Rise of the Phygital

Lucie Shu, Marketing and Communication Head, Playmobil China

‘Rise of the Phygital’ was published in the fall 2022 edition of the German Chamber Ticker. Editor: Noga Feige, Senior Editor of Ticker Magazine. Visuals: Matter Design. 

Brick-and-mortar retail has been hit hard by COVID-19 globally, and in China; even as consumers return to their normal lives, online shopping habits have largely continued. E-commerce-related innovations such as livestreaming, social commerce, and community group-buying are gaining traction in China. With high consumer expectations, companies must revolutionize their operations to a powerful ‘phygital’ model to keep excelling in consumer-centric solutions.

This article will review the characteristics of different online and offline trends, and how they benefit brands.

Online and Offline Integration

As traditional retail continues its digital transformation journey, e-commerce continues using techniques from TV shopping and in-store sales, while adapting them to the new age. This integration between the old and the new is no coincidence: 70% of Chinese consumers are omnichannel shoppers, combining both at-a-distance and in-presence approaches. This makes advanced and sophisticated management of consumer behavior even more important, as brands need to offer a tailored user experience throughout the consumer journey.

Therefore, as our world becomes increasingly online, the boundaries between the physical and the virtual world will erode, giving rise to a single unified experience. It’s common to see offline channels, including supermarkets, convenience stores, and brands’ offline stores, deliver orders directly from e-commerce platforms. This process has many benefits: improvement in the supply chain’s efficiency, reduced delivery time, and an increase in the online stores’ orders. The delivery time is often next-day, while some consumers can receive orders in as little as 30 minutes. Between January and September 2021, 57% of urban households used O2O (Online-to-Offline) home delivery services to purchase fast-moving consumer goods (FMCG) in China.

The advantages and disadvantages of online and offline are clearly different, and there is a complementary relationship in the customer group, scene, and channel. Online channels are convenient and fast, but the offline experience and reliability advantages cannot be replaced.

5 Digital Innovation Megatrends in China

1. Online-Offline Loyalty Programs

Unified loyalty systems allow consumers to have the same advantages and benefits, whether they buy online or offline. A straightforward and easy-to-use loyalty program is key for the overall success of a brand in China, with 89% of Chinese consumers agreeing that a loyalty program makes them want to spend more. Being a member is the symbol of consumer loyalty and identification with the brand. Especially during the digital age, membership is an important channel for brand communication that strengthens member values and encourages them to purchase and engage.

2. Research for Informed Purchase Decisions

The average consumer in China now spends more than seven hours a day on the mobile internet, a figure that increased by 20% in the aftermath of COVID-19. About two-thirds of those seven hours are spent seeking information and making more informed purchase decisions. That includes searching on social media, following influencers, and consulting with friends. Remarkably, time spent using social or content apps is now driving half of the shopping interest and one-quarter of purchases. In 2021, China’s social commerce market size expanded to RMB 2.5 trillion (over USD 374 billion), with nearly 800 million participants.

One of the most interesting new consumer behaviors observed at the 11.11 shopping festival was the intense price/service comparison between different e-commerce platforms before buying the same product: 48.9% of consumers used at least two shopping apps during 11.11. Multi-channel promotion of products also strengthened users’ cross-platform purchase behavior.

3. Key Opinion Consumers

Social media is also reshaping the relationship between brands and consumers: in the past, brands owned the consumer relationship. Today, the influence equation is shifting as consumers increasingly buy directly from other consumers. KOLs are still a persuasive voice in a consumer’s purchasing journey, but are now being complemented by Key Opinion Consumers (KOCs), a new set of trusted voices that consumers look to for advice and recommendations before making key purchasing decisions.

KOCs have a clear brand and category preference with fewer followers than KOLs. They influence their family, friends, and social circle, but they are innately authentic. For products with an extended consumption circle, such as toys, cultivating fans of KOCs is essential. For example, Playmobil invited fans to dedicated toy experience workshops for constructive conversations, which is highly effective for listening to consumers’ needs firsthand, particularly when a new product is being released.

4. Livestreaming and Live Commerce

Livestream service providers’ revenue reached RMB 246.3 billion in 2020, and Live e-commerce transactions reached RMB 2 trillion in 2021, with 635 million broadcast users. Short-video operators Douyin and Kuaishou have introduced shopping events by livestreaming e-commerce sessions on their platforms. Streamers used their fan base and audience credibility to recommend products, with exclusive and time-limited discounts during the streaming. These platforms have hundreds of millions of daily visitors. The role of live commerce has become more prominent, both in terms of contact time and consumption conversion. New service providers who have nurtured top KOLs or developed more outstanding cases in vertical categories are more likely to outpace competing market players.

Unlike traditional e-commerce, live e-commerce is more popular among younger users, showing a higher penetration rate among undergraduate students and below. 60% of live-streaming users are women from tier 2 and tier 3 cities. E-commerce livestreaming is a mature ecosystem that includes merchants, platforms, and thousands of Multiple-Channel Networks (MCNs) that manage the promotional activities of streamers. It will undoubtedly continue its explosive growth and offer unprecedented opportunities for businesses that embrace the practice in years to come. Remaining cutting edge and adapting to the latest trends will be critical to maximizing investment and positioning businesses well for the fierce competition that awaits in this emerging market.

5. Phygital Store Experience

Retailers continue to create innovative solutions that meet Chinese consumers’ omnichannel needs. In leading e-commerce categories such as consumer electronics and apparel, where online accounts for about 40 percent of retail value, retail stores now focus on product experience complete with omnichannel fulfillment options. In-store digitization – or ‘phygital’ solutions – provide a fully integrated digital-physical experience.

The customer experience (CX) is a game changer and a top priority for the coming years. According to McKinsey, companies that effectively organize and manage customer experience can realize a 20 percent improvement in customer satisfaction; a 15 percent increase in sales conversion; a 30 percent lower cost-to-serve, and a 30 percent increase in employee engagement. Digital transformation has become the norm in various industries, such as banking and healthcare, and it’s also vital for distribution channels. As digital technologies dramatically reshape industry after industry, many companies are pursuing large-scale change efforts to capture the benefits of these trends, or simply to keep up with the competition.

In-store experience and remote digital touchpoints are integrated, with the latter acting as an extension of the shop floor. The outbreak of COVID-19 accelerated this trend, as retailers kept in contact with consumers through the internet. Brands leverage metrics such as store location, product interest, or demographic information to target consumers with suitable online activities, such as interactions with key opinion leaders (KOLs).

Most luxury brands understand that the shopping journey begins online, where consumers research products before buying them. They have started to design omnichannel experiences by incorporating digital aspects into the consumer shopping journey. Some retailers have already evaluated and tested the features of ‘online to offline 2.0’ commerce: turning flagship stores into art galleries or building experience centers and innovation labs, that create immersive retail experiences and strengthen consumers’ emotional bond to the brand.

MAC provides an innovative example of store experience. The cosmetics brand teamed up with Tencent to install interactive screens displaying real-time comments posted by KOLs on the social commerce app ‘Little Red Book’ (Xiaohongshu), while augmented reality (AR) screens allow consumers to apply make-up products virtually. On the digital side, home furnishings retailer IKEA collaborated with Alibaba to launch an immersive 3D shopping experience on Tmall, complete with a virtual replica of a 3000-square-meter IKEA store and a 3D online showroom. Playmobil’s new innovation center in Shanghai also uses multimedia tools to create an immersive digital experience in a physical space.

Conclusion

‘Phygital’ consumer experience combines physical and digital to provide a new experience for consumers. This approach is especially essential in the post-COVID-19 era, which demands adaptability and innovation. As tech-savvy Chinese consumers become increasingly sophisticated, these trends will only grow in the upcoming years.

Lucie Shu is the marketing and communication head of Playmobil in China. A Chinese-French, she worked in top global 500 and international companies, in the toy, hospitality, and luxury industries.

Playmobil system toy was officially launched in 1974. It’s Germany’s largest toy producer and among the top 10 kids’ toy brands in the world. Playmobil is active in more than 100 countries and regions and produced more than 3.7 billion figures since 1974. Playmobil provides children with different game themes through creative play to meet children’s recreation needs, desire for exploration, and imagination.