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October 09, 2013

Millennials: Getting to Know You

Back in 1951, when Oscar Hammerstein II and Richard Rogers wrote their now-famous tune "Getting to Know You," they weren't thinking about marketers' love affair with consumers. Nor did they ever dream about how intimately marketers could actually get to know consumers. Nevertheless, marketers embrace the sentiments contained in Rodgers and Hammerstein lyrics:

MillenialsGetting to know you
Getting to know all about you
Getting to like you
Getting to hope you like me

As marketers get to know consumers, differences in generation product preferences quickly become clear. For example, back in 2012, Jefferies, a global investment bank, and AlixPartners, a global business advisory firm, released a study entitled Trouble in Aisle 5 that concludes there is a dividing line between baby boomers and millennials (sometimes referred to as Generation Y). ["Millennials' Grocery Consumption Patterns to Vastly Affect Food, Beverage Industry, Study Finds," SupplyChainBrain, 3 July 2012] Presumably Generation X individuals lean either towards their parents preferences or towards their children's preferences, because you don't read a lot about Gen Xers as a huge marketing target. In fact, the generation getting most of the attention nowadays is Generation Y — the so-called millennials. As the staff at ZOG Digital tells retailers and manufacturers, "Millennials are likely within your target audience." ["Marketing to Millennials: Just be Real, Dude," 3 July 2013] Here's how the ZOG Digital staff defines who is included in the term "millennials":

"The exact definition of 'millennials' varies, but it generally encompasses anyone between the ages of 18 and 30. Described as 'digital natives' by eMarketer, these consumers grew up with advancing technological opportunities. They may remember their parent's old brick car phone or beginning computer classes in grade school, but largely, they emerged from their teen years with a solid grasp on the Internet and all surrounding devices. Now, millennials are not only the creators of many social media networks, but they are – as a whole – early adopters who exemplify it. Just take a look at the average age of users on six of the most popular social networks – the typical user on Facebook, Twitter, Pinterest, YouTube, Google+ and Instagram falls within the late teen to early thirties age range. Millennials are the influencers you are looking to identify and engage with in order to increase visibility."

To learn more about "influencers," read my post entitled Do You Know Who Your "Influentials" Are? Lucia Moses notes, "Millennials are different from their parents, at least when it comes to spending. The Shullman Research Center surveyed adults with a household income of $75,000 plus on their spending plans and habits, and found that those age 18-33 were more optimistic about their financial situation and planned to spend more than their older counterparts." ["Wealthy Millennials Approach Shopping Differently Than Their Parents," AdWeek, 3 September 2013] The latest quarterly MarketPulse report from Information Resources Inc. confirmed the optimistic outlook of millennials: "The report found that 28% of millennials feel their financial situation has improved in the past year, vs. 20% of those aged 25-54 and 16% of those age 55 and older. In addition, 42% of millennials expect their financial position to improve in the coming year, vs. 26% of those aged 35-54 and 17% of those aged 55 and older." ["Shopper Sentiment Improves: Report," Supermarket News, 6 August 2013]

According to Moses, millennials are more likely to buy online but less likely to use credit than preceding generations. So what else has Big Data analysis taught us about millennials? AlixPartners analysts report:

"Based on the most recent projections by the U.S. Census Bureau, millennials over the age of 25 (the age at which income and household formation typically start to really accelerate) will make up roughly 19 percent of the U.S. population by 2020, up from just over 5 percent in 2010. These 64 million millennials will see a significant spending-power increase in the coming years as the median income for those households is expected to jump to more than $45,000 from just over $28,000. In fact, the study finds, food-at-home spending by Millennials is set to jump by $50bn annually through 2020. By contrast, the baby boomer generation, which has had an outsized influence on consumer trends for decades, will fall to below 20 percent of the population in the next eight years." ["Millennials' Grocery Consumption Patterns to Vastly Affect Food, Beverage Industry, Study Finds," SupplyChainBrain, 3 July 2012]

Brad Tuttle agrees with that analysis. "The millennial generation," he writes, "is easily the most studied demographic since ... the Baby Boomers." ["Millennial Shoppers: Big on Browsing, Not Splurging," Time, 11 September 2013] He continues:

"This is not only because Americans are always fascinated by youth culture, and that millennials are growing up during a period when technology and economic forces are changing rapidly, but also because — to put it bluntly — Gen Y represents big bucks. Roughly 80 million American millennials spend $600 billion annually, and by 2020, it's expected this generation's spending will hit $1.4 trillion per year, or about 30% of all retail sales. No wonder retailers, marketers, manufacturers, and all kinds of consultants have been trying so desperately over the years to get inside their heads and find out what it is that interests them — and what they'll pay for."

Analysts obviously don't agree on everything about millennials. As noted above, some analysts predict that millennials will spend more than older consumers; but, others claim they will spend less. Tuttle notes that recent studies about millennials have been published by "the NPD Group, Accenture, and the Shullman Research Center." He reports, "In a press release accompany the NPD report, Marshal Cohen, the group's chief industry analyst, called millennials 'the most elusive generation and the most challenging to keep engaged.' While some of the findings in the studies from NPD and others may be surprising, and demonstrate important cultural differences between how millennials and other age groups spend, simple economic circumstances can be credited for much of what sets young consumers apart. For instance, why is it that millennials go shopping quite frequently, but purchase at a significantly lower rate than older consumers? 'Because they are the most selective as well as the most economically challenged,' Cohen put it simply." Tuttle provides a few more insights about millennials drawn from these studies:

  • "Millennials really love to shop. Indeed, in the Shullman study, 58% of consumers ages 18 to 33 put themselves in the 'love to shop' category, compared to 40% of adults overall. And while the data indicates that millennials are more likely to make online purchases than older consumers, young shoppers still do enjoy going to stores. According to the NPD report, 53% of millennials shop in-store at least once a week, and 81% of their dollars are spent in brick-and-mortar stores. 'Interviews conducted recently at one of America's largest shopping malls confirmed our survey findings that many members of the digital generation actually prefer visiting stores to shopping online,' the Accenture report states."

Lorraine Mirabella provides additional evidence that millennials may save brick-and-stores from the onslaught of online retailers. "Buying almost anything online may be as much second nature as texting for many in the first generation to have grown up with e-commerce," Mirabella writes, "but the millennials still do most of their shopping in stores, especially those that keep their offerings fresh and make the experience social, according to research from the Urban Land Institute." ["Gen Y shoppers, raised on e-commerce, still prefer in-store experience," The Baltimore Sun, 7 September 2013] Tuttle's next descriptive trait involves shopping frequency.

  • "Millennials purchase less frequently. Young consumers may be out at stores in large numbers, but they're not necessarily buying anything. According to the NPD study, the conversion rate — percentage of consumers who actually make a purchase — is lowest among millennials. Whereas seniors make purchases 72% of the time, millennials pull the trigger only on 57% of their shopping (more like browsing) ventures. Gen X and Baby Boomers fall in the middle, with conversion rates of 66% and 69%, respectively."

Maureen McAvey, senior resident fellow for retail for Urban Land Institute, told Mirabella, "Retailers are keeping a close eye on the millennials' buying habits because it's becoming clear that they are not just a younger version of their elders, but a different shopper altogether." That's why it's so important that retailers get to know them better. Tuttle's list continues:

  • "Even well-off millennials aren't big splurgers. The Shellman study, which focused on young consumers with household incomes of at least $75,000 annually, found that for 53% of higher-income millennials, their last 'luxury' purchase cost under $250. What's more, these consumers were fairly likely to wait and save up before buying anything in the luxury category: 30% reported saving up specifically for the purchase (compared to 16% of adults overall), and only 10% of millennials put the purchase on a credit card (compared to 19% of adults overall)."

Suley Muratoglu, Vice President for Marketing and Product Management at Tetra Pak, reports, "Millennials represent the fastest-growing segment of luxury goods and services purchasers, according to a recent study by American Express. Yet they are also giving rise to a new lifestyle that can be characterized in two words: frugal and green." ["Millennials’ Frugal And Green Lifestyles Raise The Bar For Brands," Manufacturing.net, 29 May 2013] Muratoglu continues:

"To splurge on the high-quality items they covet, especially just-off-the-line electronics, Millennials scrimp in other areas. But even as they look for coupons, sales and promotions and stray from well-known brands to keep their cash-strapped budgets in check, they choose 'makers and products that are socially responsible. … fair-trade and offer lower carbon footprints,' notes Ana Nennig, EVP of global consulting firm Havas PR. What's more, packaging, which has long been part of the green discussion due to concerns about food waste, sustainability and recyclability, is center stage again. But this time consumers are considering it in a more holistic way to embrace and fulfill this young group's unique views on frugality and social responsibility."

The last item on Tuttle's list addresses the frugality of millennials:

  • "They’re big fans of convenience and cheap prices. It's easy to see economic forces at work yet again in light of the NPD study's findings that 'value oriented retailers within the dollar store, second hand, drug store, and off-price channels' are especially appealing to millennial shoppers. Another study, 'Millennial Shoppers: Tapping into the Next Growth Segment,' released last summer by SymphonyIRI, indicated that millennials tend to be driven more by cheap prices than loyalty to any particular brands, and that they like shopping in drugstore chains like CVS and Walgreens more than other consumer demographics."

The millennials' reputation for frugality led McAvey to tell Mirabella, "'Many people speculate this is going to be the sharing generation,' more apt to rent a zip car or ride a bicycle than buy a car or use a tie-sharing service rather than having a closet full of the accessory. ... 'It's not clear that they wish to acquire as much stuff as their parents did, and retailers are very interested in what they're going to do.'" Tuttle further reports, "The SymphonyIRI survey also showed that millennials have been resorting to classic DIY strategies in order to spend less money, sometimes — in the case of health care — to disturbing degrees:

'This group is 46 percent more likely to use at-home beauty treatments to save money, and 31 percent more likely to cook from scratch or with limited convenience foods to save money. They are also 18 percent more likely to 'self-treat' where possible to avoid spending money on doctor's visits.'

The bottom line appears to be that millennials are becoming an economic force to be reckoned with but extracting money from their clenched fists may prove more difficult for retailers than it has been to get money from previous generations.

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