Marketing Quagmire – Selling to Younger Generations

“They are woke, broke and complicated.” 

The Economist

The youngest in the land face cost explosions that their parents and grandparents never envisioned. For those leaving the nest, they face absurdly high post-secondary school tuition – even corrected for inflation, they are paying double or triple the costs faced by Xers and Boomers – exorbitant interest rates on mega-student loans and the soaring cost of housing. While wages are up to record levels, they do not begin to cover those higher costs of living. Younger generations are delaying or even completely avoiding marriage, having children, buying a home or even buying a car (especially in crowded cities where the hot jobs are). Their smart phones are their uncut umbilical cords, they are skeptical, worried about the future of our planet and are not exactly wanting to follow in their parents’ path.

So how do manufacturers and retailers reach these “jaded” and well-informed buyers. How do the young spend their money? I’ve spent more than a few recent blogs looking at the uncomfortable combination of rising crowded younger demographics, the unique issues that face them that their elders did not (or did at lesser level), the pressures that surround them… and money. Some these might draw you back to review what I wrote. My December 20th Stacking the Deck - A Pox on Younger Homebuyers and October 26th Generational Polarization – Investment Strategy blogs. But this mega-gaggle of rising consumers is a force to be reckoned with nonetheless.

According to the January 16th The Economist, “The European Union is home to nearly 125m people between the ages of ten (the youngest will become consumers in the next few years) and 34. America has another 110m of these Gen Zs and millennials, a third of the population. The annual spending of households headed by American Gen Zs and millennials hit $2.7trn in 2021, around 30% of the total…

“Young people have always perplexed their elders. Today’s youngsters are no different; indeed, they are baffling. They have thin wallets and expensive tastes. They prize convenience and a social conscience. They want shopping to be at once seamless and personal. They crave authenticity while being constantly immersed in an ersatz digital world. As they start spending in earnest, brands are trying to understand what these walking paradoxes want and how they shop. The answers will define the next era of consumerism.” While the United States may inject more issues from high levels of student loans and as most urban Europeans tend to rent and not buy homes, there are more than a few socioeconomic realities that have impacted both sides of the Atlantic. They both seem to see a bleaker view of the future.

“A good place to start dissecting the psyche of young consumer is to consider the economy that has moulded them. At one end of the scale, today’s 30-somethings came of age in the midst of the global financial crisis of 2007-09 and the ensuing recession. Their younger peers had a bit more luck, beginning their careers in years when tightening labour markets had pushed up wages. Until, that is, the covid-19 pandemic upended many of their lives.

“These two big shocks have fostered pessimism among the young people who experienced them. A study by McKinsey, a consultancy, published in 2022, found that a quarter of Gen Zs doubted they would be able to afford to retire. Less than half believed they would ever own a home.

“Uncertainty about the future may be encouraging impulsive spending of limited resources in the present. The young were disrupted more by covid than other generations and are now enjoying the rebound. According to McKinsey, American millennials (born between 1980 and the late 1990s) spent 17% more in the year to March 2022 than they did in the year before. Despite this short-term recovery from the dark days of the pandemic, their long-term prospects are much less good. American millennials and Gen Zs have accumulated less wealth than Gen X or Boomers at the same age.” The Economist. And just as their buying power was rising, prices soared even higher, and central banks – led by the US Federal Reserve – began a highly flawed policy of “containing inflation” by raising interest rates to their highest levels in decades.

At the core of these spending habits is a falling belief in the future combined with limited money in the present. The first chart above is reflection of that reality, as the second chart notes where the younger cluster. Add that factor to the speed and young buyers expect of their retailers. “According to another survey by McKinsey in October, 45% of Europeans in their teens and early 20s planned some kind of splurge in the next three months whereas 83% of Boomers, born before 1964, said ‘No’ to such profligacy. Forrester, a market-research firm, found that most users of ‘buy now, pay later’ apps are around 20. Megan Scott, a 20-year-old student from London, speaks for many of her peers by admitting that, when shopping, she has no restraint—until, she chuckles, the bill arrives.

“In many ways youngsters’ shopping habits, like their lives, are defined by the ‘attention economy’—buying stuff online is far quicker and easier than a trip to the shops. The proliferation of social media means there are many new ways of attracting consumers’ eyeballs. Young shoppers never knew a world without smartphones. More than two-thirds of 18- to 34-year-old Americans spend four hours or more on their devices each day. A heightened expectation of convenience comes with being raised in the age of Airbnb, Amazon and Uber. Young people want their shopping to be totally hiccup-free.

“The light-speed online world also appears to have lowered tolerances for long delivery times. A study by Salesforce, a business-software giant, found that Gen-z Americans are the likeliest of all age groups to want their groceries delivered within an hour. They are more likely than the rest of the population to use their phones to pay for shopping, says Forrester.” The Economist.

Sure, there are many young success stories in the mostly highly educated segments of society combined with a small coterie of successful young entrepreneurs that reflect a new layer of upper middle class and higher. But their numbers are not particularly significant compared with the masses of rising demographics whose real, inflation correct earnings are equal to or even lower than their elders’ buying power from the 1970s. Not to mention how income inequality has accelerated during their lifetimes. They are equally certain that they will bear the increasing cost of unchecked climate change, which their elders seem to have heaped upon them.

As much as manufacturers and retailers need to adjust their marketing strategies to accommodate younger buyers, politicians should be on red alert to the underlying pessimism that seems to define these rising voters and consumers.