The Bottom Is Near: Thanks to the Millennials

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\"RRIt came in with a bang! And it will end with a whimper. I’m talking about the now over-used phrase “the race to the bottom” of price promoting and every method of discounting imaginable and unimaginable. It explosively ramped up around the turn of the century, accelerated through the recession, mainlined on steroids post-recession, and is now limping to its end. This is not a Ron Johnson-like prediction when he bet the bank during his brief and tragic tenure as CEO of JC Penney (and which I naively doubled-down on). I now believe he may have been ahead of his time believing that “fair and square” non-promotional pricing would be desired by consumers. Of course, the JC Penney customers not only didn’t love it, they hated it and walked out the door.

Well that was a different time and a different customer.

The Millennials are going to change it all. They are viewing the industry’s discount madness as an overwhelming, frustrating, and exhausting “paradox of choice” (too many deals and too confusing to even make a choice). They will not only become inured to the onslaught of ubiquitous deals 24/7, they will begin to disbelieve them and cynically expect that another better deal will pop up at any moment – which they will also not trust. How can they believe what the real value of any offering is at this point?

This is good news for the industry because it will finally break the “race to the bottom” and allow retailers and brands to focus on creating real value, including perceived emotional and experiential value, that is competitively unique and fairly priced. And it will not have to be discounted because the Millennials are smarter and don’t want to slog through a pile of deals to find what they want. They are also more discerning than the generations before them; simply, the Next Gen knows what they are paying for.

Now before you yawn and mentally put me in your “whacko” bucket, and accuse me of still being hung over from Ron Johnson’s Kool-Aid, read on. I’ve created a plausible thesis.

And as an additional point, I raise the issue of how Millennials are replacing shopping time (and therefore dollars) with other activities, most of it due to the smartphone, Internet, social networks, millions of apps and all the other tools and toys at their fingertips in the technological era they live in. You are not just competing against other retailers and brands; you’re competing for the Millennials’ time and dollars that are being spent elsewhere.
Are you tearing your hair out? Take two aspirins and chill.

The Counter-Intuitive “Millennial Effect” On Pricing

The Millennials are emerging as the next largest cohort of consumers as Gen Xer’s grow older and the Boomers retire, downsize and spend more on experiences, services, health and wellbeing. However, don’t jump to the assumption that the Millennials are the new Boomers. While they may be larger in number, their pocketbooks will be smaller and more discerning because they will be underemployed and will have less spending power.

According to a Teen Vogue – Goldman Sachs study conducted in 2013, “labor participation rates and average wages relative to the national average are markedly lower today among 16-24 year olds than they were 10 years ago, which is resulting in diminished spending power relative to prior generations.”
There is also an enormous amount of college loan debt that many in this group are burdened with, exacerbated by the lack of decently paying job opportunities. This also leads them to live with their parents. “Among home owners and renters, 15-34 year olds as a percent of total are 10 percentage points less than 10 years ago.” And fewer own cars. On top of this, their career attitudes have changed. According to the Families and Work Institute, “only 60% want to have a job with greater responsibility, versus 80% from 20 years ago.”

All of this supports the notion that the Millennials are driving a new kind of sharing, swapping, renting, and re-purposing marketplace. And they are shaping a workplace that is more flexible, less demanding and more balanced between work and outside lifestyle interests.

So you might ask: if these Millennials can’t afford to buy or own anything and they have less income and spending power in the aggregate, how can you say they will not be even more price conscious and pursue even greater discounting? Read on. There are other cultural characteristics of the technologically savvy Millennials that will result in what might seem like counter-intuitive behavior regarding how they define value.

In the Teen Vogue – Goldman Sachs study, they cited two other characteristics unique to this group that are already driving major change in the retail marketplace: 1) their profound technological capability; and 2) their unique shopping behavior and relationship to brands.

Technology and Its Derivatives Steal Time and Money From Shopping

Often called “digital natives,” Millennials grew up understanding and using all of the most sophisticated technological innovations, essentially absorbing them into their DNA. They adopt new technologies more quickly and are better able to move, communicate and collect information across a matrix of different platforms and mediums – video games, text messaging, online research – all at once. The study points out that “technology gives them access to things that at one time were unattainable: tweeting with their favorite celebrities, creating sophisticated photography through Instagram, and performing in-depth analysis of a product they want across multiple vendors.” And these capabilities are always at their fingertips.

They are highly social and always connected. While heading to the mall to meet friends and spend the day shopping used to be a favorite pastime for young consumers, today they’re connecting with their friends wherever they might be, and they are playing games, sharing photos and videos, and generally finding more interesting and quicker things to do than spending a whole day traveling to, and shopping through the malls. Furthermore, if shopping is one of the options for meeting with their friends, they can do that on their smartphones as well. The point here is that malls and retailers are now in competition with an increasing number of compelling choices for Millennials to spend their time on.

Therefore, this generational shift, enabled by the technology era, simply raises the bar for retailers and brands to figure out how to add even more compelling value to their offerings, both the product or service and the experience.

More Demanding And Discerning “Because They Can”

There are two converging dynamics that will ultimately break the deadly discounting race to the bottom:

  1. Continuing over-capacity: too many stores and websites and too much “stuff”.
  2. Technology tools: the Internet; smartphones; apps; search engines; and, product aggregators, all providing consumers quicker, easier and smarter access to more options than they can digest.

These two factors allow this generation to be more demanding and discriminating than any before it.

Furthermore, combining their frugality (because they have to), with their lifestyle shift (because they want to) of eschewing quantity for more quality, and seeking leisure time activities other than shopping, the Millennials are just not as interested in big stores carrying a lot of big mega-brands (because they can).

Big stores are going to be converted to, or replaced by, smaller shops, albeit more of them, conveniently accessible in neighborhoods. The big mega-brands will be replaced by personalized, customized and artisanal products and services that will provide the perception of exclusivity. These brands will be individually “cool” to the demanding and discerning Millennial.

Now think clearly about your race to the bottom discount madness and…

STOP!!!

All of the foregoing logic tells us that the Millennials are driving a new era, one in which they seek quality of life over quantity, in which less is more, and in which they will know real value when they see it. And finally, price will not be the deciding factor in their decision-making. In fact, the paradox of having too many deals to choose from will likely drive them to choose none.

Stop focusing on discounting as a strategic weapon of necessity. The Millennials are inviting you to engage them with something special that they will pay a full and fair price for.

One word of caution: this transformation doesn’t happen overnight. It’s not just a matter of tweaking your product, service or experience and taking your “on sale” sign down. The process has to be a holistic strategic reassessment of your brand’s real and perceived value and it’s alignment with your consumers’ expectations. Then the transformed offering must be tested, and revised if necessary, and tested again and again, until you get it right.
The final word on this is that you must make yourself matter in an authentic way and offer products and services that redefine value honestly. End the race to the bottom before it ends you.

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