Slyp Report

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Re d efi n i ng reta il e r ro l es , i n - sto re exp e ri e n c es , c ha n n e l c o nve rg e n ce , a n d loyalt y


The Rise of Gen "Re"

INTRODUCTION The world of retail, much like humanity, has experienced a tectonic shift in the last two years.

In the past, Baby Boomers made shopping a pastime, and Millennials ushered in online retail.

Pandemics, climate crises, new technologies and global paradigm shifts are just some of the influences that have contributed to the omnipresent change in humanity’s behaviour – not only as people but also as consumers.

However, our new reality has moved beyond simplistic age-based generations to a set of values and behaviours based on a new mindset: Gen Re.

So, how have consumers changed? For the first time ever, shoppers were forced to conduct the majority of their purchasing online due to the closure of physical stores around the globe. This unique scenario served as a harsh reminder of the value of in-store shopping and sparked innovations to merge the online and offline customer experience. On top of that, the world witnessed an unprecedented amount of tragedy for both humankind and our environment. This sparked an elevated level of consciousness and expectation when it comes to retailers’ sustainability and community efforts. However, this same period brought a steep increase in retail competition, with businesses using customercentricity as the key to differentiate themselves from the masses. In response, customer expectations in areas such as convenience, personalisation, and loyalty/rewards programs increased dramatically. According to global consulting group BCG, COVID-19 has created many new consumer purchasing behaviours, and in several instances accelerated the adoption of existing shopping behaviours by 2-4 years.1 With so much change happening in the world, everything we thought we knew about consumers is being re-defined.

Gen Re are a new wave of hyper-conscious consumers characterised not by age, gender or socioeconomic status, but by the redefinition of their values and behaviours. Beyond this, Gen Re has influenced a redefinition of the entire customer experience – characterised by a change in retailers’ roles, consumers’ expectations, and the relationship between the two. As a group, Gen Re people have higher expectations and are more willing to act if their expectations are not met. They are also much more inclined to adopt new shopping behaviours to meet their redefined expectations. It’s a mindset, it’s not fixed, and different people embrace it to different degrees. And as they adjust their behaviour depending on the circumstances, people don’t always follow their Gen Re mindset. However, the Gen Re mindset is already the single most important driver of shopper behaviour and will only become more impactful over time. This report will help you understand today’s customer – the all-powerful Gen Re shopper – from the inside out and provide actionable insights on how to thrive in this new and uncharted retail environment. We hope you find it both interesting and valuable.

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The Rise of Gen "Re"

WHERE TO START While the new Gen Re mindset affects all stages of the customer journey, there are four questions that retailers need to be able to answer immediately:

WHAT IS THE ROLE OF A RETAILER?

WHAT ARE THE BEST WAYS TO UTILISE PHYSICAL STORES?

WHAT IS THE OPTIMAL CHANNEL CONFIGURATION?

Gen Re expects all organisations to lift their game and they have specific ideas on what retailers should be doing to help make a better world.

Gen Re shoppers want retailers to implement technology that will reduce the traditional frictions of shopping in physical stores.

Retailers talk about omnichannel, but what Gen Re wants are omnipresent channels that add value to their customer journey.

WHAT HELPS BUILD LONGTERM CUSTOMER LOYALTY? Along with the rest of the population, Gen Re have particular requirements of loyalty programmes, though their loyalty is also impacted by the emotional trust they have in retailers.

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The Rise of Gen "Re"

FOREWORD “The customer is always right”. A phrase that anyone who has worked in retail or hospitality is more than familiar with. Whether you agree with it or not, there is no denying that every decision you make as a business is primarily influenced by the needs, wants and expectations of the customers you serve. Slyp was founded on a similar principle – that the customer comes first, always. Something that we continue to evolve whilst working with some of the largest brands in Australia. It’s imperative that retailers are on the pulse when it comes to really knowing their customers and anticipate their needs to stay on top in an increasingly competitive industry. Customers have experienced some of the largest shifts in technology over the past 5-10 years. We have evolved from carrying a physical wallet where cash was the preferred payment, to a cashless and now cardless society where phones and watches can do everything. Customers demand evolution. The next generation of shoppers – Gen “Re” are redefining the retail experience. Throw in a pandemic and climate change – the retailers who are going to thrive are those who not only meet the needs of their customers but anticipate and exceed these customer needs. Slyp is helping retailers do exactly this. Getting in front of customer issues such as friction at the checkout and expectations like environmental sustainability to help retailers not only achieve but exceed. Slyp is allowing retailers to add a 6th star to a 5-star customer experience. That is also the sole purpose of this report. To help retailers take their customer experience to the next level. Firstly, by understanding everything about Gen “Re” through the latest consumer research. Also, with unique case studies from retailers such as Officeworks, Coles, Dan Murphy’s and more to showcase how others are exceeding customer expectations. I hope you enjoy the report. Use it as a stepping-stone to a proactive approach to customer-centricity.

Paul Weingarth CEO and Co-Founder Slyp 4


The Rise of Gen "Re"

“Providing standout product is no longer enough for retailers. When it comes to shopping, consumers are now looking beyond the physical towards the impact and value of their purchases on a broader scale. As retailers, being environmentally conscious and having strong brand values towards sustainability are arguably as important as your tangible offering.” Sascha Moore National Brand Manager at Scotch & Soda

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The Rise of Gen "Re"

SUSTAINABILITY: LICENCE TO OPERATE A key element of the Gen Re mindset is a re-focus on what’s important. Nearly half (46%) of Australians say that their values and the way they look at life has changed since the pandemic. 2 This ranges from broader issues like sustainability and social concerns, through to supporting their own local community. Marc L’Huillier, Oceania Consumer Insights Lead, EY Australia, describes how “the pandemic has fundamentally changed the way people will live in the future and the way they look at the world".3 The net effect is that nearly nine-in-ten consumers (88%) now take into consideration a brand's own social and environmental efforts when making purchasing decisions.4 Sustainability is a fundamental concern for Gen Re. In response to climate change concerns, 51% of Australians try to buy sustainable products5 and 44% claim that they will pay more for sustainable products.6 Many major retailers have already responded, with initiatives ranging from minimising their own impact and supporting sustainable practices, through to supporting positive social change.7 For example, in 2020, Dan Murphy’s launched a new store in Batemans Bay featuring an electric car charging station, LED lighting to help reduce energy consumption, and a 53kWh solar roof system that offsets a large portion of the store’s energy usage.

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The Rise of Gen "Re"

SERVICES A RETALIER CAN PROVIDE TO CREATE COMMUNITY SOURCE13

47%

46%

Human Connection

Customer Service

45% Local Program

41% Partnership And Sponsorship

42% Staff Expertise

36%

Bonds took a different approach with its The UnGENderwear Project, a multi-year initiative to break down gender norms and stereotypes in the fashion industry. The brand has committed to identifying and reviewing all gendered terms used across their products, packaging, and stores, delivering a genderless shopping experience in their owned channels by 2023, and consulting with the LGBTQIA+ community.

These examples demonstrate that there is no single solution, and that every retailer can find their own way to perform social good.

Recognising the toll that the pandemic shutdowns have had on the Australian music industry, 7-Eleven Australia decided to leverage its capacity to reach tens of thousands of consumers via its store network to support local artists with greater market exposure and royalty income. During Australian Music Month, exclusively Australian music was played across all of the 700+ 7-Eleven stores in Australia for the whole of November 2021.8

Taking up this challenge, Flora & Fauna decided that it could encourage its suppliers to help address plastic waste by declaring it would no longer accept products sent using unnecessary plastic. As part of the ‘Take it Back’ scheme, suppliers that send products to Flora & Fauna in plastic are given a warning to adopt a more sustainable approach and if changes are not made, the plastic is sent back to the supplier to manage.10

Part of the Gen Re mindset is the belief of 68% of consumers that brands should do more than just address their own environmental impact and should actually act as leaders in driving positive change.9

BUILDING A COMMUNITY MATTERS While large-scale issues are important, Australians also value their local community. Part of the new Gen Re mindset has been that one-in-three now feel more connected to their local community than ever.11 There are many ways that consumers say retailers can help build a sense of community; for example, 47% of shoppers say having staff that provide a human connection helps build community.12 This can be particularly important to individuals who may otherwise have limited social contacts. Other ways in which consumers believe that retailers can create a sense of community include local programs (45%) and partnerships and sponsorships (41%).

Bunnings stores’ sausage sizzles are a highly visible feature of their approach to community building and embody attributes of both local programs and partnerships and sponsorships. Bunnings’ corporate policy defines meaningful and active participation in aspects of local communities, to include:14

• • • • • •

Schools and kindergartens Local sporting groups Service clubs (Lions, Rotary etc.) Local community groups that assist the disadvantaged Local health and wellbeing Junior community groups (Scouts, Girl Guides etc.).

Coles is another major retailer that has taken a strong stand on engaging with local communities.

Social Impact Initiatives 7


The Rise of Gen "Re"

Coles Local has been a major investment for Coles and right from the launch of the first Coles Local store in Surrey Hills, Melbourne, in 2018, Coles have focused its new format stores on engaging the community in the immediate vicinity. The Surrey Hills store has community partnerships with the Surrey Hills Neighbourhood Community Centre and Surrey Hills Rotary Club. On launching the store, Coles CEO Steven Cain said, “We’re here to be part of Surrey Hills. Our customers have told us that they want to shop in a sustainable store that reduces food waste and helps the local community.”15 Taking the concept of local community even further, US footwear company Converse opened a new experiential retail concept in Fitzroy, Melbourne, to help shoppers upcycle and customise their sneakers. Commerce stated that, “The diverse and forward-thinking attitude of consumers in this neighbourhood made it the perfect place to establish this destination to bring these concepts to market." Converse also noted how this concept fit with its global corporate focus on a circular economy.16 Along with supporting longer-term activities, retailers have demonstrated how they can rapidly respond to the specific needs of individual communities that are experiencing short-term challenges. For example, in early 2022, many major retailers launched initiatives to support flood-affected communities in New South Wales and Queensland. Again, the diversity of their initiatives highlighted the opportunities for retailers to differentiate their work from those of their competitors. Examples of different approaches included:

• • • •

Officeworks teamed up with online donation platform Givit to offer customers the opportunity to make donations to support affected schools and families17 Coles ran a dollar-for-dollar donation match campaign18 Woolworths encouraged shoppers to round up their transactions to make a donation19 Australian fashion retailer APG & Co donated 9000 items of unworn Sportscraft, and JAG stock valued at over $500,000 to flood-hit communities. In addition, APG also directly engaged with communities by setting up six-month pop-up hubs in the hard-hit communities of Lismore, Indooroopilly and Milton. 20

KEY LEARNING

Gen Re have high expectations and retailers should look for ways to lead positive change that leverage the unique capabilities of their own organisation, and in particular, those that resonate with their brand positioning and ethos. 8


The Rise of Gen "Re"

“Customer expectations have vastly changed in the last two years, especially when it comes to convenience. As the world returns to hybrid shopping, retailers should be striving to provide the same effortless experience instore as they do online. Whether it's checkout, returns or special offers, putting your customer's convenience at the forefront will give you a leg up in an increasingly competitive market.” Sanjay Gill CEO at Purebaby

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The Rise of Gen "Re"

Many Australian retailers see opportunities in their physical stores. Their strategic priorities for 2022 include: • In-store experience (52%)21 • Simplification and automation in-store (45%)22 • In-store theatre (32%)23 • Virtual aisle/order in-store (30%)24 In-store experiential retail is also on the agenda as a longer-term focus, with three-in-four (74%) retailers having committed to investing in it in the next three years. 25 In-store technology has a role to play in all of these areas and leading retailers are already rolling their initiatives out across their networks.

DAN MURPHY’S CASE STUDY Over the last few years, Dan Murphy’s has invested heavily in in-store, customer-facing technology. “We are looking at how we can use technology and innovation to continue to enhance the customer experience in our physical stores,” Claire Smith, Director, endeavourX, said.26 Examples of this include the 2020 launch of a web-based tool that lets shoppers check the length of queues outside its stores, and more recently the use of number plate technology at selected store drive-thrus, and fitting of electronic shelf labels (ESLs) across the BWS and Dan Murphy’s network.27 ESLs offer significant savings in labour cost to the retailer, and reduce paper waste; however, they have also had a significant impact on customer engagement. The ESL units that have been installed at BWS and Dan Murphy’s outlets all feature embedded NFC (Near Field Communication) technology, which enables customers to get real-time product information and read customer reviews simply by tapping the ESL. As Managing Director Alex Freudmann explained, “Customers are telling us that they want so much more from us than products on shelves. They are interested in exploring, discovering, and being educated about the world of drinks, which is what our new store experience is all about.”28 10


The Rise of Gen "Re"

UNLOCK THE POTENTIAL OF INTERACTIVE SCREENS Interactive screens to check product availability and pricing have the potential to make the shopping experience easier and faster. To date, however, their application in retail has been relatively limited, with only 32% of shoppers having had any exposure to them. 29 The opportunities around digital screens in-store are huge, given that more than two-in-five shoppers under 45 say that using them will influence their purchasing30 and most retailers already have this information available to them via their e-commerce channel. There are significant opportunities for interactive displays to feature live/up-to-date star ratings in-store, based on customer feedback (35% like the idea) and other customers’ reviews, photos, and videos (31% like this idea).31

Interactive screens are potentially one of those technologies that becomes even more appealing once shoppers have had personal experience, given that 98% of shoppers read online reviews before making a purchase,32 and 51% rate seeing a video of the product before purchasing as important or very important.33 Features online shoppers use could also potentially be incorporated into in-store interactive screens. For example, 57% of online shoppers rate being shown other products that are relevant to the one they are viewing as important.34 In summary, we recommend that all retailers review the potential for using interactive digital screens in their physical stores.

KEY LEARNING

Reducing the friction of in-store shopping is important to Gen Re, and a range of technologies including interactive screens, QR codes, and various payment tools have proven their potential in this area.

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The Rise of Gen "Re"

TAKE THE FRICTION OUT OF PAYMENTS While paying for a purchase may seem a simple part of the customer journey, there is strong evidence that retailers should still seek to minimise friction around the process. The impact of payment process friction is highly visible in e-commerce, where 46% of shoppers have abandoned a purchase because they had to create an account before they could process a payment.35 While many aspects of online payment are not replicated in-store, they do highlight just how sensitive shoppers are to issues of ease and speed during checkout. A number of payment methods that reduce friction in the process have seen a marked increase in the last two years and these can all be linked to the Gen Re mindset of reevaluating the shopping experience. Payment methods whose use has dramatically increased during the pandemic include QR codes (36% increase), Tap-and-Pay (24%) and mobile app payments (13%).36

Retailers should ensure that they accommodate these behavioural changes, as around three-in-five shoppers (61%) expect that various payment forms that have become more widespread during the pandemic will continue after it.37 In particular, 46% of shoppers are firmly convinced that contactless payment in-store is here to stay.38 The customer appeal of on-floor payment is that it helps reduce the friction in the payment process, as they no longer have to waste time queueing for the checkout. During lockdowns, a number of retailers decided to reconfigure their in-store payment processes, changing from traditional checkouts to providing floor staff with the ability to process payments and 21% of shoppers are keen for this facility to continue.39 The reduction in process friction is also a key reason why 42% of shoppers want store assistants to check if an outof-stock item is available in a store nearby, and 17% want staff to order the item and have it delivered to their home. In fact, the friction involved in having to do it themselves is so great that only 4% of shoppers will order the items then and there from their own mobile phone.40

"Long-standing relationships with customers are thebackbone of any successful retailer. Many of our customers have been shopping with us for several decades, attracted to our luxurious in-store experience, unparalleled customer service and unique product. Yet, we’re constantly evolving in the digital space, allowing us to nurture relationships while offering customers the convenience, efficiency, and flexibility that younger generations now expect with their purchase. When it comes to providing a 5-star customer experience, the transaction is only the start line." Elle Pierce Marketing Manager at Peter Sheppard

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The Rise of Gen "Re"

“With the nationwide resurgence of in-store shopping, our focus is to provide the same value-driven customer experience offline as we do online. The two channels are equally important to us and aren’t looked at separately. In fact, I think the key to building long-lasting customer relationships is merging digital and in-person into one seamless experience.” Mark Finocchiaro Managing Partner and Director at Chemist Warehouse

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The Rise of Gen "Re"

WHAT DRIVES CHANNEL PREFERENCES? PREFERENCE FOR INTERACTION Since the birth of e-commerce, the principle driver of adoption has been the idea that removing the need to visit a physical store can make the shopping experience easier and faster – literally that it would remove elements of friction from the process. However, over time is has become apparent that online retail on its own is not the best solution, and in fact, the greater majority (79%) of shoppers demand that retailers allow them to transact on any channel they want. With this level of demand, there is still room for improvement, as only 57% of consumers feel that the brands they use deliver this flexibility.41

Prefer digital Even mix/don't care

SOURCE42

Prefer physical store

Books

23%

23%

34%

Alcohol

13%

40%

The channel preferences of individual shoppers vary by occasion, and more importantly for most retailers, by category.

Clothing and Footwear

The channel preference drivers for each category vary: grocery shoppers prefer in-store, as they want to ensure the quality of the fresh food, whereas for fashion shoppers the main driver is being able to touch and feel the item to determine if they even want it.

Pharmaceuticals and Toiletries

11%

32%

11%

35%

47%

57%

54%

Groceries

11%

27%

62%

Furniture

8%

26%

66%

Jewellery

8%

34%

58%

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The Rise of Gen "Re"

THE GEN RE CHANNEL CROSSOVER

KEY LEARNING

The Gen Re mindset that has emerged over the last two years has a highly sophisticated and flexible approach to the customer journey and will happily combine and/or switch channels as required.

Along with having access to high-quality retail channels, the majority (75%) of shoppers also want a consistent experience irrespective of channel but only 50% feel that the retailers they use deliver it.49

The growth in the adoption of click-and-collect by shoppers, from 17% prior to lockdowns to 35% now, is a classic example of the Gen Re approach of rapidly adopting new shopping behaviours that suit their needs.43

Shoppers commonly describe the issue of inconsistency in terms of friction that just makes it that little bit harder to use one retailer, and that little bit easier to use another that offers a relatively frictionless experience.

Other common cross-channel activities include making a purchase in-store after finding or discovering the item on social media (89%)44 and checking online for in-store product availability before making a visit (66%).45

The takeaway for retailers is simple: ensure that your key channels deliver a consistent high-quality experience before adding others into the mix.

Behaviours in which the crossover from online to physical is particularly important to shoppers include the ability to make in-person returns of items purchased online (77%) and being able to check in-store inventory (78%).46

The sheer scale and complexity of managing multiple channels may mean that larger retailers have an advantage. The fact that 41% of shoppers say that bigger brands deliver a better omnichannel experience than smaller ones supports this view.50

In the omnichannel world, it is quality not quantity that matters, as 69% of consumers say that they would like fewer, better, channels when shopping with a brand.48

ONLINE TO IN-STORE CROSSOVER

Very important

Somewhat important

SOURCE47

41%

37%

40%

37%

39% 24%

29% 16%

The ability to check online to see the inventory available in-store

You can make in-person returns for items purchased online

A retailer can reward you for purchases made online

Gen Re people prefer omnichannel retailers, as the combination of online and offline channels helps reduce friction along the shopping process. This does mean, however, that they are very sensitive to channel inconsistencies, and that they want physical stores to be set up to fully support cross-channel integration.

A retailer offers personalised recommendations in-store based on your previous purchases across any channel

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The Rise of Gen "Re"

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The Rise of Gen "Re"

THE TWO TYPES OF LOYALTY Australians have a long-term love affair with loyalty programs with 89% of consumers participating in at least one51, and the average person a member of 5.52 Not surprisingly, the majority of Australian shoppers expect to be rewarded through loyalty programs, both online (71%) and in-store (63%).53 There are two forms of customer loyalty:

• •

Functional loyalty, like loyalty programs, in which shopper behaviour is incentivised by some form of reward Emotional loyalty, which is driven by the depth of engagement the customer feels with the brand.

These are not mutually exclusive, and a shopper can feel both emotional loyalty to a retailer and enjoy the benefits of their loyalty program.54 The intertwined nature of emotional and functional loyalty can be seen in the role of trust in brand relationships. If a shopper trusts a brand, then 71% will buy more from a brand, 66% will make a positive recommendation, 45% will post a positive online review. These are all signs of emotional loyalty. However, along with all of these actions, 50% will show functional loyalty and join the brand’s rewards program.55 As they have many other aspects of retailing, Gen Re are redefining loyalty at both a functional and emotional level and that is why 59% of retailers made loyalty a strategy priority in 2021. Despite loyalty programs' obvious success, however, it is worth noting that 25% of members claim these programs don’t have any impact on them and more than two-in-five (43%) members don’t show any activity in a given 12-month period.56 The impact of loyalty programs also varies significantly by category; for example, they influence 78% of grocery shoppers but only 56% of fashion shoppers.57 This is most likely due to a greater frequency of grocery purchasing, which means most shoppers will earn rewards faster with grocery retailer programs than with those of fashion retailers. With so many choices, differentiation between programs becomes difficult, particularly as no retailer wants to engage in a points war with its competitors. 17


The Rise of Gen "Re"

CONSUMERS WANT PERSONALISATION For Gen Re in particular, personalisation is a critical, but underperforming, element of loyalty programs. Demand for a personalisation in rewards is strong (76% want it)58, and 48% of shoppers say that they are more likely to sign for a loyalty plan if it provides personalised experiences.59 However, only 37% of shoppers feel that the retailers they shop with actually do provide them with a personalised loyalty program experience, indicating substantial opportunities for more effective plans. While its long-term impact is unclear, the traditional loyalty program structure is being challenged by new entrants like Cashrewards, which typically provide shoppers with higher-value rewards.60 The potential of these new entrants is apparent, with Cashrewards stating that its members shop online nearly 50 per cent more often than non-members and spend 50 per cent more on average. In addition, Cashrewards states that more than two-thirds of members are high-value

Millennial and Gen X shoppers, and that they are twice as likely as the average Australian to earn over $150,000 annually. 61 Despite its importance to shoppers, more than half of two Australian retailers (55%) feel that their investment in omnichannel personalisation (which is most commonly based on loyalty programs) is only somewhat successful, and only 29% feel that they are doing it successfully.62 The two most commonly cited barriers to success are unclear cost-effectiveness (33%) and technology issues (17%).63 The role of trust in engendering emotional loyalty has already been mentioned. Central to maintaining shopper trust is meeting service promises or expectations. Failure to meet these expectations can have a dramatic impact, as in the last year alone, 57% of shoppers have quit one or more brands because they didn’t live up to their customer experience promises.64 Again, friction in the service experience is often the cause of service failure and this reinforces the role of reducing friction in supporting customer loyalty.

KEY LEARNING

Despite their widespread use, there are significant opportunities to further improve loyalty programs, particularly in offering the personalisation that is particularly appealing to Gen Re. These same opportunities may also support the growth of new entrants and retailers should closely monitor their growth.

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The Rise of Gen "Re"

WRAP UP In the challenging new retail landscape, there is clear evidence of strategies that will help innovative retailers grow and prosper. The retailers that will have the most success will be those that can can answer the following questions.

WHAT IS THE ROLE OF A RETAILER?

WHAT ARE THE BEST WAYS TO UTILISE PHYSICAL STORES?

WHAT IS THE OPTIMAL CHANNEL CONFIGURATION?

Shoppers now have much broader expectations of how retailers should fit into their lives and into society as a whole.

As retailers increase their use of in-store technology, sometimes it’s the small things that have the greatest impact.

Retailers talk about omnichannel, but what consumers want are omnipresent channels that add value to their customer journey.

Gen Re people have high expectations and retailers should look for ways to lead positive change that leverage the unique capabilities of their own organisation, and in particular, those that resonate with their brand positioning and ethos.

Shoppers are embracing digital technologies in-store, with significant opportunities in particular around using digital screens to provide online shopping functionality.

Reducing the friction of in-store shopping is important to Gen Re and a range of technologies including interactive screens, QR codes, and various payment technologies have proven their potential in this area.

WHAT HELPS BUILD LONGTERM CUSTOMER LOYALTY? Along with the rest of the population, Gen Re have particular requirements of loyalty programs, though their loyalty is also affected by the emotional trust they have in retailers.

Despite their widespread use, there are significant opportunities to further improve loyalty programs, particularly in offering the personalisation that is particularly appealing to Gen Re. These same opportunities may also support the growth of new entrants and retailers should closely monitor their growth. 19


The Rise of Gen "Re"

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