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What is Phygital Commerce?

Post by:
Fitzwilliam Anderson
July 17, 2023
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July 17, 2023
What is Phygital Commerce?

What is phygital?

Phygital is a portmanteau of the words “physical” and “digital.” It describes the convergence of both the online and the offline world that defines today’s modern era.

While the phenomenon of phygital has impacted a wide range of industries from healthcare to banking, it is most often discussed in the realm of retail.

Although conventional wisdom predicted the end of brick-and-mortar retail years ago, e-commerce has yet to eclipse the eminence of the physical store. Instead, customers are embracing a hybrid, omnichannel mode of engaging with companies, preferring a phygital experience that allows them to switch seamlessly between online (social media, websites, etc.) and offline (in-person experiences such as physical stores or pop-ups)

In recent years, the term "phygital" has emerged as a buzzword, representing the seamless integration of the physical and digital worlds. By blending the best aspects of in-store and digital experiences, phygital strategies offer retailers the opportunity to engage customers in new and exciting ways. In this article, we will delve into the concept of phygital, exploring its significance and benefits before outlining the technologies that enable this revolution in customer experience.

To understand phygital commerce, it’s critical to understand the current state of physical stores and the current trends shaping e-commerce. After analyzing how each of these shopping experiences benefits consumers, we’ll explore how phygital can combine the best of both worlds.

In-person shopping: The Physical Store Renaissance

DTC: the end of in-person shopping?

Scroll down your social media feed, and you’ll find post after post advertising Everlane, Warby Parker, Casper, and other direct-to-consumer (DTC) companies. While some customers worried that the new wave of DTCs would mean the end of in-store shopping and mourned the death of commercial centers around the world, others rejoiced openly at the prospect of never having to step foot into another store again.

Michael Preysman, the CEO of Everlane, was so confident in this new form of digital-only commerce that he promised the New York Times that he would “shut the company down before we go to physical retail.” Today there are eleven Everlane stores throughout the United States. So what happened? Why did the digital-first retailer succumb to the siren sounds of physical stores? It’s simple: customers love shopping in person.

In fact, Preysman, the Everlane CEO quoted above, attributes consumer behavior as the primary reason why Everlane has reversed course and is now investing big in brick-and-mortar stores in expensive neighborhoods like Soho. In what is a surprise to many, in-store shopping is still the preferred retail channel for 82% of millennials, Everlane’s main demographic, including those who also engage in online shopping.

The benefits of investing in brick-and-mortar stores

With their limited selection and limited store hours, it’s hard to believe that brick-and-mortar stores are still holding their own against e-commerce. Here are a few reasons why customers still love in-person shopping.

1. Enhanced Customer Engagement:

Physical stores create opportunities for businesses to engage with customers on a personal level. In-store experiences allow customers to interact with products, receive personalized assistance from knowledgeable staff, and benefit from immediate gratification. The ability to see, touch, and try products can instill a sense of confidence and trust in customers, leading to higher conversion rates and increased customer loyalty.

2. Tangible Brand Experience:

Brick-and-mortar stores offer a tangible manifestation of a brand's identity. Through thoughtful store design, visual merchandising, and sensory elements, businesses can create a distinct ambiance that immerses customers in their brand story. This immersive experience enables customers to forge emotional connections with the brand, fostering brand loyalty and advocacy. It’s worth noting that a brick-and-mortar store on a major shopping street lends a brand important legitimacy that can spill over into e-commerce sales.

3. Showcasing Product Quality:

Certain products are best showcased and demonstrated in person. This is especially true for luxury items like handbags, watches, and designer clothing. Although some retailers are investing in augmented reality, physical stores still provide an ideal environment for customers to experience the quality, craftsmanship, and functionality of products firsthand. This ability to showcase the value and intricacies of products can significantly influence purchase decisions.

4. Instant Gratification and Convenience:

One of the primary advantages physical stores hold over ecommerce is the ability to offer immediate gratification. Customers can walk out of a store with their desired product in hand, eliminating the waiting time associated with online shipping. Physical stores are also convenient for customers who need products urgently or prefer to browse spontaneously without the need for extensive online research.

5. Returns and Customer Service:

Returns and exchanges can be more convenient for customers when physical stores are available. Instead of the hassle of shipping back products and waiting for refunds, customers can visit a nearby store, making the return process smoother and quicker. Additionally, physical stores provide an avenue for direct customer service interactions, enabling businesses to address concerns promptly and offer personalized assistance, ultimately enhancing customer satisfaction.

Digital: the benefits of investing in e-commerce

Despite the many benefits of shopping in person listed above, a growing number of consumers partake in e-commerce. In fact, according to Forbes, 20.8% of retail purchases are expected to take place online in 2023, totaling over $1.1 trillion in sales in 2023. So why does e-commerce continue to grow in popularity?

1. Convenience: One of the primary benefits of online shopping is the convenience it offers. You can shop from the comfort of your home or any location with internet access, saving you time and effort. Online stores are accessible 24/7, allowing you to shop at any time that suits you. The items are then sent to your home, often for free.

2. Wide Selection: Online shopping provides access to a vast range of products and services from various retailers worldwide. You can explore numerous brands, compare prices, read product reviews, and find unique items that may not be available in local stores. This extensive selection empowers consumers to make well-informed purchasing decisions.

3. Price Comparisons and Discounts: Online shopping enables you to easily compare prices across different retailers, helping you find the best deals and discounts.

Phygital: the best of both worlds

An effective phygital experience combines the convenience and speed of digital life with the immersive experience and immediate gratification of in-person shopping. Curbside pickup, mobile app ordering, and QR codes are three real-world examples of phygital experiences that have transformed the consumer experience in recent years.

Case-Study: the rise of phygital retail during the COVID-19 pandemic

If you have ever walked into a Target with the express intention of buying only toilet paper and toothpaste but left the store having spent hundreds of dollars on toys, clothing, cosmetics, and groceries, you are in good company.

Target strategically designs its stores to encourage exploration and impulse buying. Eye-catching displays, attractive product arrangements, and seasonal decorations create an inviting and visually appealing environment. Placing frequently purchased and popular items near the entrance or in high-traffic areas entices customers to make impromptu purchases.

When the COVID-19 pandemic hit, however, Target needed to pivot. Because enticing customers inside the store would be impossible, relying on clever merchandising to make spontaneous sales would be hopeless. Instead, they thought outside the box and began heavily marketing their curbside pickup app.

With curbside pickup, Target customers could order and pay for Target goods on their app or website, drive to their nearest Target store, and have an employee drop the goods off directly into their trunk. During the COVID-19 pandemic, this complimentary touch-free mode of shopping gave customers some much-needed peace of mind. Curbside pickup proved so popular that it is still offered today.

Rather than mimic Amazon and try to become solely an e-commerce company, Target employed a phygital shopping experience that leveraged its greatest strength – its massive network of nearly 2,000 retail stores – to provide a novel shopping experience for the American consumer that combined the ease of e-commerce with the convenience of in-person shopping.

Fact: Nearly one-third of U.S. eCommerce shoppers — a projected 16.4 million consumers — picked up their most recent online purchase via in-store or curbside pickup, and that number represents a 37% increase from the share of eCommerce shoppers who did so in 2021.

Case-Study: Mobile App Ordering at Starbucks

Mobile ordering is a concept that allows customers to place their food and beverage orders through a mobile app or website, typically provided by the food store or restaurant. This system has gained popularity in recent years due to the increasing use of smartphones and the convenience it offers to customers.

When it comes to mobile ordering at Starbucks and other food stores, the process generally involves the following steps:

1. Mobile App or Website: Customers need to download the mobile app or access the website provided by the food store or restaurant. These platforms are typically available for both iOS and Android devices.

2. Account Creation: Customers are usually required to create an account by providing their personal details, such as their name, email address, and sometimes payment information. This step ensures that the order can be linked to the specific customer and facilitates easy payment.

3. Menu Selection: Once logged into the app or website, customers can browse the menu and select the items they wish to order. The available options may include beverages, food items, customization choices, and any ongoing promotions.

4. Customization and Special Requests: Many mobile ordering platforms allow customers to customize their orders based on their preferences. For example, at Starbucks, customers can specify the type of milk, syrup, or toppings they want in their beverages. They can also add special requests or notes, such as extra foam or no whipped cream.

5. Payment: After finalizing the order, customers proceed to the payment stage. Mobile ordering platforms typically offer various payment options, including credit/debit cards, mobile wallets like Apple Pay or Google Pay, and sometimes even store-specific digital payment methods.

6. Order Confirmation: Once the payment is processed, customers receive an order confirmation on their mobile app or via email. This confirmation usually includes the estimated time for order preparation and pickup.

7. Pickup: Instead of waiting in line to place an order, customers can proceed directly to the designated pickup area or counter to collect their order. Some food stores and restaurants have dedicated pickup shelves or lockers where customers can find their labeled orders.

Benefits of Mobile Ordering:

- Convenience: Mobile ordering allows customers to place their orders from anywhere, at any time, without having to wait in line.

- Customization: It provides a user-friendly interface that enables customers to customize their orders according to their preferences.

- Time-saving: By using mobile ordering, customers can minimize the time spent waiting for their orders to be prepared.

- Order Accuracy: Since the orders are placed digitally, there is less chance of miscommunication between customers and staff, resulting in improved order accuracy.

- Loyalty Programs: Many mobile ordering platforms integrate with loyalty programs, offering customers the ability to earn rewards and benefits through their digital orders. They typically employ push notifications to encourage repeat business.

Mobile ordering has become a popular option for customers seeking convenience and efficiency when ordering food and beverages, including at popular chains like Starbucks and other food stores.

Kiosks offer a similar experience to customers who don’t want to use their mobile phones. McDonald’s, Shake Shack, and other major fast-food restaurants have installed touch screens at their locations, allowing customers to purchase their orders and check out quickly.

Case-Study: QR Codes 

QR codes have become ubiquitous in the retail landscape, playing a crucial role in the phygital experience. These scannable codes enable customers to access additional product information, discounts, or promotions by simply scanning the code with their smartphones. By incorporating QR codes strategically throughout the store and leveraging digital identity technology to reduce customer abandonment, businesses can provide customers with a seamless transition between the physical and digital worlds, enriching their shopping experience.

No technology is more emblematic of the phygital experience than the QR code. The QR code functions as a touch-free portal, transporting customers from the real world to the virtual world. Consumers simply photograph the ubiquitous black-and-white code on their smartphones to access designated web pages. Today, the QR code has transformed our built environment, inviting consumers at every turn to visit web pages, sign up for services, and register for memberships. 

Today, it’s estimated that a staggering 11 million households scanned a QR code in the United States in 2020. In countries like China and South Korea, QR codes are even more embedded in residents’ daily lives. Unlike traditional billboards or other out-of-home advertising assets that also have the potential to reach large audiences, QR codes automatically track the number of times they are scanned, allowing advertising executives to measure the efficacy of a specific campaign. High adoption rates combined with superior metrics make it likely that QR codes will only grow in popularity. 

As the QR code becomes more popular, its use cases have become more complex and creative. Nike, for instance, scored rave reviews when it introduced a vending machine to its Melrose Avenue store in Los Angeles. The vending machine releases free merchandise to its customers when they scan their unique member QR code generated through the Nike App. But, of course, retailers aren’t the only ones innovating. Burger King created an entire advertisement centered around the QR code for MTV’s VMAs that is well worth a watch. 

Overcoming the Downside of QR Codes with Digital Identity

As businesses have found increasingly clever ways to harness the power of the QR code, a major stumbling block has emerged. While scanning a QR code on your mobile phone is easy, filling out online forms on your mobile phone to sign up for accounts or complete purchases is a major pain point for consumers. In fact, 84% of consumers prefer filling out forms on laptops or desktop computers more than mobile phones.

Making it easy for consumers to fill out forms online is critical for businesses hoping to harness the growing power of the QR code to drive sales and increase profit. With QR Pre-Fill™, businesses can automatically auto-fill a form using data from authoritative sources. This not only makes it easy for consumers to fill out forms on their phones but also puts a stop to account opening fraud schemes.

QR Pre-Fill accelerates the onboarding process by asking customers to confirm their personal data, which has been retrieved from authoritative sources, rather than asking consumers to fill out the form and verify their answers after. This reversal accounts for an incredible 80% reduction in keystrokes meaning that consumers are much less likely to drop out mid-form due to typing fatigue.

In addition to speeding up the onboarding process by reducing the number of keystrokes necessary to fill out a form, Prove’s QR Pre-fill also protects companies from account opening fraud. Account opening fraud is when “cybercriminals use stolen credentials or synthetic identities to create new accounts with the intent of committing fraud.” By harnessing Phone-Centric Identity™ informed by bank-grade data, QR Pre-fill prevents would-be scammers from opening fraudulent accounts.

With QR Pre-Fill, Prove is leveling up the QR code by making it easier and more secure to fill out forms on the mobile phone. As with all new technologies, QR prefill will soon be viewed by consumers not just as an added convenience but as a necessity.

The Future of Phygital

As technology continues to advance, the possibilities for phygital experiences are boundless. Moving forward, consumers will travel between the physical world and digital channels with the help of mobile devices and wearable technology. Providing consumers with a positive user experience will require an even greater commitment to multichannel communication. In an increasingly phygital world, emerging technologies like virtual reality (VR), artificial intelligence (AI), and the Internet of Things (IoT) have the potential to reshape the customer experience further. With VR, customers could virtually try on clothes or test products before purchasing, while AI and IoT can enable highly personalized and context-aware shopping experiences. Soon, every physical space will include some digital elements. Physical experiences like exercising, walking down the street, or visiting the doctor will incorporate phygital technology. The future of phygital is an exciting prospect, promising to revolutionize how consumers interact with brands and make purchase decisions.

Conclusion

Phygital experience represents the convergence of the physical and digital realms, redefining the retail landscape. By leveraging technologies such as augmented reality, QR codes, social media, and an omnichannel approach, businesses can enhance customer experiences and build stronger relationships with customers. Phygital strategies enable seamless integration between the convenience of online shopping and the sensory engagement of in-store experiences. As retailers continue to embrace phygital marketing strategies, they unlock a world of opportunities to captivate customers in new and exciting ways, ultimately driving business growth and success in the digital era.

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