Looking beyond consumer trends: The supply side of millennial economics
Editor's note: This article is a guest piece by Sun McElderry, chief engagement officer of Framework LLC, a specialty management consultancy that helps leading global companies maximize performance by developing strategies and practices for managing financial, social, and natural capital sustainably. His work and writing focus on the nexus of marketing, corporate culture, and sustainable innovation.
We all start life as consumers. As we grow, so do the impacts of our consumption, leaving older generations—the producers—to contend with our changing preferences. In time, each generation takes a turn at the perplexing task of understanding and pleasing the newest cohort of consumers.
It’s news to no one that we’re now well into the latest of these transitions, and already the millennial generation driving it is challenging some of the most established behaviors and brands of the past century. In fact, this latest changing of the guard will be historic in both magnitude and context: As the largest and most diverse U.S. generation ever and the first “digital natives,” millennials have arrived alongside unprecedented technological disruption and related social shifts. Remember the sea change brought about by the baby boomers? Consider that this generation is 20% larger and will wield the most advanced—and accessible—computing power ever known.
In total, this transformation spells great opportunity for those organizations that adapt effectively—and real risk to the sustainability of those that don’t. But it’s not just about attracting the next generation of consumers. It’s also about earning their loyalty as producers and investors.
Spending power continues to rise
Millennials are still growing as consumers. While they currently spend $600 billion per year in the United States, that is expected to more than double to $1.4 trillion by 2020, according to research by Accenture. That boon will favor brands and products that address their priorities, which a 2011 study by Barkley, Boston Consulting Group, and SMG found to include:
Improving personal health
A preference for specialty and discount products
Using social media and peer input in purchase decisions
Making a difference in the world through the products they use
That last point is worth emphasizing. Millennials’ desire to make positive social and environmental impacts in the important aspects of their lives are pronounced enough that they’ve been called the "Purpose Generation."
Enter the millennial producer
Millennials’ growing spending power is fueled in part by their rise in the workplace. They now make up 45% of the workforce, compared to Baby Boomers at 31 percent and Generation X at 21 percent. But, as with their consumption preferences, they want more from a job than a just a paycheck, and their loyalty can’t simply be bought.
In a poll of hiring managers conducted by Elance-oDesk, a freelance marketplace, 53% say it is difficult to find and retain millennials. Median job tenures from the Bureau of Labor Statistics back this up: in 2014, the average job lasted less than 16 months for 20 to 24 year-olds, three years for 25 to 34 year-olds, and five years for all workers older than 25 years-old.
What millennial employees want
As a generation benefitting from the prosperity of an advanced economy and more aware than ever of the challenges facing the world, millennials are focused on far more than subsistence. Attracting and retaining this generation as producers starts with remembering that they need a sense of purpose, not simply a livelihood. Chip Espinoza, author of "Managing the Millennials," summarizes the millennial mindset at work as:
Desiring more meaningful measures of productivity than number of hours clocked.
Blending personal and professional time, with no issue accessing work while home, but also expecting to access their personal life while at work.
Seeking to improve processes and wanting a voice as a way to feel part of and contribute to their organization.
Companies have already begun to adapt. To better access millennials, who, according to Nielsen, live in cities at a higher rate than any other generation, some companies have even moved headquarters. This past summer, when Kraft Heinz moved from a suburb to downtown Chicago, their press release echoed many of Espinoza’s points: "[The company] saw an immediate opportunity to firmly establish our dynamic new culture, based on meritocracy, speed, efficiency, and collaboration." Hillshire Brands made a similar move from the suburbs to Chicago in 2012, and ConAgra announced a move from Omaha to Chicago in October.
It takes more than being in the right place at the right time, however. When it comes to attracting and retaining millennial workers, Espinoza said, "Companies get the messaging down but don’t deliver on the experience. Particularly when it comes to matching millennials with managers who don’t understand them. I see the manager and millennial relationship as the most important aspect of the retention equation and productivity."
Long-term impacts on business priorities
Less visible than labor, but just as important, is the long-term role of millennial capital. From 2015 to 2020, the global wealth of millennials is expected to double, according to Deloitte, with more than $30 trillion being transferred from older generations. And millennials’ focus on purpose extends to their investments. Studies by Merrill Lynch and Morgan Stanley suggest they are twice as likely as older investors to consider social and environmental outcomes when selecting investments or to exit an investment because of objectionable corporate activity.
All of these data make it clear that millennials will have major and unprecedented impacts on business priorities and cultures as they grow into their full roles as consumers, employees, and investors. Some approaches that can help your company keep pace in this new world:
Evaluate how millennials’ qualities fit with your existing corporate culture, and how it may need to evolve in time.
Assess your company’s social and environmental impacts and create strategies that reduce the negative ones and increase the positive ones.
Emphasize values, culture, and collaboration as much as earning potential.
Build flexibility into performance metrics and personal-professional life boundaries
Look for opportunities to deepen and demonstrate authenticity, transparency, and adaptability.
Your future workforce and other stakeholders will expect more openness and accountability than previous generations have. Regularly attending to these matters and systematically integrating them into the ways your company communicates with consumers, employees, and investors will pave the way. But ultimately, the real opportunity lies in developing a long-term vision for how you’ll earn the credibility to have these attributes understood to be fundamental aspects of your brand itself.