Principles of Retailing: Technology and Future of Retail - Augmented Reality, AR and Virtual Reality VR in Retail Virtual Try-On In-Store Navigation Virtual Showrooms

What This Is

Augmented Reality (AR) and Virtual Reality (VR) are technologies that enhance the shopping experience by providing immersive and interactive experiences. Retailers can use AR and VR to create virtual try-on, in-store navigation, and virtual showrooms, increasing customer engagement and driving sales. For example, Sephora's Virtual Artist app uses AR to allow customers to virtually try on makeup and share their looks on social media, increasing sales and customer satisfaction.

Key Frameworks & Metrics

• AR/VR Adoption Maturity Model: A framework to measure a retailer's adoption and implementation of AR and VR technologies, from basic awareness to advanced integration.
• Customer Lifetime Value (CLV): The total value of a customer over their lifetime, calculated by multiplying average order value, purchase frequency, and customer lifespan. CLV helps retailers prioritize AR and VR investments.
• Basket Size: The average amount spent by a customer in a single transaction, influenced by AR and VR experiences that increase average order value.
• Conversion Rate: The percentage of website visitors or in-store customers who make a purchase, improved by AR and VR experiences that enhance the shopping experience.
• Cost per Acquisition (CPA): The cost of acquiring a new customer, reduced by AR and VR experiences that increase customer engagement and drive sales.
• Return on Ad Spend (ROAS): The revenue generated by a marketing campaign divided by the cost of the campaign, improved by AR and VR experiences that increase customer lifetime value.
• Inventory Turnover: The number of times inventory is sold and replaced within a given period, influenced by AR and VR experiences that increase sales and reduce stockouts.
• Gross Margin Return on Inventory Investment (GMROI): Gross margin divided by average inventory cost, measures inventory profitability and informs AR and VR investments.
• Omnichannel Maturity Model: A framework to measure a retailer's ability to provide a seamless shopping experience across online and offline channels, including AR and VR experiences.

Step-by-Step Process

1. Conduct Market Research: Analyze customer behavior, preferences, and pain points to identify opportunities for AR and VR adoption.
2. Develop a Strategy: Determine the type of AR and VR experiences to implement, such as virtual try-on or in-store navigation, and set clear goals and metrics for success.
3. Design and Develop Experiences: Collaborate with technology partners to design and develop AR and VR experiences that meet customer needs and align with the retailer's strategy.
4. Test and Refine: Pilot test AR and VR experiences with a small group of customers to gather feedback and refine the experiences before scaling.
5. Measure and Optimize: Track key metrics, such as conversion rate and return on ad spend, and use data to optimize AR and VR experiences and improve customer engagement.

Common Mistakes

• Mistake: Ignoring customer feedback and preferences when designing AR and VR experiences.
• Correction: Conduct thorough market research and gather feedback from customers to ensure AR and VR experiences meet their needs.
• Mistake: Treating AR and VR as separate channels rather than integrated experiences.
• Correction: Design AR and VR experiences that seamlessly integrate with online and offline channels to provide a unified shopping experience.
• Mistake: Over-relying on discounts and promotions to drive sales through AR and VR experiences.
• Correction: Focus on creating engaging and interactive experiences that increase customer lifetime value and drive sales through increased average order value and purchase frequency.

Retail Strategy Tips

• When implementing AR and VR, ensure unified inventory visibility to prevent stockouts online and offline.
• Use data from AR and VR experiences to inform merchandising and inventory decisions and optimize product offerings.
• Prioritize AR and VR experiences that increase customer engagement and drive sales through increased average order value and purchase frequency.

Quick Practice Scenario

A department store has high footfall but low conversion. Which metric would you analyze first and why?

Answer: Conversion Rate. Analyzing conversion rate first will help identify whether the issue lies with the shopping experience, product offerings, or pricing.

Last-Minute Cram Sheet

• AR/VR Adoption Maturity Model: Measures a retailer's adoption and implementation of AR and VR technologies.
• Customer Lifetime Value (CLV): The total value of a customer over their lifetime.
• Basket Size: The average amount spent by a customer in a single transaction.
• Conversion Rate: The percentage of website visitors or in-store customers who make a purchase.
• Cost per Acquisition (CPA): The cost of acquiring a new customer.
• Return on Ad Spend (ROAS): The revenue generated by a marketing campaign divided by the cost of the campaign.
• Inventory Turnover: The number of times inventory is sold and replaced within a given period.
• Gross Margin Return on Inventory Investment (GMROI): Gross margin divided by average inventory cost.
• Omnichannel Maturity Model: A framework to measure a retailer's ability to provide a seamless shopping experience across online and offline channels.
• 'Omnichannel' is not just being present on all channels – it's about a seamless integrated experience across channels.
• AR and VR experiences should be designed to meet customer needs and preferences, not just to drive sales.
• Inventory visibility is critical to prevent stockouts online and offline.
• Data from AR and VR experiences should inform merchandising and inventory decisions.