A look at the physical+digital customer experience model, its advantages, disadvantages and some interesting examples from the industry…

The digital revolution has been steadily gaining ground for some years now. But the Covid-19 pandemic has greatly accelerated digitization in numerous industries. Everyone’s discussing what the new normal would look like, with Work-From-Home trends, digital education, online health services and OTT movie streaming amongst others all set to redefine our lives.

Challenges during the Pandemic

As the pandemic rages, lockdowns and restrictions are being imposed for varying durations and with differing levels of intensity by almost all affected countries and this has posed some obstruction to the normal functioning of life.

The shutdown of shops, supply chain disruptions and stock runs, travel halts and hygiene concerns meant that people turned to various online channels to service their day-to-day needs. Online purchase of items such as groceries, medicines, stationery items, ergonomic chairs and WFH equipment became quite normal and even car dealerships, jewellery sellers and art auctioneers went online. While a predominantly physical customer experience served us well pre-2020, a digital approach does seem to cater to one’s needs in the short term. But, in the post-Covid new normal, a phygital customer experience would be what lasts.

A Phygital Approach

Phygital = Physical + Digital. Rather than shifting completely to a digital model, a phygital approach seeks to combine high-touch and low-touch experiences in the right proportion to offer a holistic experience to all stakeholders involved. The extensive variety, price transparency, ease of comparison between brands, comfort in not having to wait in billing lines, immediacy, home deliveries and features like ratings and reviews make online shopping a breeze.

But, there is joy in offline shopping too.

The interactions with sales personnel, the opportunity to hang out with friends and family during the process, the assurance received by examining the products before purchase and the ease of passively glancing through a store as opposed to targeted searches online are aspects one cannot experience through a purely digital model. Indeed, lockdown fatigue isn’t doing anyone any good and people aren’t happy staring at screens all day.

Phygital customer experiences seek to marry the best aspects of the online and offline experience. A precursor to this is the omnichannel model, where firms roll out ample amounts of physical and digital channels to enable customers to shop via their preferred modes. Phygital takes this one step further.

Source: Think with Google, 2018; Indicates how customers are preferring phygital over standalone physical and digital options

A Phygital Model for Grocery Shopping — An Analysis

Consider the act of purchasing groceries. A physical model would involve one visiting a grocery store, billing the products and making payments while a digital model would cover the act of ordering groceries via an app and having it delivered home. A phygital model here could be one where a customer visits the store, chooses products and exits the store without having to navigate the traditional checkout. As the cart leaves the store, a digital scan would automatically make note of the products and the bill amount would be debited from the individual’s digital wallet. Such a model has been successfully debuted by Amazon through its Amazon Go stores in the US.

Phygital models offer immense benefits to its various stakeholders…

Benefits to Customers

  • Customers can pick and choose products as per their convenience and requirement
  • They can check for product quality by feeling and examining the product, akin to a physical model
  • People can bypass long lines which is one of the worst parts about grocery shopping. Especially in times like these, one doesn’t want to linger around in crowded places
  • The entire process involves hardly any contact with other humans, a good proposition especially during a pandemic
  • There’s also no need to lug around wallets or cash as there are digital payment modes

Benefits to the Company

For a firm originally operating as a pure-play digital model:

  • Lucrative cost savings associated with not having to invest in specific last-mile delivery logistics
  • Reduced costs from order returns or mismatch
  • Revenue synergies arising from the fact that people tend to buy more products as they walk through the store

For a firm originally operating as a pure-play offline grocery store:

  • Cost reductions from not having personnel or infrastructure associated with billing counters
  • Opportunity to collect data regarding product preferences which would allow for better inventory management
  • Safety from burgling of cash registers or unbilled items being swept away

In addition to the direct stakeholders, a phygital model augers well for multiple indirect stakeholders including transportation services like cabs, landlords relying on commercial lease payments and offline sales personnel. Numerous startups are offering products and services to combine top technology with legacy models and these players would definitely benefit from this boom.

More Phygital Examples

Rebecca Minkoff’s high-end fashion store in New York is heavily steeped in technology with digitally enhanced trial room fittings. Nike’s data analytics powered stores offer customized experiences to local Nike+ users. KFC too has begun offering high-tech customer experiences in its retail stores leveraging AI and facial recognition.

Disadvantages of the Phygital Model

While the phygital model seeks to combine the best of both worlds, some drawbacks need to be mentioned.

First off, as technology embeds itself deeper and deeper into our daily lives, multiple questions and doubts arise around privacy. A phygital model embraces data to provide customized experiences, but how much privacy would one be willing to forsake for this added benefit? We are currently still working on data privacy laws and are already seeing instances of how seemingly harmless data points can trigger mighty changes and manipulation.

Second, as we rely more on a few servers located around the world for our tasks, a few crashes can threaten to derail numerous activities and bring things to a standstill.

Finally, the funny thing about data is that it tends to make customers sticky. The more people visit a particular brand, the more data that brand has which allows it to offer a better customer experience, thus inviting more customers. Such a model can facilitate monopolization and this places a high barrier for entry, particularly to SMEs who may not be able to afford such integration.

Way Forward

There are three main aspects firms should focus on when it comes to a phygital offering:

  1. Strong online and offline channels
  2. Seamless integration of the two channels
  3. Adding a digital touch to physical and physical touch to digital experiences

Once companies establish a phygital model, phygital marketing strategies can be leveraged for ramping up sales.

Rapid innovation has resulted in numerous technological options that companies can adopt. Virtual and Augmented Reality, drones, blockchains, IoT, 5G technology, AI/ML and NLP have immense potential to bring to customers a holistic experience combining technological efficiency with a sense of physical touch. Immense opportunities lie in tapping tier II and III markets in India by leveraging vernacular offerings due to the developments in internet and smartphone access.

To overcome the disadvantages associated with a phygital model, Governments must establish clear data protection laws and ensure that companies abide by the same. Firms must work to keep their customers’ data safe and shouldn’t engage in unethical practices using accumulated data. Anti-competitive behaviour must be shunned and partnerships with SMEs and smaller players should be encouraged to provide benefits to all.

In conclusion, a phygital approach could be the answer to what the new normal for firms would look like in the post-Covid era.

A finance and public policy enthusiast, passionate orator, keyboard player and reader who loves dreaming big, working hard and trying out new things.