Digital and Physical: Finding the Right BalanceBy Sandeep Kishore
By Sandeep Kishore
Digitization, the ever-increasing presence that surrounds us as consumers, has created some interesting conundrums for a wide variety of companies as they plot their product offerings, distribution methods and strategies for meeting and exploring customer needs.
Numerous business sectors, such as media and telecom, have become digital dominant, while others, such as retail, financial services and manufacturing, are mired in the process of finding the right balance between digital and physical so the two most effectively complement each other. Digital's potential business impact is extremely high and irrespective of industry, and it is critical for all businesses to have a strong digital strategy to leverage growth, drive increased efficiencies and deliver enriched customer experiences.
How big is digital getting? Last Thanksgiving, physical retail sales grew 3.3 percent while online sales grew a whopping 25 percent. The leading online retailer, Amazon.com, was incredibly busy, selling 150 million different SKUs through its digital presence.
In the last 10 years, online retail has grown four times while Amazon has grown 16 times. Various news reports suggest that, in spite of this digital success, Amazon might soon establish a physical presence. Why would the king of online retailers consider adding physical points of presence in this digital age? Vibes reports that 44 percent of shoppers look at and touch a physical product before buying it online. For its part, Amazon wants its customers to have a real sense of the product before they purchase it online. Also, Amazon’s physical stores could be leveraged for same-day shipment and pick-up. Similarly, Best Buy and other large retailers have significantly increased their online presence to complement their physical retail stores.
Retail stores are important, as Google reports that 84 percent of customers research a product online before buying it in a store. A Bain article on "Digital Darwinism" centered on Omnichannel, which combines the best of digital technologies and physical stores, and considers this intertwined approach to be the optimum retail strategy. Of course, the Holy Grail is to effectively link and cross-leverage the digital systems and physical presence to attract and retain customers, drive enhanced experiences, and cross-sell and up-sell new products.
Publishing and Toy Industries Adjust Course
Digitization has brought both challenges and benefits for the publishing and toy industries. With the rapid growth of smartphones, tablets and e-readers, the sales of e-books have surged during the past few years, far surpassing the sales of physical books. Moreover, with Kindle and other self-publishing platforms, many authors have adopted the digital version exclusively or as the preferred medium.
The Association of American Publishers reports that e-book sales reached $282 million, while hardcover sales were $230 million, during the first quarter of 2012. At that time, many industry experts predicted this trend would continue further, making printed books an increasingly rare phenomenon. However, the trend reversed in 2013 as hardcover sales increased 10 percent in the first eight months versus a 4.8 percent increase for e-books. Clearly, neither publishing platform will disappear anytime soon as consumers choose either electronic or printed books based on immediacy, price, context and other variables. The ideal strategy for most publishers? Provide both digital and printed options in a convenient way—and let consumers decide.
The toy industry has reached an interesting crossroad. Today’s children are growing up with iPads, cell phones and smart devices. Would they ever need a physical toy, a teddy bear or LEGO bricks? With the increasing popularity of social, mobile and console gaming, leading toy makers such as LEGO, Mattel and Hasbro are combining physical toys with online elements. LEGO is continuing to focus and grow its core business, the ubiquitous bricks, which define its identity and are used by children around the world for playing and learning. LEGO Group CEO Jørgen Vig Knudstorp talks about encircling the physical building experience with digital and online interaction, which he sees as part of a continuum rather than as a contradiction. Similarly, games such as Skylanders offer digital counterparts with the purchase of the physical toys. This has opened up a new world of imagination with the physical elements for children, and it has also helped the game maker sell more than 175 million toys in the last three years.
The digital presence, as we know it today, is less than a decade-old phenomenon and is growing amazingly fast, while physical stores have existed for centuries. Today, we hear about the physical vs. digital debate, but more often than not, it is not "vs." but "and" that should be the focus for most retailers, publishers and manufacturers.
Certainly, going digital creates new ways to deliver products and services, enrich customer experiences, and deliver higher efficiencies, and it must be leveraged by all industries. At the same time, the physical presence remains time tested and incredibly valuable. The symbiotic relationship between the two is a powerful one, and it must be well thought out and nurtured for the best-possible business outcome.
About the Author
Sandeep Kishore is corporate vice president and global head of sales and practice for engineering and research and development services, HCL Technologies.
To read his previous article for CIO Insight, "Why 2014 is a Key Year for the Internet of Things," click here.