The rise of the millennials and Generation Z

world in transition

The rise of the millennials and Generation Z

Juan Mendoza - Lead Portfolio Manager

Juan Mendoza

Lead Portfolio Manager

Younger consumers prioritise brands which have incorporated sustainability into their business models. Their collective spending power should be another strong motivator for brands.

Millennials – those born between 1981 and 1994 – and members of Generation Z – those born between 1995 and 2009 – value sustainability. This has positive long term implications for brands which have a sincere commitment, and the means, to transition to sustainable practices.

Data company Nielsen reveals that 48% of consumers in the US would even consider changing their shopping habits in order to become more environmentally friendly. Amongst millennial consumers, this figure climbs to 75%, compared with just 38% of baby boomers.

Members of Generation Z will account for 40% of global consumers by 2020

Why this matters to businesses

Millennials are also willing to put this preference into practice and have demonstrated a willingness to pay more for sustainability. Nielsen found that 90% would pay more for products which source environmentally-conscious materials while 80% would do the same for products with social responsibility claims.

A UBS1 note considering the question of sacrificing sustainability for profitability noted that millennials are perceived as placing greater emphasis on environmentally and socially friendly consumption. The research also found that companies that ignore sustainability in supply chains, for example, represents a far more tangible risk to investors than was previously assumed.

If millennials are focused on sustainability, so too are members of Generation Z. A study by McKinsey found that 90% of this demographic expect companies to take a responsible approach to environmental and social issues. Around 65% attempt to track the supply chain behind a company or product, while 70% indicated they would focus on products from companies which have established a reputation as ethical.

The net result is a powerful consumer class which has ideological preferences and a willingness to spend more in order to achieve them. The size, dominance and capital reserves of these demographics offer a clear indication of how much influence this could have on brands.

Taken together, these two demographics are believed to account for around $350bn spending power in the US alone. Figures from McKinsey also suggest that members of Generation Z will account for 40% of global consumers by 2020.

Companies which demonstrate a clear ability to transition to more sustainable business models, and integrate sustainable principles, will not only be better positioned to meet structural trends head on, these practices will also endear them to younger consumers.

 

The Digital Revolution

It is also important for brands to be well aligned with the digital revolution megatrend in order to be effective with this demographic. According to a recent UBS2 note, digitalisation is key when it comes to influencing purchase decisions with millennials. Both social media and celebrity endorsement are frequently cited as important factors among the younger generation. Social media as part of a marketing strategy registers as more of an influencing factor than ‘brand name’ alone.

Social media is frequently cited as an influencing factor and brands that are able to communicate and engage with millennials through these channels are, in our view, better positioned to outperform.

Generation Z will account for 32% of the global population this year, edging ahead of Millennials with 31.5%

Rise of Gen Z

Millennials and their consumer habits have garnered a lot of attention but they are about to be eclipsed by the next generation. A recent Bloomberg analysis shows that Generation Z will account for 32% of the global population this year, edging ahead of Millennials with 31.5%.

A recent survey found that, while 43% of Generation Z expressed trust for many well-established brands, it is on the condition brands work to deliver proof of values through authentic marketing. A separate study found as much as 36% of this generation incorporate the views of social media influencers in their decision making.

Authenticity is difficult to quantify but a number of leading brands have recognised the effectiveness in communicating shared values. McKinsey notes that the recent ad campaign which featured Colin Kaepernick, the face of the NFL’s police brutality protests, shows brands are coming around to this idea. Equally valid would be the recent ad campaign from Gillette, which questioned the notion of ‘toxic masculinity’, and the ‘crazy’ ad from Nike which highlighted the achievements of female athletes. 

Businesses which demonstrate a clear commitment to sustainable business practices and models could be at a significant advantage, not least given this represents a reliable defence against disruptive structural trends. Younger generations appear more inclined to favour brands which are actively transitioning to a more sustainable business model. Those brands which also demonstrate the ability to clearly communicate this information will also stand a better chance of succeeding with this demographic. 

 

sources.

1 UBS Consumer Conference Summary: How do you monetise millennials? 2 March 2017

2 UBS Evidence Lab: European Luxury - 28 September 2018

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