Gen Y: The Next Generation of Spenders

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Empowered, disappointed, savvy, optimistic, unemployed—for anyone trying to decipher Generation Y (also known as Millennials), it means starting with a fistful of contradictions. With a population estimated at roughly 72 million, Generation Y is the most educated, diverse, tech-proficient, and soon-to-be largest American generation ever. It is also a generation that distrusts traditional advertising and will more likely listen to the opinions of their peers.

As the oldest Gen Yers reach their mid-30s and increase their spending, the pressure is on for marketers to figure out how to capture this generation's attention.

Delaying Adulthood

Like every other generation, Gen Y has been affected by the recent recession and weak economy.

For many members of this group, this has meant difficulty landing their first job or being underemployed. Only 48.8 percent of 16- to 24-year-olds were employed between April and July (the peak time in youth employment) in 2011, the smallest share since the government started recording data in 1948, according to the Bureau of Labor Statistics.

Although other generations have come of age during a poor job market, none have been as heavily burdened by student loans. The amount of student loans that were taken out in 2010 crossed the $100 billion mark for the first time. Americans now owe more on student loans (expected to reach $1 trillion) than on credit cards, reports the U.S. Department of Education, the Federal Reserve Bank of New York, and other sources.

Faced with these economic pressures, many Gen Yers are taking their time before reaching major milestones such as buying a house, getting married, or raising children. Some are even returning to their parents' home after college, giving rise to the term "Boomerang Children."

The weak economy offers only a partial explanation for this development, according to Tamara Erickson, author of the book Plugged In: The Generation Y Guide to Thriving at Work.

"One of the interesting differences between Generation X and Y is that for many Xers, returning home meant you failed. The Y Generation sees it as a sensible thing to do," Erickson says.

According to Census data, about 5.9 million Americans between ages 25 and 34 lived with their parents in 2010, a 25 percent increase from before the recession began in late 2007. Men are nearly twice as likely as women to live with their parents. In addition, the marriage rate for those between ages 25 and 34 fell to 44.2 percent, also a new low.

Not all of the Gen Yers who are living at home are unemployed. By rooming with their parents, Gen Yers insist they are making an investment in their future.

"I have it pretty good at home, since it's so close to my work, and financially I just feel like it's smarter for the long run to buy," Jay Bouvier, 26, a full-time physical education and health teacher at a Connecticut high school, told the New York Times.

Gen Y's spending power is almost $200 billion a year, according to marketing research firm Kelton Research.

"The recession hurt a lot of people with mortgages and portfolios, but [Gen Yers] don't have those worries, and those who are earning an income are looking to spend it," says Kelton Research CEO Tom Bernthal.

Experiences like backpacking internationally and buying the latest tech gadgets are big with the Gen Y demographic, says Christine Hassler, author of 20 Something Manifesto.

"It's all about engagement and experiences. They saw their parents work hard and then watched their pensions disappear, so now they [Generation Y] want to have a lot of fun. This is a 'live-in-the-moment' generation that is also very social," Hassler says. "They do things in groups and like brands that are aspirational, like Virgin. They are delaying milestones and living it up as long as possible."

Eventually, members of Generation Y will set up their own households and make long-term investments in cars and other major purchases, presenting a huge opportunity for marketers to connect with these consumers, says Jason Dorsey, chief strategy officer of The Center for Generational Kinetics, a research and consulting firm.

"Gen Y is starting to enter the wealth accumulation phase, and companies that are struggling should look ahead," Dorsey says. "Based on ours and other research, by 2017, Gen Y could outspend Baby Boomers. As Boomers move on they'll be spending less, but Gen Y is just getting started."

The Facebook Generation

The first generation to grow up with the Internet and mobile devices, Gen Y is also the first generation to consider behaviors like tweeting and texting, along with using Facebook, Google, Wikipedia, and YouTube, not as novel ideas, but as normal aspects of their social lives and their search for information.

"There is an ancient saying that bears much truth: 'People resemble their times more than they resemble their parents.' Gen Yers are children of the cyber revolution," writes Joeri Van den Bergh and Mattias Behrer in their book How Cool Brands Stay Hot: Branding to Generation Y. "Just like the Industrial Revolution changed lifestyle and culture by the end of the nineteenth century, the omnipresent connectivity and digital advancement has reshaped the social DNA of our current and future youth generations."

Fifty-eight percent of Gen Yers age 23 to 31 own a smartphone, and seven out of 10 access the mobile Internet at least monthly, according to Forrester Research. Clearly, these consumers are connected wherever they are.

Gen Yers have moved much of their media consumption online: They are more likely to read news online, and two-thirds regularly watch television online.

For companies trying to capitalize on Gen Y's obsession with technology, user experience and design are key factors, says Kit Yarrow, a psychology and marketing professor at Golden Gate University and author of the book Gen BuY.

"With this generation, everything has to be visual and contextual. Gen Y processes information on an intuitive level. They will form impressions about a product based on how it looks and what it does, not what advertisers say about it," Yarrow notes. "What makes Apple so successful is it understood the need to throw away the instruction manual. It's straightforward but still very customizable."

Another hallmark trait about Gen Yers, analysts say, is that they are more aware of marketing spin than previous generations. They have a strong aversion to "push" marketing and prefer brands that are engaging and already embraced by their friends.

When it comes to convincing Millennials about a product's value, nothing beats word-of-mouth marketing, according to Hassler. "Friends are the biggest influencers for Gen Y. If their friends have something and endorse it, that's all they need," she says.

The reason for this is a distrust of corporate or canned messages, explains Dorsey, who's 33.

"I'm more likely to trust the opinions of people I know who enjoy using a product enough to tell others about it than an ad," Dorsey says. Based on the recommendations of his friends, he says he has purchased furniture, life insurance, and a washing machine and dryer, and started using Dropbox.com.

Mommy Bloggers and Vloggers

In addition to telling friends about their purchases, consumers have taken to the Internet to share that information with even more people through blogs. "Mommy bloggers"—women with mostly young children who share their thoughts on their blogs—have developed reputations for being trendsetters based on their recommendations alone.

Marketers have wasted no time in sending payments or free samples of their products in the hope that a blogger will use it and recommend it to her readers. The frequency with which this happens has caused the Federal Trade Commission to step in and require bloggers to disclose any freebies or payments they receive from companies for reviewing their products.

In addition to mommy bloggers, a newer Web phenomenon has been brewing among Gen Y fashionistas. By combining homemade online videos with a love of shopping, teenagers and young women have taken sharing to a new level.

"Haul videos" are online videos created by young women showing off their fashionable finds, many of which have quickly gone viral.

A quick search on YouTube yields nearly half a million haul videos, with several getting millions of views. The videos are a modern take on the show-and-tell that often happens after going on a shopping spree with friends, making them very attractive to marketers, explains Erin Bianchi, founder of Fashion Camp OC, a learning space for kids, teens, and adults.

"Before you roll your eyes and think to yourself, 'Who would possibly watch this?' think again," Bianchi writes in her blog post, "Haul Vlog—Teen Fad or a Marketer's Dream?" "If there is anything to know about marketing, it's that the Holy Grail involves capturing the attention of the almighty teenager. That elusive, finicky segment of the population who spend all their money at the mall, and who are easily and most often influenced to buy what their friends are buying. You can imagine then, that vloggers…offer a goldmine of marketing opportunity for companies chasing the teen segment."

Retailers have started to take notice and have recruited vloggers or haulers for their marketing campaigns. Some have even built careers around their videos.

Sisters Elle and Blair Fowler, ages 23 and 18, started posting videos featuring their fashion hauls on YouTube in 2008 and have since expanded their hobby into a full-time career replete with media appearances, sponsorship deals, and guest editorials. They got their first media exposure outside of YouTube when Seventeen magazine invited them to give makeup tips to readers as "Beauty Smarties" in several issues.

By 2011, the Fowler sisters had made over 2,000 online videos, which have been viewed more than 84 million times on YouTube. They continue to make haul videos as well as offer beauty and fashion advice on their Web site, ElleandBlair.com, in which they tell readers to "think of us as your super savvy big sisters."

Letting Your Brand's Personality Shine

Until former NFL player Isaiah Mustafa told women to "Look at your man, now back at me," Old Spice was not a brand consumers associated with young men. Since then, the 70-year-old brand has become a new Old Spice.

After catching people's attention with its "The Man Your Man Could Smell Like" commercials featuring a towel-clad Mustafa, marketing firm Wieden+Kennedy added a social media layer to the campaign. Using Twitter, Facebook, and a series of YouTube videos in which Mustafa directly responded to online questions lobbed at the "Old Spice Guy," Wieden+Kennedy built a huge online campaign that received millions of views.

A clever ad combined with smart use of social media can produce a fresh identity, even for a brand that many associate with their grandfather's deodorant. The key is to build your brand around an interesting and preferably funny personality, Bernthal says.

"There's been a huge growth in character-driven campaigns," he says. "Dos Equis, the eTrade baby, Geico cavemen, Old Spice, etc. Gen Y is uncomfortable getting firmly behind a product, except for a few exceptions, like Apple. They are far more comfortable with getting behind a character. Creating a lifestyle or persona that feels right for Gen Y gives brands a greater chance of connecting with them."

Looking for Inspiration

As we saw in their overwhelming support for Barack Obama in the 2008 presidential election, Gen Y is passionate about politics and the concept of improving the world. "Gen Y loves companies that aren't just about selling, that are also making a difference," Hassler says, naming Tom's Shoes, a company that donates a pair of shoes to a child for every pair that's purchased, as an example. "Companies should also ask themselves, 'How can our brand service them, help them?' Consumers like spending money on something that has meaning, and they'll share it with their friends."

Even small businesses that are not necessarily philanthropic can capture Gen Y's attention. Palo Alto–based WePay, an online payment service started by two Gen Yers, was virtually unknown until the Occupy Wall Street movement began in September. Within a few weeks, WePay became the de facto official way to send money to the Occupy protesters, according to the Washington Post.

Considering that many payment alternatives already exist, "it's more than a coincidence that an unknown technology player, free of any associations with the banking establishment, has emerged as the financial intermediary of choice," writes Post journalist Dominic Basulto in his article, "The Real Wall Street Occupation Is Online." "Just a few months ago, the obvious choice for sending money to an organization like Occupy Wall Street would have been PayPal, but that was before the company decided to cooperate with the financial embargo against WikiLeaks."

Although he is thankful for the company's success, including the infusion of OWS customers, being a young entrepreneur presents its own challenges, according to WePay CEO and co-founder Rich Aberman, 26.

"We don't delude ourselves that people don't look at our age and doubt that their money will be safe. This isn't an overnight success. We've been at this for three years, fifteen hours a day, with thirty other people to make sure that we're doing well by our customers," Aberman says. "My generation is criticized for being irreverent or worse but when I think of how much potential we have, I feel lucky to be part of Gen Y."

Millennials by the Numbers

50 text messages are sent by teenagers every day on average.

40 percent of Millennials think that blogging about workplace issues is acceptable, compared to 28 percent of Boomers.

10 is the median number of brands Facebook users ages 18–34 have "liked."

Between 2010 and 2011, 15–24-year-olds read emails in 16 percent fewer instances, while those read by people 25–34 declined 7 percent.

3.39 is the average number of times per week that Millennials eat out, compared to 2.54 for Gen X and 2.34 for Boomers. (Sources: Pew Research, comScore, eMarketer via Wedbush Securities, PGAV Destinations Study, Restaurants & Institutes)

Associate Editor Judith Aquino can be reached at jaquino@destinationCRM.com.

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