Creating value by delivering customer experience

Online shopping continues to decimate traditional retailers. It’s all over the news. Major retail chains are announcing new rounds of store closings. Members of Generation Z prefer e-commerce over in-store shopping even more than millennials. But is brick-and-mortar shopping really going away?

The reality is more complex and somewhat surprising. The U.S. Census Bureau reports that over 90% of all retail sales still take place in-store. New trends such as “click and collect” suggest that consumers like the flexibility of shopping on mobile apps but visiting stores to pick up their merchandise.

At the same time, consumer preferences are changing. Instead of spending on “things,” such as purses and shoes, shoppers are increasingly inclined to splurge on experiences, such as a meal at a five-star restaurant or a unique vacation. A recent study by the Harris Group found that 72% of millennials prefer to spend their money on experiences rather than material goods.

For retailers, the intersection of these forces suggests new opportunities to reinvent the in-store model. In order to attract customers to stores, retailers must do things differently: they need to create value by delivering experiences.

Moving toward the experience economy?

In 1998, Joseph Pine first wrote about the rise of what he called the fourth or experience economy, following the agrarian, industrial and service economies. In the experience economy, value creation resides in creating memorable events for customers, with the event — and the lasting memory it creates — being the product that is sold.

“When we first wrote about it, we saw a nascent experience economy,” says Pine, Co-Founder of consulting firm Strategic Horizons LLP. Today, advances in technology have laid the groundwork for experience to be embedded in sectors beyond tourism, sports and the various creative industries. “In 2011, the experience economy came — it’s a phenomenon that’s here,” Pine says.

Consumers no longer want just goods and services.— Joseph Pine, Co-Founder of consulting firm Strategic Horizons LLP

Pine says the shift will force some companies to rethink their business models. “The logical conclusion is that when you look at things economically, you are what you charge for. If you charge for activities, you’re in the services business; if you’re in the experience business, then you charge for time. It’s logical that more and more companies will charge for time.”

Redefining the in-store experience

Creating value by delivering better experiences is fast becoming a mainstay across sectors. Personalization is a big component of delivering a good experience. Pine highlights Neiman Marcus and Tesla as two examples.

Dallas-based retailer Neiman Marcus offers an app for customers to download so that when they walk into stores, the technology recognizes them, notifies their favorite salesperson, and keeps detailed information on each customer’s preferences, such as styles or favorite colors, so the salesperson can better understand the shopper. Silicon Valley-based Tesla, which has eschewed the traditional car dealership model, has stores in high-end malls around the globe, allowing customers to personalize and design their own vehicles.

E-commerce king Amazon is slowly rolling out retail stores, turning on its head the notion that in-store shopping is obsolete. These stores offer dedicated areas that allow customers to play with Amazon devices such as Amazon Echo or Fire TV. The company’s data-driven knowledge of its customers also allows it to experiment with formatting its stores differently; for example, placing seemingly unrelated (but popular) products adjacently.

Outerwear company The North Face is going to the extreme (in the literal sense) to create in-store brand awareness in the hopes of not only driving sales but also giving consumers a unique shopping experience. The North Face partnered with virtual reality start-up Jaunt VR, which describes itself as “pioneering the future of creative storytelling through cinematic virtual reality,” to create two in-store experiences that give consumers an idea of what it’s like to be an elite climber. The first is designed to allow customers to experience climbing the mountains of Yosemite National Park in California, while the other lets you see what it’s like to climb Mount Everest in Nepal.

It’s less about selling a product and more about getting the consumer ultra-interested in the experiences. — says Jaunt VR VP of Marketing Communications Miles Perkins.

“As the brand builds out awareness of their products, the emotion, adrenaline and awareness of what it’s like to be an elite athlete really comes across.” Perkins says the campaigns have been highly effective, especially the Nepal video, calling it “one of the most popular experiences to date.”

Delivering a good experience is a differentiator

It stands to reason that as companies continue to innovate and invest in experiences, shoppers will spend more, says Pine. A highly successful example is American Girl’s flagship store in Chicago, which offers a live stage production, a café, a variety of birthday party packages and more, with the average visitor staying for four hours, spending more dollars.

The good news is that technology continues to improve, collapsing the boundaries between science fiction and reality. For example, smart mirrors now greet customers, read their emotions and display the weather, time and other information to enrich the retail experience. Companies such as Lego are implementing augmented reality (AR)-powered kiosks into retail locations. Advances such as these will continue to help retailers create new experiences and differentiate themselves from their competitors, Pine argues.

What’s next?

Advances in consumer-based technology aren’t just limited to a better retail experience for consumers. They can be used in the public sector as well. Pine cites the Cerritos Millennium Library Museum in Cerritos, California, as an example of one of the world’s first experiential libraries. It offers exhibits that combine print materials with web resources, wireless headsets, handheld computers and a host of other features to make the material more interactive for visitors.

“The next step is to use experiences to … help [customers] achieve their aspirations,” Pine says. “What matters is the outcome — then the customer is the product, and you can help them with what they want to achieve.” Such a shift will inevitably raise business model questions: will retailers begin to charge explicitly for delivering experience, and how will they measure the value created if not in SKUs sold?

Consumers in the developed world will continue to shop in physical stores, but traditional brick-and-mortar retailers must adapt and change how they do business. From delivering a frictionless experience that rivals online shopping to using in-store virtual reality to entice customers into buying a product to building stand-alone experiences that create indelible memories, it is “game on” for retailers seeking to maximize their physical presence.

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