Making Brands Matter to Generation Z
 
By Greg Portell


Would access to 82 million new customers make it worth adjusting distribution networks, marketing channels, and cultural values? While the answer would seem to be an obvious “Yes,” many CPG companies are sluggish to react to the Gen Z opportunity – if indeed they’re doing anything at all. Although traditional Baby Boomers on which major brands have been built will remain a dominant economic force into the near future, in the longer term, CPG companies must stop clinging to this decreasingly relevant consumer cohort with its shrinking buying power.

Fortunately, the answer doesn’t require a drastic shift. Marketers have time to build a presence with these new consumers if they start now. However, many CPG companies are underestimating the work required because this divide is not defined by traditional demographic and sociographic dimensions. This generation manifests itself on its own terms in ways that will require marketers to rethink their strategies.

Seeking to describe what American consumers will look like in 2026, when the nation celebrates its 250th birthday, A.T. Kearney prepared a Consumers@250 study, “America’s Next Commercial Revolution: Influence vs. Affluence.” We found that a combination of demographic shifts, changing values, and hyper-connectivity are sparking a radical change in consumption patterns.

Those patterns are driven by Generation Z – those born between 1998 and 2016. With childhoods defined by 9/11, the 2008 financial crisis, and the rise of social media, Gen Z’s personality can seem paradoxical: Simultaneously sharing everything and nothing, valuing tangible things while living digital lifestyles. But such analyses typically rely on traditional demographic categories, which are outside-in groupings. Gen Z sets its own personal definitions.

Previous generations pursued value – the relationship between an object and its price – to demonstrate affluence. Gen Z has moved to values and influence. Its members have the power to make or break markets that match or offend the values they hold.

Gen Zers appreciate experiences and access to functionality over ownership. Because they’ll listen to Spotify rather than buy a CD and use ride-sharing rather than own a car, they pose threats to the traditional retail system of delivering goods to buyers.

As influencers, Gen Z consumers directly engage companies on brand preferences, innovation, and issues they see as important. And because of their hyper-connectivity, each individual’s influence over the market increases profoundly.

The implication for CPG mass marketers is this: Stop thinking about a mass market. Even the familiar practice of viewing consumers through five to eight avatars falls short. Gen Z is not as predictable, nor as easily directed, as previous generations. Instead of thinking of scale as something that is achieved solely in manufacturing, CPG companies need to focus on how to build scalable advantage in the areas of influence, personalization, and trust.

Instead of a target market of 20 million people, brands may instead simultaneously pursue 40 segments of 500,000 consumers, each with vital influencers. The shape of these groups will change based on the dynamics of influence rather than on traditional, top-down demographics.

Gen Z values individual expression over mass-produced bargains, which means that personalization becomes paramount. How can a product be expected to support individualized diets, expressions of beauty, life goals, or relationship structures? To answer that question, CPG companies must know not just what their customers purchase, but who they are.

Such insights are gained through trust. With sufficient trust, consumers will trade data for value – often through personalization. In a world where brand trust as a mass-market phenomenon is declining, individual brands that build trust-based relationships with influential consumers will have a valuable advantage.

To get ahead of these changes, our study suggests five places to start:

1. Use data to understand your customers on their terms. Although increasing demand for personalization presents challenges, a matching increase in data offers opportunities to gain insights and productively manage personalization.

2. Describe target markets using new models and metrics. Consumer decision models can no longer rely on old-fashioned demographics. Consumer cohorts will be based on deeper needs and desires.

3. Redefine scale. When one size no longer fits all, it’ll be hard to create a mass-market offering that’s attractive to 100 million customers. But can you assemble cohorts of sufficient size to maximize the value of your existing infrastructure?

4. Think about trust as your customers do. Your competitors may get complacent about their brands’ strength. But trust isn’t about history, it’s about being close to consumers.

5. Maximize the value of your workforce. You’ll need your employees to innovate, which means you’ll need to create an environment that nurtures and affirms innovation.

Although making such transformations may not be easy, the effort will be worth it. Gen Z will be not only your customers but also your employees, trading partners, and competitors. The future of CPG is Gen Z. It’s time to get ready.


Greg Portell is lead partner, Americas, in the Consumer Products & Retail Practice of A.T. Kearney, a global strategy and management consulting firm. He can be reached at greg.portell@atkearney.com.


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                                                                   December 2017