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The so-called Millennials, which comprise the generation born between around 1980 and 1994, have been the most studied demographic group – and the most notorious buzzword – of the recent past. Yet what both Millennials and marketers have to admit is that they have become, after all, about as “young” as the iPhone 4, the beloved tech gadget Millennials grew up with. But who is today’s iPhone X, then?
Just as Apple’s new product, their successor is centered around one letter: Generation Z, or the generation born between the late 1990s and 2009. According to United Nations data, they will account for 32 percent of the global population in 2019. And investors should take note, the differences between these two generational cohorts are about as substantial as those between the very first and the very last iPhone model.
According to research conducted by consulting firm EY, the probably most striking difference is that Generation Z is deemed a security-seeking “we” generation, having grown up in the aftermath of the global financial crisis. Contrary to the Millennials, which were raised by their overprotective Baby Boomer parents and received their fair share of critique about being rather self-centered and entitled, Generation Z values stability. In line with this is that Millennials are open to debt and often times pay off student loans while renting property. Generation Z, however, more keen on saving, values financial knowledge as well as owning real estate. Furthermore, the often-observed millennial focus on work-life balance is not as pronounced with Generation Z, which is much more entrepreneurial: according to High School Career Study, 62 percent would prefer to start their own companies instead of working for an established business. Most prominent role model might be Kylie Jenner, the American socialite and it-girl who built up a fortune of 900 million U.S. dollars in just three years.
Entrepreneurial spirit is not the only differentiating factor here: technology is at play, too. Take six-year-old Ryan, who made 11 million U.S. dollars in 2017 by reviewing toys, making him the sixth-highest paid YouTube star. While Millennials are said to be tech-savvy, Generation Z is tech-innate, meaning that its members are conveniently multi-tasking over up to five screens. Contrary to Millennials, who are still quite active on Facebook, Gen Z uses Instagram or Snapchat as their preferred social network. Twitter is another network of choice, offering quick consumption – and spreading – of information.
For investors, finding the companies that cater to the needs and aspirations of Generation Z is of utmost importance if they don’t want to miss out: according to research conducted by IBM and Iconoculture, Generation Z possesses 200 billion U.S. dollars in direct buying power, accompanied by 1 trillion dollars in indirect spending power. Indirect spending power means the extent of influence on what e.g. their parents acquire, and is an important parameter as Generation Z still has its prime earning and spending years ahead. For example, 73 percent of Gen Z members stated having influence on their family’s spending on household goods, while only 18 percent were spending their own money on it at the time of the survey.
Being at the pulse of trends is a good thing. Yet in order to outperform one’s competitors, today’s companies should step up their game and feel the pulse of the generation, which shapes these trends. In our opinion, most were already too late with regard to Millennials: Google searches for the term “Millennial” peaked only two years ago, yet Millennials’ buying habits were already disrupting the consumer industry.
What does this mean for companies? Data and analytics company Engagement Labs evaluated what Gen Z spoke most about when interacting with peers, namely about gadgets, beverages and snack foods: all products which bring people together. Among the top brands were Apple, Coca-Cola and Nike. This comes as no surprise for an incredibly social generation. At the same time, another EY report found that Gen Z is used to free shipping and values almost instant fulfilment of their consumerist needs – needs which companies like Amazon or Alibaba satisfy. This poses challenges for brick-and-mortar stores: 55 percent of those who are 18 years or younger prefer to buy clothes online. An overwhelming 93 percent prefer to shop without the help of sales associates, according to payments processor Adyen NV. Embedded in this is an overall decrease in brand loyalty. Prime examples include Netflix or Spotify, which offer sought-after content without binding its users for years to come.
The Vontobel “Megatrends” model helps investors to keep their eyes on the future. The model is based on three pillars that, in our view, represent the societal changes we are currently experiencing: demographic change, the emergence of a multipolar world order, and rules for responsible business practices.