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Generation-Gap Marketing

There are 904,000 Generation-Y consumers in Puerto Rico spending $2.1 billion a year. How do you reach them?


October 21, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

Generation Wars

The race to win three generations’ consumer loyalty may force marketers to toss their old tricks and learn new ones

How businesses tweak marketing campaigns to reach whole generations of consumers better can mean the difference between a brand’s success and its failure. Ask Nike, Levi’s, and Pepsi.

These behemoths of marketing learned their lesson the hard way when, after years of riding at the top, their sales began plunging in 1999 as members of a new generation, Generation Y, gave their products the cold shoulder.

Born during a baby bulge that demographers place between 1980 and 1994, Generation Y is as young as 10 and as old as 24, with the majority still in their teens (67% are age 10 to 19).

The U.S. mainland’s Generation Y is considered three times larger than Generation X, making it the biggest thing to hit the market since the baby-boom generation, which it almost matches in size. Gen Y is also known as Echo Boomers and the Millennium Generation.

"Generation Y is emerging with an enormous force that will eventually rival baby boomers’ market dominance," said Mario Davila, president of Toyota de Puerto Rico.

Economists on the U.S. mainland estimate Gen Y spends about $187 billion annually—or $260 per person, per month—in every industry, including apparel and wireless communications.

In Puerto Rico, nearly 446,400 female and 457,575 male consumers belong to Generation Y, which adds up to 903,975 youngsters age 10 to 24. If they spend just 75% of what their counterparts on the mainland spend—a reasonable assumption given consumption patterns on the island, but for which there is no scientific corroboration—it would mean each Gen Yer on the island spends $2,340 annually.

Generation Y in Puerto Rico could thus represent a market of some $2.1 billion a year.

"[Generation Y] is worth being aware of since it will have a significant impact in coming years," said James Chung, president of Reach Advisors, a Boston-based marketing strategy & research firm.

"This is a generation with a lot of buying power," said Carlos Cobian, marketing director & partner of Empire Entertainment, a marketing company that specializes in developing strategies to reach Generation-Y consumers. "It’s considered a rich market whose spending potential could exceed Gen Xers’ and even baby boomers’."

Generations…X? Y? Boom?

Demographers around the world have divided the population into generations according to the year its members were born; the members of a particular generation are known to share traits and behavior. The most studied and best known of these are the baby boomers (born between 1939 and 1964), Generation X (1965 to 1979), and Generation Y (1980 to 1994).

The next generation, Z, comprising kids nine and younger, has been identified, but there has been no consumer market study on it. Other generations, not bound by birth year but by other common characteristics, include Generations C and Ñ.

Until recently, baby boomers (now 40 to 65 years old)—also known as the soon-to-retire population—were the largest consumer market in Puerto Rico, numbering over 1.13 million, or 29% of the population. The spotlight has turned to Generation Y, however, as baby boomers’ spending has shifted from trendy goods to more mature, need-driven products.

"Baby boomers, many in dual-income households in high-flying economic times, were spenders who used their purchases to make a statement about themselves," said Chung. "They were much more willing to pay a premium for goods that conveyed social and financial success."

Known earlier in their lifetime as slackers and rebels, Generation Xers (age 25 to 39) are now parents, professionals, and the majority of Puerto Rico’s work force, numbering 807,564, or 21% of the population.

"Generation X is more family-oriented, independent, and conscious about what surrounds it," said Billy Fourquet, producer and co-host of radio program "El Despelote" on La Mega 106.9 FM, a Spanish Broadcasting System station on the island. "El Despelote" is one of the few local radio programs that simultaneously target the three generations.

"[Gen Xers] have less passion for prestige. Generation Xers are much less concerned with making a statement about how lavishly they can live and more concerned about how much value they can get for their money," said Chung.

Misconceptions about the members of the three main generations—their characteristics, behavior, needs, and preferences—may cost businesses millions of dollars in wrongly budgeted advertising.

"Each generation is different, with its own view of the world. It is wrong to assume the same marketing and advertising strategies will work for all generations, or even for all people of the same generation," said Cobian. "Companies who make that mistake are taking the risk of being outsmarted by the competition and forgotten by the market."

"Yers usually are distrustful and want what they consider the absolute truth. They love adventure and expect immediate gratification," said Fourquet. "They don’t believe success is based on working all your life. Success is based on the now, on what you do now to achieve what you want now, not 10 years from now."

"It’s a different generation. One of the key differences is that Gen Yers tend to have much tighter relationships with their parents—unlike Xers, who have more of an independent streak," said Chung.

"Each generation expresses itself differently. Gen Yers express their needs through music, sports, and technology," said Frances Maldonado, marketing manager of Pepsi Americas. "They don’t like to feel they are being targeted or cornered with aggressive marketing strategies."

Though some brands gained fierce loyalty from consumers in the baby-boom generation, brand loyalty began to plummet as Gen Xers and Yers came of age in the U.S. market, including Puerto Rico. Members of these two later generations have questioned brand loyalty and what part it plays in their lives. Thanks to unlimited access to information on the Internet and interaction with people around the world, Generation Y has become not only the best-informed consumer market but also the most unresponsive to advertising.

"If Gen Yers feel a brand is trying to force itself into their inner circle of friends, they will immediately reject it and turn their backs on it," said Maldonado.

"Only by thinking outside of the box will you be able to reach such consumers," said Cobian. "Most direct advertising will be met with disdain and annoyance."

"[Gen Yers] don’t like to be directly approached with advertising campaigns that make them feel as if the company is trying to fool them with lies and empty promises," said Fourquet.

"Yers need to see for themselves what the product is all about, to prove what the company is promising is true," said Ricardo Rivera, marketing manager of Sony Puerto Rico. "That’s why Sony’s trailer, filled with products aimed at Gen Y, has been so successful. There, youngsters can see, play, and evaluate Sony’s products without any pressure from a salesperson. The strategy is helping us develop the bond needed for a lasting relationship."

"They know a lot about technology and what is coming to the market," added Rivera. "They are attracted to electronic games such as PlayStation, digital cameras, MP3 players, cellular phones, and the latest computers."

The rest of the alphabet

Emerging generations such as C and Ñ are still unknown to most marketers on the island. Generation C isn’t defined by age but more by behavior, especially its need to create. This creativity can be expressed through music, art, literature, technology, or even business.

"Within this generation we find people from Generations X and Y as well as baby boomers," said Cobian. "It’s a generation with no age boundaries and therefore is still unknown and understudied."

Generation Ñ, meanwhile, is the Hispanic market taking the U.S. mainland by storm. This generation is considered a challenging market that is forcing stateside businesses to look beyond their own backyards and into a mix of ethnic cultures with needs and behavior that may be similar to or completely dissimilar from mainstream consumers.

It is this generation that is responsible for the increasing demand for Hispanic advertising professionals in the States, who may have a deeper understanding of the market and how to reach it. One reason so many Puerto Rico-based advertising companies are establishing stateside operations is to reach this growing market, which they are ideally suited to pursue.

Gen Y taking over the market

Marketers who managed to create a bond with earlier generations are looking to do the same with what many consider the most empowered and powerful market, Generation Y. Experts say the payoff for those who take up, and overcome, the challenge will be tremendous.

Leading brands in the States seem poised to benefit from the 60 million teenagers who will flood the economy in coming years. Indeed, brands that have understood the behavioral challenges Generation Y may present are already posting strong sales, and their future looks even brighter.

To give an idea of the buying potential of this generation, Davila said Toyota expects Gen Y to represent 25% of the U.S. vehicle market by 2010 and 40% by 2020.

In Puerto Rico, Pepsi said Gen Y already generates revenue for Mountain Dew, to become the third most important brand for Pepsi.

"Mountain Dew is a brand aimed solely at Gen Y, for which we have developed subtle, nontraditional advertising campaigns that have been reinforced by word of mouth among Yers," said Maldonado. "Sales of the brand have exceeded our expectations, and we feel optimistic about Mountain Dew’s future in the Gen-Y market."

Toyota de Puerto Rico, which recently launched Scion, a new car brand aimed at Generation Y, said sales have also exceeded expectations. Scion homes in on the generation’s need to stand out from the rest.

Toyota isn’t the only automaker to appreciate the market potential of this generation. In 1999, General Motors created a task force to determine how to appeal to Gen Y.

The success of Mountain Dew and Scion notwithstanding, some of the biggest brands on the market have been getting a shrug of indifference from Gen Y. This generation could cause significant damage to the sales of brands popular with Gen Xers and baby boomers.

"Sony understands that to reach consumers from Generation Y, we can’t use the same strategies we used for baby boomers or Xers," said Rivera. "Direct advertising efforts can’t convey the same messages and must be supported by other strategies, such as grass-roots marketing and Internet marketing."

As the leading edge of this huge generation (those in early adulthood) elbows its way into the marketplace, its members are making it clear that companies hoping to win their hearts and wallets will have to learn to think like they do. "Sony has developed studies that enable the company to better understand our market and how to reach it," said Rivera. "Our constant research and efforts to understand the market has paid off, since we are seeing our sales of Gen-Y-aimed products go up."

Although many consider Gen Yers fickle teens, jumping on the latest trends, driven by fads and rebellion, experts agree such assumptions are simplistic and misleading. Marketers who fail to see Yers as anything more than kids are missing the greatest marketing opportunity since baby boomers.

"Having grown up in a media-saturated, brand-conscious world, they respond to ads differently than previous generations, in many cases giving the cold shoulder to whatever they consider in-your-face advertising," said Cobian.

According to Cobian, these young consumers have shown they will switch loyalty in an instant to marketers who can get ahead of the style curve. "Marketers can capture Gen Y’s attention by bringing their messages to the places where these people congregate, whether on the Internet, at extreme-sports events, or at tech events," said Maldonado.

In just a few years, Gen-Y consumers will be shopping for their first car, their first home, and even a mutual fund. Only those marketers with the ability to talk to this generation will succeed, because Yers’ distinctive buying habits will probably remain the same as they enter the high-spending years of early adulthood.

"Discovering success with this generation requires a new kind of advertising as well as a new kind of product," said Rivera.

"Huge image-building campaigns that led to boomer crazes and Gen-X brand loyalty are less effective with Gen Y. Gen Yers respond to humor, irony, and what they perceive as the unvarnished truth," said Fourquet.

According to experts, Gen Y comprises a less homogenous market than its predecessors, Gen X and baby boomers. Marketers who don’t bother to learn about the unique interests and obsessions of Gen Y are apt to run up against a brick wall of distrust and cynicism.

Years of intense marketing efforts aimed their way have taught Gen Yers to assume the worst about companies trying to coax them into buying something. Ads meant to look youthful and fun may come off to a Gen-Y consumer as merely opportunistic.

Along with cynicism, Gen Y is marked by a distinctly practical worldview," said Fourquet. "Gen Yers have a direct effect on the buying process of their household. Loaded with information, they are able to express their opinion and preferences with certainty."

Studies indicate Gen Yers are deeply involved in family purchases, whether groceries or a new car. One in nine high-school students has a credit card co-signed by a parent, and many will take on extensive debt to finance college. Most expect to have careers and are already thinking about home ownership.

The net effect

Gen Yers aren’t brand-conscious. Therefore, they usually don’t feel any brand loyalty and can change from one brand to another on the spur of the moment," said Maldonado.

According to Cobian, some of this distrust and wariness is due to the generation’s unprecedented access to information. "These consumers know about the product, the good and the bad. They also know about strategies and what is done to grab their attention and their money," he said. "Their access to the Internet and to unlimited other sources of information has made them skeptical believers. They believe only what they consider the unvarnished truth."

The Internet has sped up Gen Yers’ ability to get information on almost anything, including products, marketing strategies to reach them, and social issues. Net-driven fans can reach other members of their group and exchange information, reviews, and sound clips.

It’s hardly surprising the Internet has become a key element in building a broad lifestyle brand through an online mall, where chat and entertainment mix with shopping.

"The Internet’s power to reach consumers shouldn’t be lost on marketers," said Cobian. "Even fashion has been affected by Yers’ access to information on the Internet. Fashion varies more and changes faster as Yers pick up on trends as soon as they hit the street or the Net."

Grass-roots marketing

To break through Gen Y’s distrust, marketers are also trying to make their campaigns subtler and more locally focused. This means marketers who want to reach worldly-wise Gen Yers need to craft their products and pitches specifically to this group.

A growing number of marketers have teams of young people who hang out in clubs, parks, and malls to talk to teens about everything from fashion to finance, trying to spot trends as they emerge.

"Grass-roots is one of the most effective strategies to reach Gen Y. These are people who are constantly on the streets," said Andres Claudio, senior vice president, account services at Arteaga & Arteaga. "Most of them still don’t have full time jobs and are more easily reached through strategies that go to wherever they are."

Other marketers, following the lead of underground music groups, have taken to tacking up posters on street corners and at construction sites and to sponsoring music, technology, or extreme-sports events.

"The idea is to let kids stumble onto the brand in unexpected places," said Cobian. "However, there are still companies that continue to reach this group through TV campaigns. The commercials that work are funny, unpretentious, and often confusing to older consumers because many include ridiculous situations where the brand even makes fun of itself."

Marketing experts said companies that want to grow with Generation Y are doing whatever they can to reach these consumers. After all, some of the biggest brands on the market got their start by bonding with boomers early and following them from youth into middle age. This need to bond with Gen Y has prompted new, never-before-seen strategies that break advertising rules and go beyond what businesses may consider proved market theories.

Generation X: from slackers to parents

Many industries still see parents as baby boomers, the generation born from 1939 to 1964, when a study by Reach Advisors indicates most parents of children age six to 11 are actually members of Generation X, those born from 1965 to 1979.

Reach Advisors is a Boston-based marketing strategy & research firm that has striven to determine how the values, attitudes, and actions of Gen X have changed parenthood and what the implications of these changes are for marketers. For its study "Generation X Parents: from Grunge to Grown-up," Reach Advisors surveyed more than 3,000 families in the States. The study has been referenced across the U.S. and by some of the most recognized publications, including Business Week, The New York Times, and Fortune.

"As we focus on the 24 million children [in the U.S.] who are six to 11 years old, it’s important to note that three out of every four have parents from Generation X," said James Chung, president of Reach Advisors. "For many of our clients, [baby boomers] have been a prized demographic; the goose that has laid the golden egg for three decades. [However] boomers are, for the most part, beyond the age of parenting children six to 11. Those who are tend to have higher levels of education, having pushed back the years before having children."

According to Chung, boomers with children age six to 11 are at the tail end of the generation and didn’t share many of the experiences that shaped the core of the baby boomers. As a result, they don’t have the same generational identity as older boomers.

To better understand Gen X as parents, he said, we have to keep in mind how family structures have changed. The divorce rate, for example, nearly doubled during their childhood. Gen Xers grew up when women were joining the workforce at unprecedented rates.

"Gen Xers were more likely than boomers to have moms who worked full-time. While some might argue this was an issue for this generation, others would argue the lasting impact is that this was the first generation to have mothers as multidimensional role models," said Chung.

The situation prompted Gen Xers to develop a sense of independence at an early age. This independent streak became the generation’s hallmark.

Compared with female baby boomers, more Gen X women have become professionals since nearly twice as many are college graduates (30% to 17%). They have also tended to marry and have families later in life. "They are more likely to be educated moms with professional backgrounds and higher income potential," said Chung. "However, they are also more likely than boomers to be stay-at-home mothers."

Chung added, "Maybe [this is] because they grew up without their moms at home...or maybe today’s work environment has simply become more of a hassle and less worth it. For whatever reason, Gen X moms have reversed the trend of steadily increasing employment among mothers."

According to the study, Gen X mothers are more likely to re-enter the workforce later, with 84% of stay-at-home moms saying they are considering a return to work.

Generation X fathers, meanwhile, are considered to be do-more dads. They are far less likely than boomers to focus only on their careers and have taken a more hands-on approach to parenting.

"Gen X dads spend almost twice the amount of time on domestic responsibilities and child-rearing duties as boomer dads. You would think this shift would make Gen X dads happy, but they aren’t," said Chung. "They aren’t upset by all this time they are spending because it takes time away from their professional advancement or their weekend golf game. Instead, they wish they could do more. They spend more time on family duties but are much less satisfied with the amount they spend than boomer dads."

According to the study, one financial implication of this behavior is that Gen X parents are more likely to sacrifice income for more family time. They have up to 62% higher housing debt than boomers at the same stage of life.

"With more moms choosing to stay at home, more families are now living on one income rather than two, and their spending reflects a desire to make one check stretch further," said Chung. "They also have more debts. A greater percentage of their overall household budget is going toward the mortgage. They are also less expectant of retirement assistance; only 11% of them expect a pension plan, which means they are participating in 401(k)s at a higher rate than boomers."

Purchasing patterns have also changed, with Gen Xers more likely to spend thoughtfully and take into account what is best for the children.

Selling to Generations X and Y

Shifts in the spending patterns between generations indicate what consumers will soon be doing, buying, and thinking, and they are keeping marketers up at night. The ability to understand and act upon these shifts is the difference between plummeting sales and skyrocketing purchases.

Each generation’s traits, needs, and concerns determine its spending habits and product preferences. For example, Generation Xers’ pessimism about their financial future and anxiety about debt make them a potential market for value sales. The products that can accommodate Xers’ need to save and avoid further debt will gain their attention and loyalty. These products will benefit from swift endorsements through the grapevine.

Companies should also consider Gen Xers’ tendency to put family first, even at the sacrifice of their time and money, as well as their role and challenges as parents and breadwinners. Many Gen-X women, for example, are choosing to be stay-at-home moms or work-at-home professionals.

Selling to Gen Y, meanwhile, will prove difficult for companies that fail to appreciate its disregard for brand loyalty. According to trade magazines such as Automotive Industries, these consumers will buy from a broader group of brands than other generations. In the case of cars, Gen Yers seem to prefer smaller, less expensive models; the place of manufacture is entirely unimportant.

Marketers should also be aware of Gen Y’s need to connect with others. But Gen Yers don’t want ordinary communication devices; they seek devices that have enhanced capabilities, such as combination cellphones and personal digital assistants with wireless technology such as Wi-Fi and Bluetooth.

Gen Y’s seemingly insatiable thirst for knowledge makes it a prime target for companies that provide speedier Internet connections, faster and more portable computers, and other products. This generation’s computer-savvy members aren’t considered nerds but trendsetters and reliable sources of information.

Gen Y also has a distrust of advertising. Accordingly, they are more likely to buy products that reach them by word of mouth than by direct, in-your-face advertising channels.

Baby Boomers vs. Generation Y

Product: Boomers’ Interests / Gen Y’s Interests

Car brand: Lexus / Scion

Sports: Baseball & football / Extreme sports

Clothing store:The Gap / PacSun

TV networks: NBC, CNN, Discovery / Comedy Central, MTV

TV programs: The West Wing / South Park, The Surreal Life

Commercials: Super Bowl ads / Toyota & Sprite ads

Actor: Harrison Ford / Ashton Kutcher

Cosmetics: Estee Lauder / Revlon

Catalog: L.L. Bean / Alloy

Accessory: Palm personal digital assistant / Ipod

Political activism: Make yourself heard / Make yourself useful

Music: Rock’n’roll, salsa / Pop, indie rock, hip-hop

Drink: Coke = water +sugar + caffeine / Iced tea = Water + sugar

Talk show: Late Show with David Letterman / Daily Show with Jon Stewart

Sneakers: Nike / Adidas

Source: BusinessWeek & market survey by CB Staff

Generation Breakdown in Puerto Rico

Generation Y: 903,975: 23%

Generation X: 807,564: 21%

Baby boomers: 1,130,518: 29%

Other: 1,036,475: 27%

Source: U.S. Census Bureau

Generation Y by Geographic Area in P.R.

North: 15%

San Juan Metro: 26%

East: 11%

South: 14%

Center: 19%

West: 15%

Source: U.S. Census Bureau

This Caribbean Business article appears courtesy of Casiano Communications.
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