Virtual Reality: the next reality in the world of retail article by Aneta Ramos, Senior Consultant, Retail Economics
A recent study by International Data Corporation (IDC) estimates that worldwide revenues for the Virtual Reality (VR) and Augmented Reality (AR) market will increase from US$5.2 billion in 2016 to over US$162 billion in 2020, with the retail industry standing to be one of the biggest beneficiaries of this growth.
It is important to highlight at the outset that the potential benefits to the retail sector are not being predicated by the use of the technology for technology’s sake, but rather it is underpinned by a growing demand by customers for a more convenient, tailored and unique shopping experience.
A recent study of US consumers by Stamford-based Daymon emphasised this, with results showing that:
- 71% would shop at a retailer more often if they offered AR;
- 61% prefer shopping at retailers that offer AR over ones that don’t;
- 40% would be willing to pay more for a product if they could experience it through AR; and
- 72% have purchased items they weren’t planning on buying because of AR.
Harnessing the opportunities these customer insights provide will be key for those retailers looking to succeed in the 21st-century digital retail market.
But first, let’s consider the basics
I want to begin this article by dispelling some confusion around the difference between VR and AR. Both have the remarkable ability to alter our perception of the world – but their difference is major and one worth noting.
Virtual Reality transposes the user to a new world, primarily by stimulating their vision and hearing. This is typically achieved by wearing a closed visor or headset like Samsung’s Gear VR, Google Cardboard and Facebook’s Oculus, equipped with the technology.
Conversely, AR takes the users’ current reality and enhances it or, more simply, it ‘augments’ what the consumer sees. AR is developed into apps and used on mobile devices or often with clear visors.
VR has been around for much longer than its sister technology AR, and has received a lot of media attention, with many of the tech giants such as eBay and Google investing heavily in early attempts to integrate VR into the retail world. Despite this, VR is still yet to really take off.
What has kept VR from realising its full potential?
There are three main reasons:
- The cost is prohibitive for mass market appeal, with headsets starting at $600;
- Technology for an immersive VR experience isn’t readily accessible. Less than 1% of computers worldwide have the graphical capabilities required for VR. The technology to support VR is either yet to be released, or is in early developmental stages; and
- The long-term effects of VR on health are still largely unknown, which is why VR products come with a list of warnings to limit liability.
For these reasons retailers have been quicker to adopt AR technology, due to its more accessible and widespread application from the tap of a smartphone, to packaging and marketing of the customers’ in-store experience.
AR will increasingly play a significant role in a retailer’s marketing strategy as it creates opportunities to capitalise on the mobile’s responsiveness, encouraging immediate action to convert to sales.
Is there still a place for VR in retail?
Despite AR’s growing popularity over VR in the retail market, there is an equally appealing case to be made for VR.
For one, let’s discuss floor space. VR means retail companies are no longer restricted by the size of their stores or location. For example, North Face enhanced their customer’s in-store experience by using VR to ‘transport’ their customers to Yosemite National Park as they tried on their camping gear. And just as online shopping has made in-roads into today’s retail market, you can picture a future when customers, like you and I, will be able to go to our favourite store, not by driving but by placing on our headset.
This future is here now – simply look up Alibaba’s recent announcement of its Gnome Magic Labs. What implications could this have on commercial space valuations?
VR is also an effective way to enhance the customer experience through storytelling and helps to build a customer’s emotional connection to a product. Take IKEA’s innovation that allows users to walk around one of their kitchens, make customisations to the preferred colour scheme, and even cook meatballs!
VR also empowers shoppers to make better-informed decisions through having a more interactive customer experience. Beauty retail giants Sephora and L’Oréal teamed up with Priceline to develop an experience whereby users, through facial recognition, virtually apply thousands of different make-up products from the comfort of their own home before they buy.
The other key advantage of VR revolves around shopping behaviour. One of the biggest challenges that grocers such as Woolworths and Coles have with online shopping is that it ‘kills’ the impulse buy.
VR would help bring back this dynamic to the digital shopping experience and could even magnify it, through real-time, tailored, targeted digital offers.
What does this mean for retailers?
The technology already exists that enables you to sit in your own home, using a VR headset, and move about inside a virtual store just as you would in a real one. However, the technology itself, without a clear customer and data strategy (a topic for another day) will limit the potential that retailers can extract from the opportunities VR opens up. Without an effective customer and data strategy, retailers will be unable to deliver the tailored experience that customers will expect and pay for.
There is clear appetite for AR or VR in this new retail world characterised by technology, innovation and increasing customer expectations. Many argue that VR and, to lesser extent, AR are fad and over-hyped buzzwords that are of little relevance to day-to-day business. I would contend that this is a major oversight.
VR and AR technologies are at the brink of revolutionising the retail world in the coming years. As the cost associated with the technologies means these become mainstream (some of you may remember hearing the same thing said about PCs), the number of retailers leveraging VR and AR will only accelerate. The stakes are high, as it is clear that these confer direct sales opportunities and enrich the consumer’s experience of the brand.
The most successful adopters of VR and AR will be the retailers who use the technology to augment their relationship with customers, rather than replace it. Virtual Reality is fast becoming a reality that will revolutionise the way in which we shop. #whereismyheadset