Phygital — What Is It And Why Should I Care?
It was the turn of the century, and I found myself in Fort Worth, Texas, locked in a room with investors considering the future of bricks-and-mortar retail. We were reviewing data about the health of brick-and-mortar retailers. The charts showed a decline in market confidence in the future of retail, at least in the physical sense. At that point, if you had asked each of us if we saw a future in bricks and mortar, we would’ve said it’s looking bleak. Fast forward a decade, and we couldn’t have been more wrong.
Demand for great customer experiences has grown. Nevertheless, it hasn’t done so in isolation. In the past decade, digital adoption has grown exponentially, none more so than the last 15 months under Covid-19 restrictions. Think about it. How many payments have you made online recently? How many times have you communicated with customer service over web chat? How are you communicating? How have you investigated and interrogated your purchases? Shouted at a virtual assistant or smart device? Added voice verification to your credit card?
Experience would suggest that many brand interactions are done through a mobile phone, desktop or connected device these days. That leaves us with a particular dilemma. How do experts design for immersive in-store experiences while leveraging the efficiency and instant gratification of the digital world? This is the essence of the phrase “phygital” — the combination of physical and digital for enhanced experiences.
Companies like Amazon, Alibaba, Nordea and b8ta have been ahead of the curve with phygital. If you have visited an Amazon Go Store, you may have marveled at the contactless element of it all. One walks out of an Amazon Go Store and almost double checks that you have paid for the bottle of water you seamlessly picked up and walked out of the store with. But is any of this cost-effective? The answer is yes. Back in 2018, analysts estimated the sales per square foot for an Amazon Go Store in Seattle to be $2700. Considering the industry average regional sales per square foot hovers around $250-$350, phygital certainly can be cost-efficient.
Over the course of the last decade, I’ve learned many lessons working with companies on phygital. I found there are five key elements to consider on your journey.
The Five Elements Of Phygital
1. Phygital is omnichannel.
To be successful, view your organization as a single organism. Processes require cross-channel design, as do objectives, roles and responsibilities, and these should be passive; put each step in place to reduce friction and increase positive intervention. Competition between your channels isn’t your friend here.
2. Phygital is psychology.
Consumer psychology is central to phygital. For example, individuals tend to “select (product) from the right.” Placement of browsing screens would follow a similar tendency of being better on the right. Train your staff to be symbiotic with technology, each drawing on their strengths and weaknesses.
3. Phygital is combined revenue recognition.
Forget about incentivization and reward on a channel-by-channel basis. Budgets should be set on a cross-channel basis. If you want to really test this strategy, broaden skill set and exposure by rotating channel responsibilities across each of your heads of channels.
4. Phygital is compromise.
The solution that’s right for your organization is one that’s optimal across your retail and digital channels. Put in place a set of design principles to help ensure the decisions you make aren’t subjected to bias. Be prepared to compromise.
5. Phygital is a journey, not a destination.
An organization doesn’t wake up one day and be phygital. It’s a strategy that requires constant evaluation, improvement and response to the market. There’s a time where digital will be as ubiquitous as electricity; until that day, this requires consistent investment.
The five elements of phygital each require a significant commitment. Often, this can result in a dilution of the vision of what you want to achieve over time. So, what advice would I give to business leaders?
First, identify change agents within your business — individuals with resilience, strength of character, objectivity and willingness to be flexible to the business. Second, ensure you have a strong connection back to the strategy of the business. Physical involves channel compromise; be prepared to erode benefit in one channel to support another. Third, work with your CFO and shareholders to change to an omnichannel revenue recognition model. No more reporting on a channel-by-channel basis; make each channel owner accountable to the single number that underpins your business.
Remember, no significant change comes from comfort, so be prepared for discomfort as you begin incorporating phygital into your business. You may be rewarded for seeing it through the right way.
Source: Phygital — What Is It And Why Should I Care? (forbes.com)