Create a consumer life stage strategy, or leave your company's future to chance.
In a recent post I demonstrated how life stage drives Millennial choice on where to live. In the Washington, DC metro area, for example, 38% of college educated, single Millennials live downtown. In contrast, only 8% of married Millennials with children do so. Homebuilders and financial institutions would be well-advised to account for the impending, inevitable shifts in demand for housing.
Life stage drives other abrupt changes in consumer lifestyles, priorities, and purchases. The good news is that changes in life stage can be anticipated and their impact estimated. This can and should inform near- and long-term planning and goal setting. I'll use spending on alcohol as an example.
How alcohol expenditures vary by life stage
Some time ago I read a report from the Wine Market Council that Millennials consumed 42% of wine in the US (they since have backed off on that claim). I was incredulous, but it led me to wonder whether Millennials drink more or less than did prior generations when they were younger. So, I compared Millennial and Gen X spending. The results are striking.
The chart below details the proportion of Millennial spending devoted to alcohol; both at home (blue) and outside (orange). From left to right, the bars portray the progression of life stage from Single . . . to Married . . . to Married with Children. As priorities change, alcohol as a percentage of spending plummets from 1.6% to 0.6%. Doing a little more math, the proportion of alcohol that is purchased for home consumption rises from 40% to 60%.
This likely makes a lot of sense to anyone who has experienced the sleep deprivation and sudden change in perspective brought about by a first-born. For those who have yet to go down this path, but wish to . . . Don't worry. I'm sure you'll carry on just as you were before.
Are Millennials any different than prior generations? To get to this answer I compared the above data with that of Gen X sixteen years ago (Year 2000). In that year the members of Gen X were about the same age as present-day Millennials. Spending on alcohol among married couples was remarkably similar for the two generations. In contrast, Gen X seems to have enjoyed their single days considerably more -- or maybe they were drowning their sorrows. Take a look at the chart below.
Single Xer's without children reported spending considerably more on alcohol than single Millennials did. You may be wondering whether Gen X's relatively high spending had something to do with their partying like it was 1999. Nope. Their spending on alcohol remained steady before and after the year 2000. The analysis simply indicates today's single Millennials are more temperate than were Gen X singles.
Why this Matters
This is not an academic exercise. The chart below indicates the US population by age for Gen Z, Millennials, and Gen X. Notice the mini-population explosion around the age of 26. This is a group of predominantly single Millennials whose consumption patterns fit their life stage. Notice too, that Gen Z is relatively small. In fact, without future immigration, it would be about the same size as Gen X.
As the current crop of Millennials ages, their consumption patterns are going to change dramatically, and Gen Z is not big enough to fill the vacuum. This will inevitably impact the amount and nature of demand for any number of products.
I don't want to leave you with the impression that spending declines with age. In fact, prior analyses indicate per capita spending on many categories increases all the way through a consumer's early 70's. For example, a future post will detail how empty-nest Boomers constitute one of the fastest growing travel segments. Then it will be Gen X's turn.
Implications for your business
There's good news here. First, the similarities between generational spending mean future spending can be predicted. Second, at an aggregate level, consumer life stage changes can be anticipated. When combined, these data points can provide a means to forecast demand for all generations, guiding the allocation of your time and money to the right age groups at the right time.
Millennials will one day form the mainstay of the US economy. The question remains when they will form the mainstay of your business, and how far ahead of that you need to be. Other analyses I have performed indicate the income of Millennials and Gen Z will equal that of the prior generations about the year 2030. There are a lot of quarterly reports between now and then.
Here are some suggestions to maximize today's and tomorrow's profitability:
Recognize the importance of holding on to your existing customers while you acquire and develop new ones.
Model your existing customer base and the market at large to identify strengths and weaknesses in your penetration of significant life stage segments.
Augment your market research to determine how life stage impacts consumer motivations and purchases in your category.
Design products and experiences to maximize your share of selected targets
Create a system of measurement to assess your progress and suggest course corrections.
Here's a concluding thought for one way to think about this. Take a group of your existing customers who are currently around the age of 50. Now consider they are likely to live for another 35 years. Compare their projected future spending with that of a batch of recently-acquired customers. From there evaluate the implications for how you should invest your time and money.
. . .And if these sorts of numbers aren't at your ready disposal, then ask yourself on what basis are you managing the coming generational transition?
Chase Intel helps its clients create insights to drive customer engagement and profits. These insights are often founded on a fresh look at our clients’ objectives and the data, analysis, and actions required to achieve them.
