“Phygital” Isn’t Just a Strategy, It’s the Only Strategy for Retailers

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The fully integrated commerce future is here.

A recent study showed over 27% of millennials will increase their online spending in 2023, while half of Gen Z shoppers, who spend more time on digital channels than perhaps any other age group, favor in-store shopping. The tug of war between e-commerce-specific strategies and brick-and-mortar storefronts will continue as spending power across all demographics grows.

So how can retailers cater to so many preferences as the intersection of online and offline continues to blend? The answer: a “phygital” marketing strategy.

Phygital is a fundamental component of so-called Retail Media 2.0, the current era where digital advertising strategies for physical retail spaces and digital channels work cohesively to create a more seamless and personalized commerce experience. In this new era, commerce never sleeps. While digital advertising and e-commerce have been key drivers of retail media growth in recent years, there is an increasing recognition that physical retail spaces and in-person interactions also play an important role in driving sales and engagement.

Achieving a Seamless Shopping Experience

By leveraging anonymized customer data collected through phygital channels, such as mobile apps and interactive in-store displays, retailers can drive targeted marketing and advertising campaigns that personalize the holistic shopping experience to meet the needs and preferences of individual customers.

The commerce experience and touchpoints must be interoperable for this strategy to be successful. This means recreating successful digital strategies in-store and vice versa. Consumers want to be able to interact with a retailer in-store, online and through other channels while having a consistent and cohesive experience throughout. Interoperability between touchpoints and channels allows retailers to provide customers with a more personalized and convenient shopping experience, regardless of how they choose to interact with the retailer.

As an example, retailers may use digital signage and interactive displays to create engaging and immersive shopping experiences that encourage customers to spend more time in-store but explore bigger inventory availability with new products and offerings online. They could also offer virtual try-on options for clothes or at-home houseware visualizations using augmented reality functions on smartphones before purchasing available items in-store.

If the commerce experience and touchpoints are not interoperable, customers may experience friction or frustration as they try to move between different channels or touchpoints. By harnessing data to create targeted campaigns and promotions, retailers can increase purchase intent and brand loyalty.

Overcoming Obstacles

This holistic shift isn’t as easy as the flip of a switch. Retailers face several challenges when implementing phygital strategies into existing business and marketing models. This may involve significant changes to operations, technology and infrastructure, which can be time-consuming.

Primarily, a significant number of retailers still rely on outdated methods such as spreadsheets to manage their in-store media inventory availability and purchasing. Others must spend millions of dollars to retrofit legacy customer relationship management systems to cater to the specific requirements of their omnichannel retail media operations. Successful phygital strategies require retailers to digitize their retail ad operations, as they must ensure that their digital advertising efforts align with their in-store experiences.

Measuring the success of phygital strategies can also be a primary challenge for retailers because the fundamental blending of physical and digital elements makes it difficult to attribute specific outcomes to individual touchpoints or channels. Additionally, customers may interact with a retailer across multiple channels and touchpoints before making a purchase, making such last-mile control a complicated part of the measurement process. As such, retailers will need the ability to run closed-loop measurement tests between in-store sales versus control sales numbers to see the direct impact and Return on Ad Spend that offline campaigns can have on in-store conversions.

Retailers will need to experiment with different approaches and continually adapt to stay ahead of the curve. However, phygital strategies are leveraged effectively, retailers can drive sales and growth for their businesses.

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