The means are not the message
In the phygital world, where virtual and real shopping journeys converge, the platform is not important, the experience is. What matters to consumers is seeing their desires fulfilled, whether in-store or online – it is up to retailers to find a suitable model to thrive in that reality.December 2019 | February 2020
On January 22, 2018, Amazon, which became one of the largest companies to revolutionize online retail, stunned the world by opening Amazon Go, a Seattle-based physical store, to the public. The store was fascinatingly transforming the shopping experience we were used to: thanks to technologies such as deep learning, sensors, and an app installed on a smartphone, anyone could take what they wanted and leave without facing queues or going through cash registers.
Amazon’s shift to the real world marked an inflection in the expected retail development. At a time when Amazon-led online retailers were gaining ground and shutting down physical stores, more than a few believed that the future would be virtual. They were wrong. Today, retail experts are almost unanimous in stating that it doesn’t matter whether the store is physical or online: what matters most is the shopping experience the consumer seeks. And it occurs in both channels, from a phenomenon that has been called “phygital” for some years – a neologism formed by the junction of the words “physical” and “digital”. Now these companies are challenged to adapt their strategies to meet customers’ demands and successfully navigate through this new dynamic.
In a world where the boundaries between real and virtual are irrelevant, retailers need to be prepared to better serve the consumer. For Amazon, the idea of creating a physical point of sale started with a simple question: “What would a purchase look like if you could walk into a store, take what you wanted, and leave?” From there, the interaction between digital technologies and the physical store takes place in a natural – and almost obvious – way. As with every store, products are arranged on shelves, but payment is automatically made via the app as soon as the consumer leaves the store. The real products are “placed” in a virtual cart. “In the retail of the future, the online and offline worlds converge and complement each other”, says Leon Pieters, Deloitte’s global leader for the Consumer Products industry. “What really matters is focusing on the experience the consumer wants.”
Seeking to provide consumer experience, Google opened “pop up stores” in the United States, temporary establishments that can operate for a day or a few months and aim to activate brands in a physical space. These stores were created so that consumers could see and touch products like Google Glass (augmented reality glasses) and Google Home (speaker that allows voice commands to interact with Google’s own services). “While traditional retailers close stores and shrink their product portfolio, Google moves from online to offline to get closer to the consumer and give them the opportunity to feel and try their products”, explains Pieters. The function of such stores is not to make sales. It matters little to Google whether people are going to buy a Google Home device or a smartphone from a “pop-up store”. “Understanding how customers behave is the most important thing”, says the Deloitte expert. “And that will result in more sales afterwards.”
Some people say physical stores are obsolete and everything will be bought online. I completely disagree with this view. In the future, we'll have stores focused on what the consumer wants – experience. Leon Pieters, Deloitte's global leader for the Consumer Products industry
The store of the future vs. the consumer of the present
Until recently, most Nike stores in the United States were installed in outlets on the cities’ outskirts. In 2018, the sporting goods manufacturer opened its House of Innovation 000 on 5th Avenue, in the heart of Manhattan, New York. The new concept store has 68,000 square meters and offers brand fans the opportunity to sign co-creations of on-demand pieces and products. The salesperson acts as a lifestyle coach who gives health and sports tips – all aligned with Nike’s values. In addition to customer loyalty, Nike gains valuable insights into consumer habits and desires.
Nike’s House of Innovation points to the new role of physical stores in the consumer journey. “The trend is that there will be fewer and fewer, but much better stores, with better quality, distinctive designs and layouts designed to build customer loyalty”, explains Reynaldo Saad, Deloitte’s lead partner for the Consumer industry in Brazil.
This change in model and strategy is imperative for retailers to adapt to changing consumer habits – which, it is no exaggeration to say, are deeper than the disruptions proposed by retailers. Today it is possible to identify three trends.
The first is the desire to have custom products. Consumers still follow fashion releases – as long as they can add something of their personality to products. “They don’t just want to be part of the mass”, says Pieters.
The second is the need for identification with values – the purpose of brands. To become loyal consumers, you need to create a synergy with their lifestyle.
And the third change impacts the buying journey. Before the popularization of the internet, when people wanted to buy something, they would go to a physical store. There, they were faced with a great deal of options. The salesperson had the role of facilitator in decision making. When the product portfolio went to the internet, it allowed people to research what they wanted to buy. A problem arose: how to choose from so many options? That was when influencers came in, they perform product reviews and ratings on social media. “Influencers took on the role of salespeople”, says Saad.
Obsession for good service
According to “Retail Transformation Survey”, by Deloitte, made with executives from 126 companies in Brazil, 65% of companies claim to have phygital behavior customers – who check prices on the internet while visiting a physical store.
Phygital is not knowing where the buying process starts or ends, whether in a real or virtual channel. Being phygital means putting the buying process first and using the conveniences of online and real for that. Reynaldo Saad, Deloitte's lead partner for the Consumer industry in Brazil
Those who invest in channel diversity have better results. According to the survey, 24% of retailers use five or more sales channels, such as their own website, physical stores and social networks. And 71% of them had sales increases in 2018, compared to 2017. Among those using up to two channels, only 39% saw sales increase over the same period. “Until recently, online stores were believed to compete with physical stores” says Flávio Rocha, chairman of the Board of Directors of fashion retailer Riachuelo. “Today we know that channels complement each other and we need to have multiple touch points with the customer.”
In order to adapt to phygital, retailers need to have features that allow customers to navigate between physical and digital channels. For example, a customer wants to buy a television. The journey can begin by researching models, brands, and technologies on the Internet, by checking one or more influencers, as well as websites that compare prices and product features. Perhaps, before finalizing the purchase, they want to see if the sound and picture quality is really what the manufacturer promises. For this, they decide to look for a physical store. Where to find the product? It would be extremely frustrating if, after so much effort, the consumer came to a store and could not check the TV.
Technology can help in this process. Gofind is a startup that offers a product finder based on artificial intelligence algorithms. “We help brands show consumers the points of sale that have certain products in stock” says Felipe Samy, Marketing director and partner at Gofind, which has brands such as Ambev and Unilever among its customers and is able to map 260,000 stores in 4,100 cities. “Without the tool, brands lose 35% of their planned sales.”
Services like this show the obsession with serving the consumer well – which is shared by Amazon Brazil. According to Alex Szapiro, president of the American multinational, providing convenience, offering the widest possible range of products and ensuring speed of delivery are the three pillars of the retailer. “We spend a lot of time delivering the best possible service, whether it’s offering the payment methods consumers are looking for or meeting product delivery times” declares Szapiro.
So much customer concern brings results. Amazon is today the most valuable brand in the world according to the BrandZTM 2019 ranking. It was valued at US$ 315.5 billion, ahead of Apple (US$ 309.5 billion).
In a world where access to information of all kinds has become fast and easy, consumption patterns are evolving at the same pace. Companies that have an increasingly sophisticated response and positioning capability to these changes will win.