Tomorrow's Loyalty Turns "Phygital"

Published November 3, 2022 | Ashley McMillin & Lisa Schneider

The early days of e-commerce ushered in a debate that continues today: Is the future of retail brick-and-mortar stores or digital storefronts? Retailers still wonder if they should lean into one strategy over another, or if they should seek a best-of-both-worlds balance between them? At present, signs favor a blend of physical and digital experiences designed to seamlessly meet consumer needs and preferences.

At The Lacek Group, we believe the future of customer and brand loyalty is Total Loyalty—an approach that prizes every brand interaction as an opportunity to build a bond with consumers. Total Loyalty builds from a place that’s more human and more creative than ever. It evolves standard marketing strategies into experiences that invite engagement and bring a brand’s essence to life in emotional, fun and spontaneous ways. Today’s customers increasingly desire, even demand, these types of brand interactions throughout their journeys.

“Phygital” retail experiences—in which elements of technology and reality coexist—offer opportunities to fold your customers closer to your brand. For example, digitally enhanced shopping journeys provide frictionless transitions across channels, allowing customers to interact with and purchase from your brand when, where, and how they prefer.

Despite the pandemic effect, brick-and-mortar stores are tenacious

Pandemic lockdowns accelerated the creation of new e-commerce platforms and services. In fact, experts predict e-commerce sales will top $7 trillion by 2025. Many shoppers turned to digital purchasing out of temporary necessity during the pandemic. A large proportion continues using services like contactless payment and buying online/pick up in-store (BOPIS) for convenience.

But if shoppers can purchase almost anything with a click, easily pick it up at the curb, or have it delivered the next day, why would they bother going into a store? In short: consumers are back in stores for the experience—not just to see and touch items before purchasing, but for the immersive, multisensory, technology-driven experiences stores now provide.

The future of brick-and-mortar isn’t a place to warehouse and display merchandise, but rather a place to create and curate enveloping interactions that cement shoppers’ emotional connections to your brand. Let’s look at some of the phygital experiences that brands are creating and how they influence customer loyalty.

Robust apps integrate digital and physical storefronts

Consumers no longer differentiate between a brand’s physical store and digital presence. They want to interact with brands in store, online, and in app based on their own preferences and convenience, and they expect a consistent experience and uninterrupted service at every touch point.

Robust apps that allow customers to check inventory and prices, access program rewards and gift cards, read product reviews, and make contactless payments have further blurred the lines between shopping in store and online.

In fact, 61% of consumers consider their smartphones to be “very important” to in-store shopping. The best phygital experiences allow patrons to smoothly transition between digital and physical storefronts.

Target excels in this area. The Target app lets shoppers check inventory and merchandise location in store, access discounts and rewards, and make contactless payments. But it’s the app’s BOPIS functionality that really shines. Shoppers can use the app or website to select delivery, in-store pickup, or drive-up service—and then easily change that method whenever they wish. The app also alerts the store when a shopper arrives for a pickup, reducing wait time. Target Circle, the retailer’s loyalty program, is fully integrated in the app, allowing on-the-spot access to benefits and offers in store and at home.

7-Eleven’s loyalty program, 7REWARDS, is also heavily app based. Contactless payments can be made in store and at the pump, where members can also access fuel savings. In store, members can use the app for mobile checkout by simply scanning items to a digital cart, paying online, and scanning a QR code confirmation before leaving. Loyalty members can also scan the app when purchasing select products to enter weekly sweepstakes with prizes, such as cars and festival tickets.

Thinking about these in-store and in-app shopping behaviors, where can a loyalty program really heighten the experience? In-the-shopping-moment surprises delivered through the app can delight customers with any number of rewarding opportunities. Consider:

Exclusive, member-only flash sale discounts
Thank you for shopping with us today free gift – we appreciate you
In-store anniversary recognition and reward when a member enters the store near their loyalty program enrollment milestone
In-store, members-only events “happening now”, e.g., wine tasting, 15-minute in-store “Ask a Stylist” session, curate ahead and reveal in-store opportunities.

Online behaviors influence store designs

Brands like Amazon, DSW, and Netflix have designed physical stores reflecting popular elements of the online experience.

Amazon’s physical clothing stores recreate the efficiency of online shopping. As a shopper browses the store—where only one sample of each item is displayed—an app algorithm recommends other items they may like. A customer can scan a QR code in the app to send selected items to a pickup counter or a fitting room. Fitting rooms are equipped with touchscreens for shoppers to request different sizes and colors.

Footwear retailer DSW discovered that nearly 90% of shoppers visit its website—most often searching for national brands rather than DSW—before entering one of its stores. In response to this insight, DSW introduced “Warehouse Reimagined”—a store layout that groups national brands in curated shops at the front of each store.

This month, Netflix opened a 10,000-square-foot pop-up store at The Grove shopping complex in Los Angeles. The store features merchandise from the streaming giant’s catalog of original programming—e.g., Bridgerton, Stranger Things, and Squid Game—and offers immersive, interactive experiences for shoppers.

Technology elevates in-store experiences

Experiential retail is a differentiator that helps bring customers into physical stores. In addition to lighting, music, visual merchandising, and other physical elements, brands are deploying technology to create immersive experiences.

Sportswear giant Nike, for example, is a trendsetter in integrating technology into its retail locations. The brand’s Nike Rise stores offer shoppers full-sensory experiences with LED and interactive displays, integrated app features, and personalized services like Nike Fit technology that scans shoppers’ feet to help them identify ideal styles and sizes. Its flagship store in Manhattan has a floor that’s only accessible to loyalty program members.

TOMS recently used virtual reality (VR) technology to take in-store shoppers on virtual giving trips. The shoe brand, known for donating a pair of shoes to a child in need for each pair sold, offered VR headsets to enable shoppers to join TOMS employees and partners as they traveled to communities around the world, measuring and outfitting children with new shoes.

Social media and the metaverse open new doors

In-store social media opportunities, increasing availability of in-app purchases on social media platforms, and the expansion of the metaverse further blend digital and physical brand interactions. The growing number of brands that create content, partner with influencers, and offer in-app purchases on Instagram and TikTok mean the lines between social media engagement and purchasing are blurrier than ever.

The casual-dining chain Chipotle, for example, found success on TikTok with the #GuacDance challenge and entered the metaverse with a 2021 Boorito Halloween event—a partnership with TikTok star Addison Rae that awarded free Chipotle meals for a year to best costume entries. Chipotle followed it up this year with a simpler Boorito offer: one discounted entrée per fully costumed member after 3:00 p.m. on October 31.

Earlier this year, H&M, the Swedish clothing and home goods retailer, launched a virtual showroom in which customers can interact with new collections, conduct digital try-on sessions, and explore virtual fashion. In September, department store chain Bloomingdale’s celebrated its 150th anniversary with the launch of a metaverse store.

Phygital trends forge an advantage for loyalty

The continued convergence of digital and physical shopping creates openings for brands to differentiate their loyalty offerings and create member-exclusive experiences. As brands continue to leverage data to better understand their audiences, they position themselves to innovate immersive, technology-driven, phygital interactions that are truly personalized and memorable. Technology that recognizes loyal customers and harmonizes their interactions across channels helps brands acknowledge, reward, surprise, and delight customers in every interaction—in store, in app, and in meta spaces in between.

Lisa Schneider, senior account director, and Ashley McMillin, senior account executive, are part of The Lacek Group, a Minneapolis-based data-driven loyalty, experience, and customer engagement agency that has been delivering personalization at scale for its world-class clients for more than 30 years. The Lacek Group is an Ogilvy company.