Embracing phygital models
enabled by AI for advanced
customer experience and engagement
February 20, 2025
6 min read
Bridging Physical and Digital Worlds for Enhanced Customer Experiences
In this evolving retail and consumer-engagement landscape, companies struggle to keep pace with changing customer expectations and technological innovation. Any business aspiring to succeed must adopt a customer-centric approach that integrates physical and digital experiences into a unified phygital strategy.
Phygital models blend the tactile, real-world interactions of physical spaces with the immediacy and convenience of digital platforms, creating a seamless connection between the two. Understanding client and consumer behavior, along with preference insights, is essential for creating a unified experience that bridges physical and digital touchpoints, ensuring a seamless journey across all interactions and guaranteeing organizations that implement these models a:
10-15%
Increase in channel efficiency ratio.
20-30%
Reduction in time to market.
To effectively navigate this complex landscape, companies must adopt a comprehensive phygital strategy that seamlessly integrates physical and digital elements, focusing on enhancing client and consumer engagement across all points of contact. This strategy should address key aspects of the customer journey and provide actionable steps to improve the purchasing experience by streamlining processes, personalizing interactions, optimizing customer service, and developing new capabilities to meet the demands of modern consumers. Additionally, it enables companies to capitalize on benefits such as:
12–20%
Increase in sales and cross-sales.
10–15%
Increase in customer satisfaction.
15–30%
Reduction in costs.
10–15%
Increase in market coverage.
Aligning with Phygital Consumers Demands: Business Capabilities
Key Trends and Enablers Driving Phygital Transformation
Phygital models are transforming how businesses engage with clients, customers and consumers by seamlessly combining physical and digital experiences. Several key trends and enablers are driving this transformation:
Conversational commerce and AI adoption: The next generation of AI and conversational commerce is transforming customer interactions through AI-driven platforms, chatbots, and virtual assistants, which help businesses scale engagement and provide personalized experiences. Real-time conversations and intelligent insights empower companies to connect with clients both online and in-store. Key enablers include the Personalized Intelligent Customer Operating System, AI-powered lead generation, and narrative-driven sales.
Digital wallets and biometric payment systems: The rise of digital wallets and biometric payment systems is driving frictionless, secure transactions, enhancing convenience while setting new benchmarks for security and client expectations, ultimately transforming the traditional payment landscape. Key enablers include Flexi-Credit Solutions, Live Inventory Monitor, and Adaptive Pricing Engine.
Experiential over- material consumption: With new generations prioritizing experiences over material possessions, businesses must craft memorable, engaging experiences that align with evolving consumer values. Balancing digital and physical touchpoints is crucial for delivering a seamless and cohesive consumer journey. Key enablers include Customized Product Offerings, an Omni-Digital Experience Hub, and a Holistic Customer Experience.
Diversification of revenue streams Retailers are going beyond traditional merchandise by exploring new income sources like value-added services, media networks, and ecosystem partnerships. These diversified revenue streams are essential for staying competitive and driving innovation. Key enablers include Strategic Category Insights, Dynamic Order Management, and Rewards and Retention Programs.
Elevated shopper expectations Digitalization has raised consumer expectations, requiring personalized interactions and superior digital experiences across all touchpoints. To meet these higher standards, businesses must harness advanced technologies and strategies. Key enablers include Precision Targeting, Adaptive Delivery Options, and Smart After-Sales Support.
To achieve customer-centric phygital models, consider the following actionable steps:
Customer understanding as a priority: Invest in deep customer research to better understand client and consumer behaviors, preferences, and expectations. Tailor strategies and products accordingly.
Proactive communication and intent recognition: Develop proactive communication strategies using AI-driven systems to anticipate client and consumer needs, recognizing intent and providing timely nudges to enhance engagement and guide their journey.
Personalization and engagement powered by AI: Leverage Artificial Intelligence and data analytics to personalize interactions, advisory services, and support, building strong, long-lasting relationships with clients and consumers across all touchpoints, including through conversational AI.
Omnichannel strategy with seamless integration: Design a unified omnichannel strategy that combines physical and digital touchpoints, offering clients and consumers consistent experiences and robust self-service options to progress through their service journeys.
Frontline empowerment through AI and analytics: Equip frontline agents with AI tools, knowledge bases, and advanced analytics to provide efficient, knowledgeable support and enhance decision-making capabilities, improving the overall client and consumer experience.
Agile operating model: Enable automatic rebalancing of commercial and operational capacities based on cost impact, service levels, and demand fluctuations. Use AI and Digital Twins to optimize real-time operations, ensuring rapid responses and flexible adjustments to market dynamics and customer needs.
Optimized backoffice and collaboration: Enhance backoffice performance by fostering skill development, aligning incentives, and implementing collaborative models. This ensures seamless support for agile operations and effective alignment with front-end needs.
Embracing Phygital: The key to sustained relevance
For any business to remain competitive and relevant, adopting a customer-centric phygital model enabled by AI is imperative. This transition, while essential, is not an overnight shift. It requires continuous evaluation, improvement, and investment. This approach anticipates and respects client and consumer needs, integrating innovative technologies to create seamless and engaging experiences that build loyalty and long-term value. These strategies meet the evolving expectations of modern clients and consumers while laying the foundation for future success in an ever-changing marketplace. With the right guidance, businesses can navigate this journey and position themselves to adapt and thrive in the years to come.
