The digital era accelerated as consumer activities such as booking travel moved online thanks to smartphones, mobile apps, virtual and extended reality, and other emerging technologies. The marketplace is now a bridged environment, with tech-savvy consumers regularly crossing back and forth between physical places and digital spaces.

This evolution hasn’t just delivered business customers more freedom and choice than our grandparents could ever imagine. By opening the door to a new set of hybrid consumption experiences that are neither fully physical nor digital, it has created an ecosystem of interconnected technologies, platforms, consumer insights, skills, tools, and adapted strategies.

Welcome to the phygital realm, where the customer experience can be enhanced using the best of the physical and digital worlds.

Unfortunately, digital transformation projects are often limited to the incorporation of various digital devices at different stages of the purchase experience, thanks to a narrow understanding of the phygital environment. As a result, many companies are failing to seize the opportunities presented by this brave new hybrid world.

The term “phygital” isn’t new. In 2013, Momentum, an Australian marketing agency, started calling itself an “agency for the Phygital World,” but there are competing claims as to who first coined the word. Today, usage of the term is widespread, with various muddled and narrow definitions used interchangeably. In the retail sector, phygital is frequently used when referring to the shift from multi- and cross-channels to an omnichannel logic for connected stores that incorporates digital technologies such as touch kiosks, touchscreens, connected mirrors, beacons, augmented reality, and NFC cards. But phygital goes well beyond omnichannel, not to mention retail in general—it is a whole ecosystem of connected physical places and digital spaces across various sectors, ranging from education, banking, and airlines to healthcare, hospitality, and entertainment.

In my book Experiential Marketing: Consumer Behavior, Customer Experience, and The 7Es, I define the phygital world as a third realm of customer experience consisting of integrated consumption gateways. These gateways allow consumers to seamlessly pass between different physical (offline) and digital (online) channels with ease and guarantee consistency in the experiential journey from physical to digital and vice versa. When using this definition of phygital, it becomes obvious that taking advantage of the phygital world requires digital transformations to follow a consumer-centric logic.

Placing customers ahead of technology during design enables the utilization of several types of experiential values (efficiency, emotions, excellence, status, play, aesthetics, and ethics), which helps create the ultimate customer experience out of both physical and digital components that support each other in a recurring way. But to do this well, companies must understand the distinction between physical, digital, and phygital customer experiences.

“The phygital realm exists at the intersection of physical places and digital spaces, creating an opportunity to design a superior customer experience that is both efficient and emotionally charged.”

In the physical world, customer experience is about enhancing emotions that play a significant role in purchasing decisions and customer loyally. The digital space allows companies to use technologies and channels across various virtual touchpoints to increase efficiencies and enhance the shopping experience. As seen in Figure 1, the phygital realm exists at the intersection of physical places and digital spaces, creating an opportunity to design a superior customer experience that is both efficient and emotionally charged.

Figure 1: Phygital, the Third Realm of Customer Experience

 Each customer realm offers a different customer experience.

The physical realm experience stems from sensory interactions between individuals and a distinct form of the bricks-and-mortar environment such as a health club or community gym, along with related social interactions with other patrons and brands. The sense of physically being somewhere creates meaningful and emotional connections to individual consumption and shopping experiences, constructing a sense of belonging and identity.

In contrast, digital customer experiences tend to involve the integration of technologies that help consumers control, customize, optimize, and monitor their actions. For example, health-conscious consumers with a smartphone can use step tracker apps to help control their weight.

But while physical experiences generate emotions, and digital ones are mostly functional, the phygital realm engages consumers by being both emotional and functional (see Figure 2).

Figure 2: Physical, Digital, and Phygital Customer Experience

Unfortunately, thanks to short-term and minimalist thinking, most digital transformations focus on imitating the physical world experience in an online environment. This ignores the long-term objectives of taking the customer experience to a whole new level.

When the concept of phygital is recognized as a hybrid realm with both functional and emotional components, companies can break free of existing customer experience constraints. Indeed, by taking advantage of big data while integrating technologies like augmented reality and 3D printing, companies can create the ultimate customer experience, which is both satisfying and profitable. But it is important to focus on what makes phygital experiences valuable, which isn’t the technology deployed. As things stand, while some consumers find existing phygital experiences novel, exciting, and useful, others see them as gimmicks, especially when they’re designed by companies following a tech/device-centric approach to digital transformation.

Phygital world competition is about an enhanced customer experience, not showcasing digital bells and whistles. To ensure a successful digital transformation, companies need a consumer-centric strategy that utilizes technologies to combine valuable experiences from the physical and digital realms to create something new and superior that consumers appreciate and don’t reject outright because it doesn’t fit with customer needs or expectations.

And we are not just talking about enhanced online shopping. During the pandemic, automakers have been offering virtual showroom visits that allow consumers to get a simulated physical connection to new vehicles while a live salesperson explains the features and answers questions. Technically speaking, that’s a combination of physical and digital experiences. But while it is efficient, the end result is not unique.

When properly understood, the phygital realm allows companies to create previously unimagined experiences. Utilizing cutting-edge 3D technology and visual storytelling, for example, Celebrity Cruises offers patrons at its Le Petit Chef restaurants a one-of-a-kind phygital experience that fuses entertainment and cuisine. While waiting for meals to arrive, amazed diners watch a holographic version of their gourmet food dishes created in front of them in a whimsical manner by a miniature chef running around the top of their table. That is a far cry from simply deploying in-store touchpad kiosks that allow consumers to make purchases via a brand’s website, which does nothing to enchant consumers during an experiential journey that starts before they enter the store.

Simply put, taking a “phygital” customer-centric approach to digital transformation rather than using the prevailing tech/device-centric logic can deliver a strong competitive advantage. But it is essential to offer suitable hybrid experiences rooted in the daily practices of consumers both offline and online. This requires doing some longer-term “phygital thinking” to develop transformation strategies based on a deep knowledge of how to better meet customer needs and expectations using the third realm of customer experience.

References

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7. Zhang and H.-W. Hon, “Embracing Digital Transformation as a Service,” California Management Review, February 19, 2020.