The Convergence of Physical and Digital Commerce: The Present

Last week we examined how technologies such as the barcode and the Internet acted as milestones in the evolution of commerce, and this week we’ll continue the discussion by taking a look at the present state of the marketplace. We’ve analyzed the landscape and found three major ways that people shop these days:

Brick-and-mortar Shopping

Believe or not people still shop in brick-and-mortar stores, though retailers have to work harder to market their products to a knowledgeable consumer base. In fact, over 90% of all revenues are still generated by brick-and-mortar retailers (see Figure 1 below). Nevertheless, US retail e-commerce sales are growing at more than double the rate of brick-and-mortar sales. Check out the full report from the US department of commerce here. The trend is obvious—e-commerce is continually eating up a larger and larger portion of the retail market:

 

Figure 1: e-commerce vs. total retail sales (source: US Department of Commerce)

 

Why is online shopping growing at such a strong rate? Before the Internet, finding reliable product information was very difficult, with consumers being limited to a product’s packaging and a merchant’s knowledge. Nowadays, consumers are much more informed about the products they shop for since they have access to a wealth of online resources. The Internet has empowered consumers by providing  access to price comparison tools, product reviews, and a variety of deals. The resulting environment requires that merchants augment the physical shopping experience with digital adjuncts, such as online deals, promotions, advertisements with QR codes, and the creation of virtual stores. For example, companies like Best Buy and Target now let consumers shop on their websites and then pick up the ordered products in-store and Walmart.com just announced that their customers can now order online and then pick up and pay in cash in a nearby Walmart store. By embracing the convergence of physical and digital commerce these retailers are working to ensure their viability in the long term.

Online Shopping

Many people these days also shop online through their personal computers. As the previous graph suggested, e-commerce sales are on the rise at just about 6% of the overall retail market in the US. Online shopping has disrupted the traditional value chain by giving stakeholders such as manufacturers and brand owners a direct access to potential customers. In today’s environment people can shop directly from the brands they’re loyal to, removing the middle man of the retailer. This also gives brands the ability to control their own merchandising, which traditionally was strongly controlled by the merchant.  In order to remain competitive, retailers will need to engage in e-commerce solutions that speak to the needs of the 21st-century consumer.

The ever-changing online landscape has provided consumers with an evolving portal of useful product information. Online shoppers can compare prices through services like Nextag, access user reviews through large virtual stores such as Amazon, and find a variety of deals through sites like LivingSocial. These online resources have transformed the image of the consumer by educating and empowering them, enhancing buyer power in the long term. Fueling online shopping further, a new generation of online payment solutions (such as Dwolla or Stripe) not only make it easier for developers to incorporate payment in their web sites but they also make it more convenient and cheaper for online consumers to complete an online transaction.

Mobile Shopping

The mobile revolution is officially sweeping the land, with recent analyst figures suggesting that some 212 billion dollars of the 1.5 trillion dollar mobile market (2012 estimates) will come from apps, music, video steaming, games and mobile web browsing.  With the worldwide base of mobile subscribers sitting at around 6 billion, and almost 70% of new phones being sold in the US being smartphones, the stage is being set for a future where mobile devices become the primary means of online access. So how does mobile shopping differ from its personal computer predecessor?

Mobile devices are truly bridging physical and digital commerce by acting as compliment to the traditional brick-and-mortar shopping experience. Recent analyst research suggests that over a third of smartphone owners use their devices in-store to research products. Through mobile devices shoppers are now bringing the Internet into the store, rather than having to sit at home doing their research on their PC.  Online price comparison tools have evolved into mobile apps like Scandit, which eliminate manual search by enabling barcode scanning to compare prices. One thing that’s certain is that there are a variety of ways consumers use their smartphones to assist in their purchasing decisions, check out these recent stats:

 

 

Figure 2: Mobile shopping activities of US smartphone users (source: Leo J. Shapiro and Associates)

 

Retailers should recognize that there is an immense opportunity to drive customer engagement and increase their addressable market through embracing mobile technology. Recent trends suggest that 62% of shoppers search for deals digitally for at least half of their shopping trips. These digital deals are major source of discovery, helping your customers find you. Brick-and-mortar retailers and brands should devote resources to developing and curating online content and mobile applications to drive customers to their stores. An interesting route to consider here is working with startups such as shopkick or CheckPoints, which help retailers and brands drive foot traffic to physical stores, drive consumers down individual store aisles and offer rewards for interacting with specific products.

As another example, Coop, the major Swiss retailer, has headed in this direction by developing a mobile app that leverages barcode scanning to enable mobile shopping from virtual storefronts. Coop@home users can simply scan products as they’re shopping in the physical store and have them delivered right to their doorstep. Retailers that neglect these trends will suffer as they become increasingly disconnected from their customers.