How Millennials Define Frugality Differently
With millennials surpassing baby boomers as the nation's largest living generation and approaching the precipice of their prime spending years, retailers are scrambling to figure out what makes members of Gen Y open their wallets to spend.
Recent statements from Macy's (M) and Whole Foods Market (WFM) announcing plans to open off-price counterparts to their current operations suggest that retailers understand the reality of a shifting consumer value system taking hold in this younger generation. But is slashing prices the solution to winning over millennial business?
If it were, we'd probably see millennials flocking to Walmart (WMT) in droves -- and that's just not happening.
With record student loan debt and an entry into the workforce characterized by vast un- and under-employment courtesy of the Great Recession, millennials have less spending power than previous generations. As such, they tend to be frugal shoppers. But what retailers seem to be forgetting is that frugality isn't just about the bottom line, it's about maximizing total value.
To capture the millennial consumer, retailers need to look beyond price and ask themselves how millennials define and assess value.
"Millennials value access over ownership," says Joan Kuhl, founder of Why Millennials Matter. Kuhl cites the rise of popular services like ZipCar, AirBnB, Uber and Rent the Runway as evidence of millennials' "restless quest for efficiency." These companies have "served them a whole new, on demand, experiential style of living," Kuhl notes.
The Value of Experience
The prioritization of experiences over traditional products is a theme noted by many experts. "They are far more likely to spend money on an international trip with their friends than designer clothes. They value how something will make them feel over stuff," says Christine Hassler, author of "20-Something Manifesto."
Jason Dorsey, lead millennial researcher at The Center for Generational Kinetics, attributes this behavior to the ongoing financial recovery and lack of firm financial footing millennials face. "Experiences are more financially accessible than say buying a house or fancy car,"Dorsey explains.
This kind of cost consciousness also affects how millennials shop for the products they do purchase. Millennial Chelsea Krost notes how her gen Y counterparts "take the extra step to research an item" before buying.
%VIRTUAL-pullquote- [Millennials] want to build relationships with brands that are honest and open.%A 2015 millennial consumer study conducted by millennial expert Dan Schawbel, in partnership with Elite Daily, confirmed the gen Y tendency to rely on peer reviews before making a purchase, with 33 percent of millennials using blogs as their primary research resource. Millennials look to peer content and social media over more traditional media outlets for an authentic look at what's going on in the world.
"[Millennials] want to build relationships with brands that are honest and open. Part of how millennials define value is by the utility they get for what they purchase and how socially acceptable it is for them to be using the product or engaging in the service. You know if they find a product socially acceptable when they take a selfie with it and post it publicly," says Schawbel.
Millennial CEO of Findspark Emily Miethner also notes how millennial value assessments extend beyond utilitarianism. "Millennials consider how the things they buy reflect on them and want brand values to reflect their own values," Miethner says. It's not just about the product and what it does, but how it identifies the individual to others and how that identity makes them feel. That explains the popularity of brands that make outreach part of their business model, like Tom's and Warby Parker.
Hassler has also observed the influence of brand values in shaping millennial consumer habits. "They value brands that have a positive social and environmental impact over the big brands," she says. Findings from Schawbel and Elite Daily's millennial consumer study emphasize the importance of a company's policy on giving back, with 75 percent of millennials ranking those company ideals and efforts as fairly or very important. For a generation burned by the recession and characterized by Occupy Wall Street, it's no surprise that corporate greed is unpopular. Millennials are willing to go out of their way to purchase from competitors with a more favorable history of supporting local communities.
So how do these values and priorities play into price and the reality of millennials' limited spending power? "Less stuff," Miethner says. Quality, of products themselves, the consumer experience, and company values, paired with a fair price point, will beat out quantity for this new largest generation of consumers.
Stefanie O'Connell is a New York City based actress and freelance writer. She chronicles her struggle to "live the dream" on a starving artists' budget at thebrokeandbeautifullife.com and her book, "The Broke and Beautiful Life," is now available.