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Digital vs. Physical – what’s the right balance?

Digital vs. Physical – what’s the right balance?
Sandeep Kishore - Corporate Vice President & Global Head - Life Sciences, Healthcare and Public Services | April 29, 2014

The ever increasing digitization around us has created interesting conundrums for various industries. Many business segments have become digital dominant, such as media, telecom etc.. Many others, such as retail, financial services, manufacturing etc. are in the process of transformation to find the right balance between digital and physical to complement each other. Potential of business impact through digital is extremely high and irrespective of the industries, it is very important for all businesses to have a strong and committed digital strategy to leverage growth, drive increased efficiencies and deliver enriched customer experiences.

During the 2013 Thanksgiving period, physical retail sales grew by 3.3% YoY, while online sales grew by a whopping 25% YoY. The largest of the online retailers, Amazon, had a busy time selling 150+ million different SKUs purely through a digital presence. In the past 10 years, online retail has grown 4 times while Amazon’s business has grown 16 times. Various reports suggest that in spite of this stellar success, Amazon is thinking of establishing some physical presence soon. Why would the king of online retailers consider adding physical points of presence in this digital age? According to Vibes, 44% of shoppers look at the physical product before buying it online and Amazon wants its customers to have a real sense of the product before they purchase online. Amazon’s physical locations can also be leveraged for same day shipment / pick up. Similarly, all large retailers have significantly increased their online presence to complement their physical stores. This too is important as, according to Google, 84% of customers research online before buying products in stores. A recently published article by Bain on Digital Darwinism centered on Omnichannel, which combines the best of digital technologies and physical stores as the best way forward for successful retailers. The holy grail is in linking and cross-leveraging the digital systems and physical presence to attract and retain customers, drive enhanced experiences and cross-sell/ up-sell new products.

Digitization has brought both benefits and challenges for the publishing industry. With the rapid growth of smartphones, tablets and e-reading devices, the sales of e-books have surged over the past few years, far surpassing the growth of printed books. Moreover, with the enablement of self-publishing platforms such as the Kindle, many authors have adopted the digitized version either exclusively or as the preferred medium. The Association of American Publishers reported that in the first quarter of 2012, e-book sales amounted to $282.3 million while hardcover sales were $229.6 million. At that time, many experts predicted this trend would continue further, making printed books a rare phenomenon. However, the trend reversed in 2013 as hardcover sales increased 10% in the first 8 months as compared to the lesser 4.8% increase for e-books. Clearly, neither platform is disappearing anytime soon as readers choose e-books or printed books based on immediacy, price, context and other variables. The ideal combination is to provide the options of both digital and physical in a convenient way and let the consumers decide.

The children’s toys industry is also at an interesting cross road. Today’s children are growing up with iPads, other tablet 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, large toy makers such as LEGO, Mattel, Hasbro, etc. are combining physical toys with digital elements. LEGO is continuing to focus and grow its core business, the ubiquitous bricks – which define its identity and is known all over the world for all to play, create and learn. The LEGO CEO talks about encircling the physical building experience with online and digital and as part of a continuum rather than contradiction. Similarly, games such as Skylanders offer digital counterparts with the purchase of the physical toys. While this has opened up a whole new world of imagination with physical elements for children, it has also helped the game maker to sell over 175 million toys since 2011.

The Digital presence, as we know it today, is less than a decade phenomenon and is growing amazingly fast, while the physical has been around for centuries. Today, we hear about the physical vs. digital debate, but more often than not, it’s not ‘vs.’ but rather ‘and’ that should be the focus. Going digital will certainly create new ways to deliver products and services, enrich customer experience, deliver higher efficiency, increase businesses, create employment, empower people. etc. and must be leveraged by all industries. It simply cannot be overlooked. At the same time, the physical presence is not disappearing, and the symbiotic relationship between the two must be nurtured more for the optimum outcomes.

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