Required Reading: In Demography, Size Does Matter

Sure, each generation has its own kinks and quirks, but when it comes down to making that final sale, there’s one missing factor that’s so obvious it’s often left out of the mix: numbers. Those pesky numbers, explains Kenneth Gronbach in his new book The Age Curve: How to Profit from the Coming Demographic Storm, are what demographics is all about, and numbers determine your market size. In the simplest, macro-level terms: A big population makes for a big market, and a small population makes for a small market. Using birth rates and population figures, marketers can not only determine the number of potential consumers today, but they can also predict the future demand for a product. CRM’s Assistant Editor Jessica Tsai had the opportunity to speak with Gronbach about putting numbers back into the equation.

CRM magazine: This numbers game seems so simple—what tipped you off?
Kenneth Gronbach: I’ve seen lots of businesses come and go. The one that precipitated the initial research that I did starting 12 years ago was American Honda motorcycles. We knew we were going after [motorcycle-buying men, 16 to 24 years old,] but the bikes came in 1986 and we weren’t selling any. It was kind of baffling. Between 1986 and 1992, sales fell dramatically—close to 80 percent. It was a significant loss for us, and what was worse was that Honda had no understanding of what was going on; neither did Suzuki, Kawasaki, or Yamaha. The business was just gone.

In 1996, I was reading an editorial in the Hartford Courant that was talking about [members of] Gen X and how lazy they were, because they weren’t participating in the political process. I didn’t buy it. There’s no way an entire generation is lazy. It just didn’t make sense to me. So I had a research department look up in the United States Census as much as we could find out about the voting habits and political participation of Gen X. The research folks came back, and said the [members of Gen X] aren’t really different from the [Baby] Boomers: They vote as often for their age, they give as much money as the Boomers did when the Boomers were their age. The problem is, it’s just a smaller group.

I said, “Whoa! Wait a minute—they’re a smaller group? How can that be?” And they said, “Well, the fertility between 1965 and 1984 dropped 25 percent,” owing to the zero population growth and Roe v. Wade. Fertility in the U.S. had dropped like a stone.

So I said, “Give me the stats on motorcycle sales!” In 1986—the peak of the Baby Boomers—a huge mountain of people exited the motorcycle-buying age, men [who were] 16 to 24 years old. It wasn’t qualitative at all, it was quantitative. We were accusing a smaller group of not liking the food because they didn’t eat as much.

CRM: So it’s really just the numbers?
Gronbach: It’s about numbers. I have a counterpart in the Netherlands, and there’s also a prominent demographer in Spain, and they both said, “Why don’t people understand that the size of the generation—the potential size of a market—matters? What about size don’t they understand? Can’t they count?” And some of the heavy hitters can’t count. Ford, for example, has tried desperately to sell as many SUVs to Gen X as to the Boomers, and they keep on firing their ad agencies and it never works. Nobody ever bothered to go to the Census and count the number of potential customers. So yes, it’s size—and size is everything.

CRM: What about spending power? Spending preferences?
Gronbach: The Age Curve is not about microeconomics, and it’s not psychographic, so we don’t get into the personalities of the different generations. The Boomers are extravagant spenders because there’s some psychographic thing about them, but the most significant thing that adds to their volume of spending is that there’s close to 80 million of them, as opposed to 69 million Gen Xers.

CRM: You’re steadfastly in favor of the 20-year generation length, yet you’re willing to accept Gen Y can go five extra years.
Gronbach: Viagra. Levitra. We artificially put more people back in the game that are [onto] second and third marriages, second and third families. In 2007, we broke a record: over 4.3 million live births in the United States—bigger than 1957, which was the biggest year prior to that. Half of those live births were Latinos, and that’s a wonderful thing. In essence, we’re the only Western nation right now that has fertility above replacement. If you don’t have kids, you’re history in 50 years.

CRM: Who’s the target of your message?
Gronbach: CMOs have responded very well to it, but I think it goes beyond that. And the reason is because demography reaches into our culture. It reaches into our economy. It reaches into commerce. There are changes that are going to take place in the U.S.—there are changes that are going to take place worldwide—as a result of shifting demography, most notably in China. China has essentially committed the biggest demographic blunder in the world with [its] one-child policy. [It’s] a nation of 1.3 billion people [who] are largely 30 and over. By their own admission, they have prevented 400 million live births in the last three decades—that’s more people than we have in the U.S. China has essentially wiped out its own labor force.

Several of the stories in this month’s Insight refer to information and presentations from our recent destinationCRM 2008 conference. For more of our coverage from the show, please visit http://snurl.com/dCRM08.

Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationcrm.com/subscribe/.

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