The changes in customer behavior have been a fundamental driver in the digital transformation of the retail sector and the development of digital retail platforms. It is possible to see this as a chicken and egg situation and ask what goes first, the disruption of the new technology and the business models or the changes in the customer behavior. This is a fair question, however, it is undeniable that the adaptability and eagerness of customers to jump to a digital retail environment has been the step in the gas need to accelerate these changes. The speed of changes and the type of changes we see today were hard to imagine only a few years ago. Early on in this digital transformation, customers were willing to search for the product information online, read reviews and become expert on those products before arriving at the physical store. This behavior of searching for information online is well established today. What is interesting to see is how certain retail categories have also rapidly moved to the purchase online space. Today, we see product categories such as books or music that sell only a very small fraction of the total volume in physical stores. We can create a two way plot that shows the percentage of products bought online for a particular category, on the X axis. And on the Y axis this graph can show the percentage of products search online for that category. If we place on this graph, all the different categories that retailers offer today, we will see that there are categories such as electronics, books or video games that have gone digital. What I mean by this is that for almost every customer, the complete customer journey, the information gathering, the search process and the actual purchase happens online. There are still other categories that are in transition and it is where the digital battleground is happening today, categories such as furniture and food work will fall in this place. These are categories that because of different customer preferences of retail offerings have not gone digital. It is possible to imagine that for some categories, it is only a matter of time until they go digital. For others, this might never happen and we'll stay in the battleground space for the years to come. Finally, we can still find categories large and small that are primarily search and bought in the physical store in the physical world. The groceries and health and beauty categories belong to this still in store group. The transition of these categories to other places in the map is still an open question, especially when the retailers or the platforms, profitability comes into the picture. While customer behavior is a clear driver of this map. It is so so true that the profitability of the retailers trying to serve those customers served as the balance to see where and how some of the categories can go fully digital or need to stay in the physical world. We can imagine that the value of the X and Y axis for each categories can be added. And this number, the sum of the search and purchases percentages will give us a score that in a sense capture the digital intensity of that category. I want to highlight that this digital intensity score for the category is always evolving and retailers need to track this score evolution over time. Of course, this also means that the position of the category in the graph will also change and evolve over time. In the same way that different categories present different digital intensities, different countries, regions or market can have a different retail digital intensity. Let me suggest a way to capture this digital intensity at a regional level. Not every country and region around the world has the same internet penetration and e commerce activity. For example, in one extreme of the spectrum, the United Kingdom has an Internet penetration of more than 90%. While in South Africa, the internet penetration is 56%. This metric captures the portion of the population with regular access to the internet and present a meaningful variation worldwide at the same time. In the UK, 84% of the retail customers but something online during the last period and only 37% of retail customer bought something online. In South Africa. Clearly, the internet penetration and the commerce activity are correlated. Based on these indicators, we can calculate the ratio between internet penetration and e commerce activity. It is also meaningful to consider the average of these two numbers as a metric that captures the digital intensity of a country. Now, let's create a digital intensity matrix and consider where retail companies are competing in these matrix. You can have categories and regions, combinations like electronics in the United Kingdom, that play in high digital intensity environment in both fronts. At the same time, the additional intensity of the electronics category in South Africa can be relatively high. But in a low digital intensity market, the digital intensity matrix can provide a tool to help retailers plan their integration and balance between physical and digital offerings to their customers. We will come back to this topic in the next module.
