Shifting Consumer Behavior: How Retailers Can Catch Up

Written By: Gargi Sarma

Consumer expectations are changing dramatically in the ever-changing retail market. Convenience used to be the most important factor, but modern consumers are looking for unique experiences that align with their beliefs and emotionally connect with them. To meet these increased needs, this change is redefining how merchants approach their strategies by fusing cutting-edge AI and Generative AI (GenAI) technologies with conventional approaches.

The Convenience Era: An Overview

One of the main pillars of contemporary shopping has long been convenience. Online retailers like Amazon have completely changed how we buy by providing huge variety, quick shipping, and easy transactions. Customers began anticipating fast returns, prompt service, and easily accessible inventories. However, distinction got more difficult as convenience became the norm.

Figure 1: Consumer Spending Behavior in 2024

Consumer loyalty declined as retailers who relied solely on convenience faced fierce competition. A fresh query emerged: After convenience, what comes next?

The Evolving Consumer Mindset

Figure 2: Consumer Loyalty Changes in Advanced Economies, Past 3 Months (% of respondents) - 2024

Convenience was paramount in the early days of online shopping. Customers desired efficiency, convenience, and quickness. Platforms like Amazon rose to prominence as a result of this trend, setting the bar for quick delivery and easy buying. However, consumers are now searching for more than convenience as the retail market grows more crowded and competition heats up. From the brands they interact with, they are looking for a feeling of community, emotional ties, and distinctive experiences.

This change is seen in recent surveys. McKinsey & Company reports that 63% of consumers are eager to contribute data for more individualized recommendations, and 72% of consumers want brands to offer personalized experiences. The need for consistent, engaging brand experiences across all platforms is further highlighted by Accenture's finding that 48% of consumers anticipate the same experience whether they are shopping online, in-store, or on their mobile device.

Figure 3: Global FMCG Price Inflation Rate - Monthly (Source: NIQ)

The Experience Economy Emerges

Consumers of today are looking for experiences rather than just goods. Retailers today have to respond to the demand for emotionally compelling, immersive, and customized interactions. This change can be seen in:

• Personalization: Curated shopping experiences, dynamic pricing, and personalized recommendations are now required. Retailers build personalized experiences for each customer by utilizing AI and data. By creating highly personalized product descriptions, advertising campaigns, and even interactive shopping assistants, GenAI goes one step further.
• Immersion: Virtual reality (VR) fitting rooms and augmented reality (AR) mirrors are examples of in-store technology that offer experiences that blend online and offline purchasing. Customers can "try before they buy," which ensures convenience and novelty, in virtual worlds.
• Sustainability and Ethics: Today's consumers are curious about the origins of the products they buy. Customers are drawn to and kept by retailers who are open and honest about sustainability, fair trade, and sourcing. AI facilitates the efficient analysis and communication of these intricate supply chain elements.
• Community Building: Brands are establishing communities in addition to transactions. Retailers are creating stronger ties through exclusive events, loyalty programs, and social media interaction. Here, GenAI is essential in creating material that appeals to a wide range of viewers.

How the Revolution is Being Driven by AI and GenAI

Retailers are able to maintain their competitive edge in the experience economy thanks to the integration of AI and GenAI. Here's how:

• Predictive analytics: AI uses past data to foresee consumer trends, allowing for proactive marketing and inventory plans.
• Enhanced Personalization: GenAI is able to provide dynamically tailored marketing content that perfectly suits customer preferences, including emails and product images.
• Real-Time Interactions: GenAI-powered chatbots provide round-the-clock assistance and simulate human interactions in discussion, which increases client happiness.
• Content Creation: To save time and guarantee relevancy, GenAI can create complete marketing campaigns, including product descriptions, blogs, and even ads.

Figure 4: During the Holiday Season, Weekdays are Almost as Important as Weekends, with a Distortion to Online Shopping During the Week  

Startups Leading the Charge

A number of businesses are taking advantage of this change and recognizing the necessity of experience-driven tactics that extend beyond simple transactions. These businesses are combining cutting-edge technology, community development, and personalization to produce captivating and immersive experiences.

• Glossier: The way people use skincare and makeup has been revolutionized by the beauty company Glossier. Glossier provides a lifestyle in addition to products by cultivating an online community of beauty aficionados and using social media to increase participation. User-generated content and personalized recommendations improve this experience and give customers a sense of belonging to a bigger brand narrative.
• Warby Parker: By fusing convenience with individualized in-store experiences, the eyewear startup has completely changed the way that customers purchase glasses. With the use of virtual try-on technology and home try-ons, Warby Parker clients can explore the brand in new ways without ever leaving their homes. Furthermore, their physical storefronts are intended to serve as more than just places to buy; they are places where clients can try on various frames, get style advice, and even take in a distinctive atmosphere that complements their brand.
• Revolve: Revolve distinguishes itself in the apparel market by fusing experience retail with ease. To create a feeling of exclusivity, the brand combines influencer marketing with event-based activities like pop-ups and exclusive parties. Through these initiatives, Revolve has developed a powerful brand identity that appeals to its clientele, who purchase goods as well as access to a specific way of life.
• Glovo: Originating in Spain, Glovo is a delivery firm that has expanded its offerings beyond typical meal delivery by enabling customers to purchase anything from groceries to prescription drugs and even courier services. Their emphasis on ease is coupled with an outstanding user experience, wherein real-time tracking, tailored recommendations, and immediate customer service are crucial in fostering client loyalty.

Figure 5: Importance of Environmental, Social and Governance (ESG) in Purchase Decisions

Market Statistics: The Power of Experience

Numerous industry trends and statistics demonstrate the increasing significance of experiences in retail, supporting the consumer desire for more than merely convenience:

• Experience-Based Purchasing: 78% of consumers, according to Eventbrite, would rather spend money on experiences than tangible goods, indicating a larger trend in which customers place a higher value on unique and memorable experiences than merely buying goods.
• Personalization Pays Off: Epsilon discovered that when brands provide individualized experiences, 80% of customers are more likely to make a purchase. Customers are more satisfied and retailers make more money when they customize their products according to their tastes.
• Omnichannel Engagement: 73% of customers demand a consistent experience across all channels, according to a Salesforce survey. Retailers are redesigning their consumer interactions to incorporate digital and physical touchpoints into a cohesive whole in response to the desire for seamless shopping experiences.
• Younger Consumers Prioritize Experience: Experience is more important to Generation Z, who make up a sizable section of today's customer base, than tangible commodities. 75% of Gen Z consumers prefer to purchase from brands that provide interactive and engaging experiences, according to a Wunderman Thompson survey, thus businesses must adapt their products.

The Future of Retail: Focusing on Experience

Retail businesses are changing to provide experiences that go beyond simple transactions as customers get more discriminating. Retailers are being assisted in creating highly tailored and engaging experiences for their customers by the emergence of immersive technologies like augmented reality (AR), virtual reality (VR), and artificial intelligence (AI).

While AI-powered recommendation systems improve the shopping experience by providing tailored ideas based on browsing behavior and previous purchases, augmented reality (AR) applications, for instance, let buyers see how things will appear in their homes or on their bodies before making a purchase.

Additionally, experiential retail venues are growing in popularity. Stores are evolving from straightforward places to shop to gathering places where customers can interact with the business more deeply by attending seminars, taking part in events, or using items in meaningful and authentic ways.

Conclusion

Consumers' evolving expectations are reflected in the move away from convenience and toward enjoyment. Retailers can manage this shift and deliver moments that matter in addition to items by embracing AI and GenAI. The key to retail's future is its capacity to engage with customers more deeply and meaningfully, turning every encounter into an unforgettable tale.

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