Influence of Augmented Reality in Retail on Consumer Behaviour and businesses

Influence of Augmented Reality in Retail on Consumer Behaviour and businesses

Posted | Updated by Insights team:
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
  • Digital Transformation

Publication | Update: Nov 2022

The global retail augmented reality market was worth $ 2 billion in 2021 and is expected to reach .3 billion by 2031, at a CAGR of 41.4 percent from 2022 to 2031. The market is segmented by retail type, including jewellery, beauty and cosmetics, clothing fitting, furniture and lighting, grocery shopping, and footwear. Amazon.com, Inc, Apple Inc, Augment, Blippar Group Limited, Google Corporation, Holition Ltd, Inter IKEA Systems B.V., Imaginate Technologies, INDE, Kudan, Marxent Labs, Microsoft Corporation, PTC, Sephora USA, Inc, ViewAR GmbH, Wikitude and Zugara, Inc, are the leading companies listed in the analysis of the retail augmented reality market. These game changers have chosen different ways to increase their market share and strengthen their position in the industry.[1]

The eCommerce market has grown in recent years. It has been significantly strengthened by the Covid pandemic, which has had a profound impact on consumer behavior, and new patterns are expected to persist in the future. One impact is the increase in the number of people shopping online. And while this has its advantages, it is all too easy to buy things that do not meet expectations. This problem is partially solved by augmented reality, which allows shoppers to try out the product before they buy it, and they can use the interface to fix problems - both before and after the purchase. The world's 4.6 billion social media users are regularly exposed to augmented reality, regardless of whether they are aware of it. It also offers new opportunities for marketers to interact with consumers, and with augmented reality sales expected to skyrocket in the near future, it has the potential to significantly change the way businesses operate.[2]


Enhance customer expectations

The use of AR in corporate marketing opens up new creative possibilities. Instead of limiting users to screens and two-dimensional advertising, companies are making their content more engaging. Customers can take advantage of augmented reality home furnishing apps to imagine how the furniture will look in the home, in preference to using their imagination. In supermarkets, users can refer to AR apps to see what's on offer. Even the real estate industry could benefit from app users being able to access information about the neighborhood when viewing a house. With augmented reality, companies can bring business to the customer. This is especially useful for people who want to shop at a distant shop without having to make many trips. Some online clothing retailers have already implemented a similar feature by allowing customers to send in pictures of their body and try on clothes virtually.[3]


Visual context increases conversion

E-commerce sales continue to grow year on year. In 2021, e-commerce accounts for 19.6 percent of global retail sales. This is expected to increase to 25 percent of total retail sales by 2025. AR offers consumers the opportunity to have a richer visual experience while getting the context they need to make an informed decision. According to the Snap and Deloitte Snap Consumer AR Global Report, interacting with products that experience AR leads to a 94 percent higher conversion rate. We see in our own data that using AR increases retail conversion rates by 3.5 times. It much easier to spend hundreds of dollars or more on a new sofa when a customer knows it fits both the style of his/her home and space. With AR, e-commerce shopping feels less risky and could increase its share of the total e-retail pie to well over 20 percent.[4]


Virtual Product Testing


One of the main advantages of augmented reality is the ability to test things before buying them, especially expensive products. A customer can easily try on clothes, jewelry, artwork and even furniture and vehicles, while they are buying from home. More than a hundred thousand shops will soon use this technology to enhance the shopping experience. AR has several applications in the fashion industry. Customers can try on the latest fashion to see if it fits. This reduces product returns and increases sales.


The visual experience of buying is enhanced when customers can try on virtually before they buy. Customers will fondly remember their unique augmented reality shopping experience. In addition to the psychological component, there is also a training component. By using augmented reality, companies are able to provide their customers with more comprehensive information than can be provided on a label. It can contain information about the components or manufacturing process of an item, or point out accessories that are compatible with the item. It is also possible to include other information about the company, such as shop opening hours and instructions. Customers can also find imaginative uses for AR while shopping in a store. The psychological satisfaction that comes with the purchase can be increased through the use of games and sharing on social media, which also leads to additional referrals. Finally, marketing through word of mouth is very valuable. It is even possible that the augmented reality experience could go viral, which would be very good for business.[5]


Remain competitive


As a sales tool, the use of cutting-edge technology such as augmented reality helps businesses increase their customer base and retain more shoppers. Due to the novelty of AR technology, the use of AR services can give businesses a competitive edge over their rivals. With AR -supported marketing campaigns, they can better promote their products, and the use of AR helps them stand out from other similar products in the market. The use of augmented reality services improves brand awareness and attractiveness.[5]


Build customer loyalty


In addition to appealing to a client's competitiveness and motivation, it is also effective to show compassion and concern for their welfare. Mothers are an excellent example of this. These women play a crucial role in their homes and communities and represent an important market for businesses. Yet 54 percent of mothers feel anxious, and 40 percent go shopping more often per week than non-mothers. AR can help retailers create stress-free experiences and make their lives easier. This can build consumer loyalty and show that the brand really cares about them.[6]

[1] Visitor Analytics. (2022, August). How augmented reality is changing consumer behavior. Retrieved from: https://www.visitor-analytics.io/en/blog/how-augmented-reality-is-changing-consumer-behavior/


[2] AZ Creates LLC. (2021, April). 7 benefits of augmented reality for business. Retrieved from: https://www.azcreates.com/blog/7-benefits-of-augmented-reality-for-business


[3] Aluru, S. (2022, July). Three ways augmented reality affects consumer psychology. VentureBeat. Retrieved from: https://venturebeat.com/datadecisionmakers/three-ways-augmented-reality-affects-consumer-psychology/


[4] Rock Paper Reality. (2022, March). How extended reality is transforming customer experience. Retrieved from: https://rockpaperreality.com/ar-use-cases/how-extended-reality-is-transforming-customer-experience/


[5] HoloPundits. (2021, September). Top 5 benefits of using AR for your business. Retrieved from: https://www.holopundits.com/blog/2021/09/top-5-benefits-of-using-ar-for-your-business.html


[6] Miller, A. (2021, September). 5 AR benefits for retailers. AR Insider. Retrieved from: https://arinsider.co/2021/09/23/5-ar-benefits-for-retailers/


[1] Md, K., Keshav, K., Vineet, K. (2022, August). Augmented reality in retail market. Allied Market Research. Retrieved from: https://www.alliedmarketresearch.com/augmented-reality-in-retail-market

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Objectives and Study Scope

This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.

The report in its entirety provides a comprehensive overview of the current global condition, as well as notable opportunities and challenges. The analysis reflects market size, latest trends, growth drivers, threats, opportunities, as well as key market segments. The study addresses market dynamics in several geographic segments along with market analysis for the current market environment and future scenario over the forecast period. The report also segments the market into various categories based on the product, end user, application, type, and region.
The report also studies various growth drivers and restraints impacting the  market, plus a comprehensive market and vendor landscape in addition to a SWOT analysis of the key players.  This analysis also examines the competitive landscape within each market. Market factors are assessed by examining barriers to entry and market opportunities. Strategies adopted by key players including recent developments, new product launches, merger and acquisitions, and other insightful updates are provided.

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We leverage extensive primary research, our contact database, knowledge of companies and industry relationships, patent and academic journal searches, and Institutes and University associate links to frame a strong visibility in the markets and technologies we cover.

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Forecast methodology

The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. We aim update our market forecast to include the latest market developments and trends.

Forecasts, Data modelling and indicator normalisation

Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:

  • Cambridge Econometrics (CE)

  • The Centre for Economic and Business Research (CEBR)

  • Experian Economics (EE)

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As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.

Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.

Direct contribution to GDP
The method for calculating the direct contribution of an industry to GDP, is to measure its ‘gross value added’ (GVA); that is, to calculate the difference between the industry’s total pre­tax revenue and its total bought­in costs (costs excluding wages and salaries).

Forecasts of GDP growth: GDP = CN+IN+GS+NEX

GDP growth estimates take into account:

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Market Quantification
All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.


Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.

Industry Life Cycle Market Phase

Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:

  • Nascent: New market need not yet determined; growth begins increasing toward end of cycle

  • Growth: Growth trajectory picks up; high growth rates

  • Mature: Typically fewer firms than growth phase, as dominant solutions continue to capture the majority of market share and market consolidation occurs, displaying lower growth rates that are typically on par with the general economy

  • Decline: Further market consolidation, rapidly declining growth rates


The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.

The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.

  • Vector Auto Regression (VAR) statistical models capturing the linear interdependencies among multiple time series, are best used for short-term forecasting, whereby shocks to demand will generate economic cycles that can be influenced by fiscal and monetary policy.

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Forecasts of GDP growth per capita based on these factors can then be combined with demographic projections to give forecasts for overall GDP growth.
Wherever possible, publicly available data from official sources are used for the latest available year. Qualitative indicators are normalised (on the basis of: Normalised x = (x - Min(x)) / (Max(x) - Min(x)) where Min(x) and Max(x) are, the lowest and highest values for any given indicator respectively) and then aggregated across categories to enable an overall comparison. The normalised value is then transformed into a positive number on a scale of 0 to 100. The weighting assigned to each indicator can be changed to reflect different assumptions about their relative importance.


The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.

Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.

Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.