The Gamification of Retail: Why Phygital Is the Future

Set amid a backdrop of rising prices, fierce competition, and fragmenting traditional sales channels, both retail and CPG companies are in a race to edge out their competitors. Their not-so-secret move?

Going phygital.

Futuristic as it may sound, the phygital is here, now — and it’s not going anywhere.

What Is Phygital?

To phygitally shop means to merge digital experiences with physical channels — or ones that emulate physical channels (either through augmented reality or simulations).
Imagine browsing a product online. You customize it, making it uniquely yours. Then, you travel to the physical store a few days later, where that personalized product is waiting for you. (Even easier? You have it shipped right to your home!)

Phygital shopping, otherwise known as hybrid shopping, is taking the consumer economy by storm and adding new ways to capture customers’ attention and gain a share of their wallet.

Take beloved glasses brand Warby Parker. Its app enables you to take a photograph of your face, upload it, and then “test out” frames to determine which you like best. Once you find the perfect pair, you simply make your color selection (which, of course, you can test on the app), input your prescription, and order, with direct shipping right to your home.

Or consider Ikea. Its Place app lets you virtually place furniture in your house to determine just what armchair or dining room table will look best. And if you’re worried about dimension accuracy, don’t be — each piece of furniture in the app is true to scale.

The data on phygital speaks for itself. It’s estimated that in 2024 the global augmented reality (AR) retail market will reach $8 billion, growing at a compound annual growth rate of 46 percent. It’s worth mentioning that this market growth is entirely due to genuine consumer interest: 79 percent of consumers have expressed an interest in using augmented reality to visualize products in their space before buying.

If the customer is always right, then “going phygital” is a smart move for any business — for plenty of reasons.

Less Inventory

In the case of Warby Parker, consumers don’t need to try on a series of glasses — they can do so virtually, right on the app. But even if they still prefer to do their shopping in person, stores don’t need to carry extensive inventory. They can rely on sample glasses, in one or two colors, and then let the consumers leverage AR to further customize. Case in point: When I shopped for glasses recently, Warby Parker had the frames I was looking for, but not the color. It wasn’t an issue: I tried the frame on in blue and used the app to try it on in gunmetal. The latter looked better on me, so I ordered them on the spot. The frames (with my lenses) shipped to me a week later.

Instead of having every shade of every product in the store, stores can minimize their inventory by housing only the most standard items. If consumers want unique options, they request a special order.

Minimizing inventory has additional benefits, too, especially when it comes to decision fatigue. More isn’t always better (and often isn’t!). By standardizing what you have in stock, you ensure you give your customers just the right selection of offerings to keep them engaged but not overwhelmed.

Greater Personalization

When it comes to personalization, Nike sets the gold standard. Its app allows buyers to fully customize sneakers — like the fan-favorite Air Force line — creating truly original kicks in bespoke colors. Make your selection, and then see a digital 360-degree view of the pair on your feet.

As anyone in retail knows, customization is powerful. Companies that master personalization can increase their growth rates by 6 to 10 percent. However, the gains don’t stop here: In a consumer landscape marked by a 14.5 percent return rate of retail purchases, customization can go a long way in ensuring more consumers keep their purchases. According to a recent Harvard Business Review report, “firms that offer customized products report a 40 percent decrease in their returns.”

When the customer plays a role in the co-creation of a product, they are less likely to want to send it back — both because they know exactly what they are getting and because they’ve invested their time and energy in the creative process. There’s a part of them in the product now, and that attachment further reduces the likelihood of the return. And what’s more? Co-creation provides the consumer with more than just the product itself: It gives them the associated experience — and the emotional connection sparked from it.

Customer Convenience

According to the National Retail Foundation, two-thirds of consumers currently pay for delivery services like Amazon Prime. That figure jumps to a whopping 82 percent when looking at some of the busiest consumers: parents. And of that group, more than half pay for more than one of these services.

For parents of young children in particular, phygital advancements—such as Ikea’s Place app — allow for a whole new level of convenience. Need a new bureau for the nursery, but don’t have the time or bandwidth to get to the Ikea store? Do it from your phone. Leverage the exact measurements to ensure everything fits, determine which style looks best — and carry on.

Good Experience, Good Data

Phygital personalization correlates with higher sales, and so does customer satisfaction. One of the best ways to make sure your customers are happy is to let them have fun with your products—all while you get essential data.

I was reminded of this during a recent trip to a local sports store. My son needed a new baseball bat, so we brought him to the store to try out his top three picks — using AR.

The store manager got him all set up with a headset and three bats, and I watched my son “hit” the virtual balls over and over again, rotating each bat after a series of solid swings. By the end of those 30 swings, he’d made his selection.

My son had a blast trying out the new bats, and I got a kick out of watching him. The experience put us both in a good mood, so much so that we bought the bat right there — we didn’t hold off to find a better price online.

This kind of positive experience helps turn a company’s inventory, freeing up cash and helping a company determine just how to price its products.

What’s Next?

As the big-box stores continue to roll out their phygital integrations, CPG companies would be wise to jump on the bandwagon and consider the ways they can leverage the phygital.

When it comes to CPG, few places are better for phygital integration than product testing.

Imagine this: You’re a CPG company that specializes in cereal. You’re redesigning your product’s packaging to combat decreasing sales. With AR, you take product testing on the road. You have participants put on a VR headset and “walk” down an aisle of a supermarket while testing the efficacy of your package design. Did it make them look? Did it make them stop?

AR can help you make more informed decisions regarding premium stocking fees. If your product jumps out enough on the shelves, then maybe you can get away with below-eye-level placement.

While the phygital world is the future, it’s important to remember that this experience blends the physical and the digital. The physical world is still very much part of it — there’s still something about the in-person shopping experience that remains central to who we are. After all, shopping is a social activity, and we are social creatures. We’ll just do it now with in-app integrations that allow us to co-create the things we most want.

Robert Gorin is a managing director and consumer products practice leader at Getzler Henrich & Associates LLC. He can be reached at: rgorin@getzlerhenrich.com.