lockdown measures, people have naturally returned to the High Street. However, safety, social distancing and the convivence of online shopping have meant high street numbers are at their lowest peak when compared to 2019. 

Mckinsey Partner commented on the strong shift to eCommerce and the importance of enhancing the offline experience: 

Traffic in stores is going to be down permanently. As you see the shift to eCommerce, some portion of your customers is not coming back in the store. So being able to maximise the value of each trip is going to be incredibly important

Therefore phygital offers a blended retail experience that takes the best aspects from either channel. Consumer behaviour has permanently changed, placing priority on convenience, speed and immersion; all sweet spots easily attained from eCommerce. Combine that with the VIP service that is easily attained in-store and phygital will sustain retailers for the upcoming years. 


In the past retail and eCommerce were made as two separate entities. Within these entities had unique strategies, targets and customers. Post COVID-19 will see retailers blend these two channels to form an entirely new customer experience. It’s a technology-led approach focusing on advanced analytics and AI to deliver a hyper-personalised experience. Customers can receive tailored curation from the moment they interact with a business, meaning whatever they engage with online can then be replicated offline and vice versa. 

Furthermore, digital tools can protect retailers from the very modern restrictions society is set to face. Safety for those who prioritise their wellbeing against the risk of infection and crowded places. Accessibility for those who live away from town centres or moving to rural areas to escape city life and Time, for those homebodies who juggle several commitments and value time as a precious commodity.

Phygital allows retailers to express soft surrender to what eCommerce can deliver. Let’s face it, the thought of closed shops, lost jobs and empty streets set the scene for a dystopian future. Nevertheless, footfall numbers are falling, and retailers should focus less on delivering what they physically can’t, such as the ease of browsing from a sofa, hyper-personalised baskets and products delivered straight to the door. With this surrender, they can pass on the ‘convenience baton’ to online channels and enhance the experience with what they excel at, which is experience, brand loyalty and outstanding customer service. 


Virtual Stores and Live Video Shopping 

Since we have touched on phygital requires a technology-led approach with advanced analytics and AI, it is good to point out that phygital can remain inclusive to a variety of SMEs and smaller retailers. While big brand names are investing in live video shopping, smaller brands can implement customer service software, cutting out all the labour required to design it. 

Like the Confer With platform, it uses headless commerce meaning it’s completely detached from the back end, giving full creative control to the front head. By offering a seamless experience, customers can interact with a product online and be promoted with a live video call or to schedule a virtual consultation.  

From there, they are connected to a retail associate who can navigate the entire product catalogue where every product is shoppable.  

To illustrate the phygital potential, let’s refer back to the three I’s again: 

Immediacy: a virtual assistant can be connected immediately and if no one is available the customer can schedule an appointment that suits them best. 

Immersion: live video shopping immerses the shopper through shoppable products and live demonstrations which evokes storytelling that once before was not possible on a standard eCommerce store. 

Interaction: one to one live video shopping creates an effective digital dialogue between the customer and brand. Closely replicating in-store experiences creates an environment where retail associates can identify needs, curates a tailored basket and builds meaningful customer relationships.


Click and collect 

Although the term phygital is in its infancy, click and collect is very much a mature business model. Retailers can reduce queues and mitigate stock issues, subsequently minimising customer distress. Additionally, it allows customers to still purchase at their own convivence but can receive the in-store experience when collecting the order. 

Immediacy: customers can skip queues and with next day delivery very much the norm, they can bypass the annoying waiting times that come with in-store experiences. 

Immersion: immersion falls a little short here – it depends on the online experience. If partners with live video shopping this helps boost immersion and customers can purchase with confidence. 

Interaction: By blending online and in-store experiences, customers can then interact with a retail assistant to understand the product more, try it on and build brand loyalty.  


Cashier-less shopping  

We can’t’ talk about phygital if we don’t talk about Amazon Go. Arguably the king of eCommerce they have completely redefined what it means to the online shop. Now they are making moves into the physical space whilst adding a splash of their online dominance. When a customer enters an Amazon Go store, all of the shopping and payments are done on the shoppers’ phones. This offers a blend of computer vision, deep learning algorithms and sensor fusion which they named ‘just walk out technology. 

Immediacy: “no lines, no checkouts”. Shoppers scan their phone upon entering and Amazon’s in-store technology tracks any items they place in their basket. When the customer leaves, Amazon automatically charges the money from their mobile device. No hassle, no fuss. 

Immersion: Similarly, to click and collect, Amazon Go really shines in the immediacy aspect. Any item they do pick gets added to a virtual basket but what they lack in immersion they make up for in speediness and convenience.  

Interaction: Although phygital is governed by the three I’s this reaches out to audience groups who want no hassle when shopping for groceries and other low-cost items. The elimination of human help is what will most likely happen in years to come, especially for low consideration products. 


Augmented Reality 

Augmented Reality or AR offers a semi-immersive experience, using computer-generated perceptual information which is then projected onto the real world.  In other words, people can view superimposed digital content ranging from visual, auditory, text, haptic, and more. AR experiences can be accessed using smartphones, tablets and AR glasses which means it is far more accessible and affordable than Virtual Reality (VR) goggles. In its prime, Pokémon GO had 379 million users wandering all corners of the world to capture Pokémon displayed on their mobile. It truly was AR at its finest.  

Since then, retail brands have harnessed this technology to offer an enjoyable and enhanced customer experience which not only helps with consumer confidence but increases conversion rates too – up to a 94% increase according to Shopify. 

Immediacy: if you have access to a mobile device then yes, it is immediate technology. In 2017 IKEA launched IKEA Placed where users can choose from multiple product categories and project it onto their surrounding physical environment. 

Immersion: Phygital technology such as AR immerses customers into a new environment that tingles all their senses. Online has very much been two dimensional but with AR features it creates a new world around them 

Interaction: If it is a mobile app like IKEA place then there is little interaction between the customer and brand. However, technologies are being integrated where customers can project items and be in touch with a retail associate too. 


Phygital stores 

Nike opened its first House of Innovation store in New York City combining the best elements of online and offline. Their mission: “to bring inspiration and innovation to every athlete”, how do they achieve this? They now have three stores: New York, Shanghai and Paris, each carefully curated to mimic the life of each city they are in. From there, customers can immerse themselves in Nike Area where they can test out new innovations, sneakerlab, whilst interacting with Nike Experts. All of this is then powered through the mobile app where they can scan items, select sizes, style and have it brought to them from a team member.  

Immediacy: Using the mobile app certainty enhances the overall experience and allows customers to browse in their own time. If they like a product they can seamlessly scan and have it brought out to them.  

Immersion: Customers can immerse themselves in the Nike Arena and even customise their own items right there. It truly blends the offline and online experiences into one homogenous experience. 

Interaction: Unlike Amazon Go, they have not eliminated the human aspect. Purchasing sportswear with confidence involves the brand understanding the needs and wants of the customer. Blending the best elements of online and offline shopping boosts the overall Nike customer experience. 


The Benefits of phygital experiences 

eCommerce has seen tremendous growth. In 2020 there was an 18.4% increase, resulting in $4.105 trillion in sales. Inside those sales are customers interacting with brands smoothly and seamlessly. On the other hand, customers also face backdated technology and impossible to reach customer service, as they would receive in-store. The time has come where customers can initiate a conversation as they browse online, or experience a seamless interaction instore boosted by technology.  


Here are some more benefits: 

It’s fun 

We have all grown accustomed to the online experience that we all need a good reason to come instore. By implementing phygital technology whether it is in the shape of live video shopping, virtual stores or cashier-less stores it makes it a fun and exciting new experience. Of course, the novelty of scanning your phone and removing queues will wear off – but the appreciation for it will stay. 


It’s addressing the post Covid change 

Live video shopping plays an important role in offering a blended retail experience. With the influx of people working from home to the increase in digital expenditure, retailers who offer a blended experience can be readily available across all channels. This means a customer’s journey can begin online with a video call, equipping your retail team with valuable information to then assisting them in-store and closing the sale. This can all be managed by booking virtual appointments to oversee the entire customer journey. 


Be immersive and engaging  

The key brand differentiator no longer relies solely on price but how superior the customer experience is. Retail Analyst and Founder of NBK Retail, Natalie Berg shares her thoughts on customer expectations post COVID-19:   

During the lockdown, retailers have recognised the need to connect online consumers with in-store staff and this will become more of an opportunity to differentiate and develop customer loyalty through superior service.

A recent study showed 76% believe that the hybrid phygital model is here to stay – with many now incorporating fun and immersive tech to improve customer engagement.  


Consumers are embracing digital 

One in three consumers will continue to work from home, driving intent to sustain or increase the use of digital habits. Additionally, 26% of consumers have tried a new digital shopping method with 25% trying a new shopping method altogether. But the biggest driver in change was a staggering 41% tried a different retailer since COVID-19 started.  

What were the biggest influencers in changing retailers?

  • Convenience – 53%
  • Good delivery/pick up options – 21%
  • Easily accessible from home – 20%
  • Fewer crowds – 18%


For retailers, the next few years will be daunting. While some survived the pandemic, others did not. And for those survivors they now need to weave themselves through digital growth. One thing is for sure, retailers who do not get phygital run the risk of alienating new customers and pushing away loyal followers.

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