Why
Augmented Reality Will Be the Next Revolution in Retail
The Pokémon
Go craze may have faded, but it provides clues to how retailers can use
technology to engage consumers.
In the summer of 2016, pedestrians on New
York’s Fifth Avenue encountered crowds of (mostly young) people, hastily
running into Central Park, smartphones in hand, shouting out Pokémon names and
cross-street locations. Within days of its release on July 6, 2016, Pokémon Go,
an app that brought the 1990s gaming craze to virtual life, became a
phenomenon. Its 40 million daily active users (at its peak) surpassed those of
Tinder, Snapchat, and Twitter and created a level of in-app engagement that
Facebook could only envy. It took complete control of the commutes, lunch
breaks, and social gatherings of legions of people around the world. Intent on
“catching” Pokémon in the wild, gamers thronged into museums, streets, even
Arlington National Cemetery.
Although
the Pokémon Go fad now has predictably faded, it holds important lessons for
companies intent on reaching and engaging consumers where they are, especially
retailers: The game, the first truly social augmented reality (AR) experience,
enthralled the new breed of omniconnected consumers as nothing else had done
previously. Players not only shared an insider world where they could fight
each other, but they also walked together and gathered at PokeStops in the
middle of the night. The people who embraced the augmented reality of Pokémon
Go live in a world where the line between real and digital is
so blurred that they essentially became one and the same — constantly augmented
and improved by invisible technologies. And they are hungry for better, more
personalized experiences.
AR, which has been around since the late
1960s, has long lived in the shadow of virtual reality (VR). Major technology
companies have been making significant investments in VR — consider Facebook’s
acquisition of Oculus Rift, or Sony’s PlayStation VR launch. On paper, however,
AR should be inherently better. Whereas VR wants to transport us to a new
virtual world that provides unique immersive experiences, AR brings these
experiences to the world we already inhabit. But to date, the early ambitions
of AR have not borne much commercial fruit. Lego’s AR Digital Box in-store
kiosk allows customers to “see” finished products by holding the product box
close to a screen (they can watch on the screen as a digital constructed Lego
truck seems to spring out of the box it comes in, for example), and IKEA’s app
allows shoppers to “place” digital furniture and other products from the
catalog in pictures of their rooms at home. But AR features have generally
lived inside retailers’ stand-alone apps that consumers didn’t want to
download. Google Glass, which was perceived as socially awkward, failed
miserably. The AR ecosystem has lacked a shared platform with mass acceptance
that, like Google’s ad network, allows brands to simply plug in and thus
removes the consumer friction of downloading individual apps. And there was no
“killer” use case to make AR popular and, more important, social — until
Pokémon Go.
The Pokémon Go craze opened consumers’ minds
to similar experiences and fed their imagination with glimpses of an even more
connected future. In addition, it packed the potential to transform consumer
experiences in the physical world. Brands, local retail stores, and marketers
quickly realized the opportunity inherent in the success of the game. It’s not a
big leap to imagine people chasing expiring deals and coupons, trading and
buying goods in the virtual world with virtual currencies, watching digital
billboards, and interacting with brands. In fact, augmented reality may offer
physical retailers a competitive advantage against online-only
competitors.
The New Table Stakes
E-commerce has been steadily gaining a share
of sales at the expense of local stores because online shopping is cheaper, is
more convenient, and allows for easy in-depth research and comparison of
products. However, physical stores still possess one major advantage: the
ability to let customers see, try, smell, or taste the product live. For many
digital-native brands, such as eyewear retailer Warby Parker, stores have evolved
into “showrooms.” Augmented reality allows brick-and-mortar retailers to take
these showroom experiences to the next level, creating unique experiences that
blend digital and physical shopping. The virtual layer can provide a platform
that allows improved communication, deeper engagement, and better
personalization. As a result, brands deploying AR effectively will be able to
provide differentiated interactions with physical products and customer
experiences that seem richer than the ones provided by their online
competitors.
Today, we’re in the first, introductory phase
of applying AR to the retail experience. On a range of independent platforms,
companies are experimenting, trying to understand their audiences and grasp how
their brands fit in this new environment. As the field enters its growth phase
in the next two to three years, it will consolidate into a few dominant
players, and companies must figure out what distinctive offerings they can
produce and how to integrate them into omnichannel strategies. Once the medium
matures in four to five years, AR will become table stakes for retailers and
brand marketers, and companies will have to figure out how they can curate
bespoke content and create unique experiences in this new medium. Over the long
term, it is clear companies must use AR to lead customers through four stages:
creating awareness; growing engagement; converting customers at key decision
and purchase points; and building enduring loyalty. As retailers move through
these important steps in the coming years, they must experiment with key
tactics and strategies.
Creating
awareness.
The
essential effort of creating consumer awareness about brands and products often
devours the majority of a retailer’s marketing budget, and much of it is wasted
by reaching non-target consumers. AR represents a singular opportunity to
adjust what is presented to a shopper based on demographic profiles and past
in-store behavior, and allows companies to link typical awareness-raising
efforts to a live recommendation engine. For example, for Tom, who typically
buys a US$4.99 gel laundry detergent, Target could display an AR ad on his
phone of a new, more powerful $5.99 gel, instead of posting a static endcap
display in-store for a $9.99 laundry powder. The result is a more refined level
of targeting that presents a benefit to retailers, brands, and consumers.
Brands
are already partnering with AR platforms to create interactive retail
experiences for their customers. As early as 2013, IBM launched an
AR shopping app that provided shoppers instant product
details and comparison when they pointed their smartphone at the shelf,
allowing them to sort the products there by nutritional value, highlight gluten-free
or organic options, and display currently available coupons. Retailers can use
the same app for shelf stacking. In 2014, Tesco employees tested IBM’s AR app to report out-of-stock products
and instances when conditions on shelves didn’t comply with display plans.
As AR becomes more powerful, we are likely to
see a higher degree of personalization of in-store product recommendations.
Perhaps pointing your smartphone toward a shelf in a clothing store will not
only provide information about the origins of the wool in the cashmere sweater,
but reveal special deals that are tailored to your profile — such as a discount
in advance of the ski season.
Ultimately, we are likely to see integration
between AR, big data, and machine learning. The final result will be an
intelligent personal shopper that can provide consumers with information,
recommend products, and even look for special bundle deals and coupons,
depending on the shopper’s preferences and behaviors.
Growing
engagement.
Retailers
keep shoppers engaged — continuously excited about their experience with the
brand or product — by creating carefully thought out, memorable interactions at
every touch point. Doing so is vital to both retailers’ and brands’ customer
conversion rate and customers’ future loyalty. Consumers, driven by their
online shopping experiences, already expect a high level of engagement. In
years to come, these expectations will only grow, leaving the onus on physical
retailers to deliver powerful multidimensional experiences to shoppers.
Virtual
try-on experiences are the first step that brands have taken toward using AR to
raise customer engagement. In 2014, L’Oréal released its Makeup Genius app,
which allows shoppers to virtually try on different shades of blush and mascara
before making a purchase decision. Once the makeup is “applied” on the face
through the smartphone camera, the facial recognition system follows face
movement and angles, showing what the makeup would look like from different
perspectives. By early 2016, Makeup Genius had been downloaded
more than 20 million times. And it has inspired
similar efforts from innovators such as Meitu, a Chinese company that built a
range of “try-on” apps for makeup, hair, and fashion; the app has been
installed on more than 1 billion unique smartphones and valued at an estimated
$5 billion.
Creating
memorable in-store experiences is the lowest-hanging fruit at this stage of
AR’s development. By using AR to give shoppers access to experiences such as
product showcases, fashion shows, celebrity endorsements, and music/video
content, brands can improve the shopping experience and begin to compete with
their online-only competitors. In 2014, Topshop used Oculus Rift’s VR glasses
to offer a virtual
experience of the catwalk show during
London Fashion Week to five competition winners.
As AR matures, we will start to see
applications that go beyond what is possible in either an online-only or
offline-only environment. Ultimately, retailers will have to think hard about
what the ideal shopping experience is like, regardless of the medium. Someone
could experience various Nespresso machines in-store, surrounded by the aroma
and freshly brewed coffee, and then, using an AR app, display the machines on
his or her kitchen counter, customizing colors to see which best matches the
backsplash. Finally, the customer would be able to order it with one-click
checkout and a linked credit card or Apple Pay and immediately subscribe to
monthly shipments of assorted coffee pods. In the app, users would also be able
to report technical issues and request warranty support six months later, thus
having a seamless shopping, paying, and post-purchase support experience.
Converting
attention to action.
Every
stage of the purchase funnel is important. But effectively motivating customers
to make the jump from consideration to purchase is the holy grail. Although
Pokémon Go proved that it was possible to use AR to drive significant foot
traffic, AR has yet to prove its meddle in conversion optimization.
Brands
are already using AR to increase conversion. For example, China’s largest
online grocery store, Yihaodian, created
more than 1,000 virtual shops in public places. Shoppers can use the company’s AR app to browse
products and make purchases that are then delivered to their home. Similarly,
Nike is using AR and image recognition to connect print advertising with its
online store. Upon pointing a smartphone at a Nike ad in Runner’s World,
a user can jump to the shopping cart on Nike’s website. Similarly, British
online fashion retailer ASOS uses mobile technology to make its magazine ads
instantly shoppable.
As the technology evolves and combines with
other technologies such as beacons — Bluetooth-enabled devices that communicate
with nearby shoppers’ smartphones, collecting information about their movement
patterns or sending ads or coupons — we are likely to see localized deals and
offers within the premises of a particular store and its immediate surroundings
(i.e., “geo-fencing”). These offerings can be personalized using historical
purchase behavior and augmented with recommendations based on predictions of
future behavior. Brands can also display online reviews on products, integrate
them with social media purchase buttons, and upsell related products. Much of
what has been successful in e-commerce will probably be tested in AR, although
it is unclear which tactics will actually increase conversions.
The ultimate goal in conversion optimization
will likely be an omnichannel CRM system with fully automated and personalized
one-to-one marketing that seamlessly tracks shoppers between real-world and
digital shopping. Let’s take Tom the Target shopper as an example. During his
weekly grocery shopping trip on Monday, Tom stops at the Scotch aisle, browses
for a minute or two, but doesn’t pick up anything. On Tuesday, he sees an ad
for Lagavulin displayed next to a Google search conducted on his laptop. He
clicks on it and adds a bottle to his cart, but abandons the purchase. On
Wednesday, Tom could receive an email discount coupon or in-store offer for $5
off Lagavulin or Macallan, or recommendations of similar products, to trigger
the conversion. From the retailer’s perspective, shoppers can then become leads
to be nurtured along sales funnels toward all their possible product purchases.
Building
enduring loyalty.
Customer
loyalty is a powerful tool in retail — from both a brand and a store
perspective. The more adept a company is at creating loyalty, the more
sustainable its marketing efforts are in the long term, and the higher an ROI
it can ultimately achieve. Furthermore, repeat customers tend to spend
60 percent more per transaction than
first-time customers. AR affords opportunities for loyalty programs that are
otherwise unattainable.
The
current generation of AR apps allow stores to integrate AR into existing
programs, bridging the gap between the online and in-person experiences of
shoppers. For example, Walgreens’
Aisle411 app allows shoppers to discover products
and deals in-store as well to collect loyalty points by exploring the store’s
aisles.
As shoppers become more acclimated to the
idea that AR can improve their shopping experience, we will likely start to see
greater integration between the online and offline. This, in turn, will allow
brands and retailers to create customized loyalty programs that correspond to a
shopper’s exact interests as well as their online and offline behaviors. Imagine
heading into a supermarket and having an application on your phone that
suggests products based on your past purchases, one that can also seek out the
best deals based on how often you’ve purchased that brand before.
As AR and other technologies mature, stores
will gain a much better idea of shoppers’ behaviors. This will allow them to
use loyalty programs in a far more targeted manner, encouraging the exact
behaviors that lead a specific shopper to the counter. A future standard
application might be a virtual shopping assistant that helps you make purchases
from retailers both online and offline and that can advise you on the best way
to take advantage of loyalty programs. A thrifty consumer might enable a
setting allowing the shopping assistant to lead him or her through specific
aisles of a supermarket that have been incentivized by a brand (because they
are predictors of ultimate conversions for customers with this profile). A
shopper who values speed, on the other hand, might use the shopping assistant
to remove as much friction as possible from the purchase process, reducing
decision fatigue; this use also lends itself easily to loyalty programs.
In retail, trends and fashion come and go
quickly. But it is clear that regardless of what is selling today, the ways in
which products will be sold are evolving rapidly. Augmented reality clearly has
the power to transform retail. However, it will pay dividends only if stores
and brands learn how to translate foot traffic into desired action and become
seamlessly integrated into the experience. And although Pokémon Go itself may
have been a fad, it probably will not take long for another (better and more
ambitious) platform to emerge and fill the social AR space. Ultimately, the
first platform that successfully hosts large shared augmented experiences will
be a significant winner.
To be sure, some skepticism is warranted. But
in the 21st century, paradigm shifts that used to take years now routinely
happen in months. Just as retailers came to rue not investing earlier in
e-commerce, or a Facebook presence, or mobile purchase apps, they may regret
not investigating the potential of AR more aggressively.
by Kamil Klamann and Sekoul
Krastev http://www.strategy-business.com/article/Why-Augmented-Reality-Will-Be-the-Next-Revolution-in-Retail?gko=dbc10&utm_source=itw&utm_medium=20170228&utm_campaign=resp
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