Retail is changing. On top of the rising popularity of online shopping there is also a tectonic demographic shift taking place. As Baby Boomers retire and the remaining Generation Xers enter their 40s, Millennials are beginning to enter the mid-stage of their career. As a result, their buying power is increasing and they are changing the retail game.
According to recent research by Macquarie, Millennials will earn two out of every three dollars generated within Australia by 2030, as their buying power rises by more than half a trillion dollars. With Millennials set to inherit the Earth, it is crucial that retailers refine their Customer Experience (CX) strategy as it applies to this demographic. So, when it comes to retail, what do Millennials actually want?
First a word on definitions. There isn’t really a standardised age breakdown for how generations are divided and different reports will have different classifications. Born in 1980, I often say that I am either the world’s oldest Millennial or the world’s youngest Gen Xer, and I see myself as clearly having traits of both. Categorising masses of people into groups will always be problematic, but for the sake of this article, we’ll be defining Millennials as those aged between 16 and 36.
The basics matter to everyone, so get them right first
Last month Commonwealth Bank released its 6th CommBank Retail Insights report, which explored the strategies retailers are using to stay relevant in an increasingly crowded marketplace.
CommBank came up with a pyramid similar to Maslow’s famous ‘hierarchy of needs’ to illustrate the factors that influence consumer shopping behavior in Australia. At the bottom is Functionality (price, location and product) then moving up is Efficiency (payments, service, selection, delivery and returns), Scale (brand purpose, size and loyalty) and at the top, Personalisation (social, marketing, experiences).
Perhaps unsurprisingly, CommBank found that Funtionality and Efficiency – in other words ‘the basics’ matter across all generations. At the end of the day, if a consumer can’t get what they want when they want it, the retailer has stumbled on the first hurdle.
At the risk of stating the obvious, the important lesson here is that the basics matter, and will continue to matter, to everyone, so get them right first.
Millennials want personalisation
With the bottom of the pyramid applying to all consumers, the battle for Millennial shoppers’ hearts (and wallets) will clearly be won in the realm of Scale and Personalisation. Commbank noted that Millennials (which it split into two subsets: Generation Y, aged aged 24-36 and Z, aged 16-23) place a particularly high value on Personalisation factors.
“They [Milennials] favour retailers that offer an attractive and inspirational in-store design and ambiance, as well as retailers selling niche or boutique products. Gen Z consumers are also influenced by merchandising and the ability to interact with retailers through social media,” Commbank said.
How a retailer executes its personalisation strategy will depend on a number of factors such as whether it is online or physical and which industry it operates in. For online, retargeting is a common way that retailers are creating a personalised experience. As we have discussed before, retargeting can either result in the right ads reaching you at the right time, or being stalked mercilessly by an ad for something you don’t need. In a physical store, personalisation can be achieved through loyalty programmes, in-store experiences or the use of beacons, which can deliver content to shoppers based on their location and data – recall that scene in Minority Report, but without an omniscient police force chasing you down.
Millennials want online and omnichannel
Retailers that don’t have a sophisticated online strategy by now should develop it or face going extinct. Mckinsey estimates that online shopping will account for a fifth of all retail spend by 2020, as Millennials drive a change based on the “always-connectedness” of their lives.
Millennials don’t just shop online, they use their smart devices in-store to compare prices and read reviews. They also use social media as part of the purchase experience, perhaps sharing a potential purchase with a message group or to vilify brands when something goes wrong.
An offshoot of dealing with a customer that’s always connected is the need to deliver a seamless omnichannel experience. Put simply, omnichannel is multichannel done right. What this means is that a customer should have the same experience whether it be on a smartphone, a website, or instore. Providing consumers with tablets in-store, a mobile app for the store, a variety of payment options, E-receipts and using NFC technology are all ways in which the omnichannel experience can be enhanced.
Millennials want experiences
As mentioned earlier, Millennials are more likely to be attracted by in-store experience. Millennials have grown up in a time of material abundance. The rise of globalisation accompanied by a drop of trade barriers (non-withstanding the US President’s tweets) and lower shipping costs has resulted in dearth of consumer products. Think of fast fashion retailers such as Zara, which can churn out the latest looks at a fraction of a cost and then distribute them on a global scale.
With landfills of stuff accumulating, Millennials are now preferring to spend their money on an experience, which in turn can be broadcast to followers on social media. In that sense, the experience is commoditised, but I’ll leave it to the social theorists to decide if Millennials truly seek experience or simply want the ability to share that they’ve had an experience.
Regardless of Millennials’ true motives, Macquarie found that they prioritise doing, seeing and feeling over having more possessions. "This includes 'doing something different' and searching for unique, often personalised experiences. At the same time, buying a car and a TV are now the lowest and second lowest priorities for Millennials,” Macquarie said.
Many retailers have gotten the memo and experiential retail is on the rise. As we showed recently, this is resulting in brands such as Nike building sports facilities in-store and Xbox set up a pop-up hotel especially for gamers.
Millennials want to make a difference
Millennials tend to be more civic-minded than older generations, having come of age in a world of climate change and social media led activism. As an extension of these beliefs, Millennials are interested in the concept of “impact investing” as a way to express their values.
For retailers, this means that they need to be aware of global best practices and enforce them. They must show consumers that they take an ethical approach to the fair treatment of workers and an ethical and sustainable supply chain. Ad Week cites recent research by Edelman that found 65% of consumers buy on the basis of their beliefs and that 57% are choosing to buy or boycott a brand based on a social or political issue. The study also found that 60% of Millennials are more likely to care about what a brand says and does – significantly higher than the other demographics studied.
Fifth Quadrant’s takeaway
A retail strategy for Millennials will get the basics right and differentiate further up the pyramid of consumer needs. Scale, which includes brand purpose, loyalty and Personalisation, which includes social, marketing and experiences, provide the greatest opportunity for differentiation. On top of this, Millennials are keen to express themselves through their purchases so ethical concerns should be kept in focus.