From Business Week Online (1999)

Generation Y
Today's teens--the biggest bulge since the boomers--may force marketers to toss their old tricks

From Business Week Online (1999)

At malls across America, a new generation is voting with its feet.
At TowsonTownCenter, a mall outside of Baltimore, Laura Schaefer, a clerk at the Wavedancer surf-and-skateboard shop, is handling post-Christmas returns. Coming back: clothes that fit snugly and shoes unsuitable for skateboarding. Schaefer, 19, understands. ''They say 'My mom and dad got me these','' she says.
At the Steve Madden store in Roosevelt Mall on Long Island, N.Y., parents, clad in loafers and Nikes (NKE), are sitting quietly amid the pulsating music while their teenage daughters slip their feet into massive Steve Madden platform shoes. Many of the baby boomer-age parents accompanying these teens look confused. And why not? Things are different in this crowd.
Asked what brands are cool, these teens rattle off a list their parents blank on. Mudd. Paris Blues. In Vitro. Cement. What's over? Now, the names are familiar: Levi's. Converse. Nike. ''They just went out of style,'' shrugs Lori Silverman, 13, of Oyster Bay, N.Y.
Ouch. Some of the biggest brands on the market are meeting with a shrug of indifference from Lori and her cohorts. A host of labels that have prospered by predicting--and shaping--popular tastes since the baby boomers were young simply aren't kindling the same excitement with today's kids. Already, the list includes some major names: PepsiCo Inc. (PEP) has struggled to build loyalty among teens. Nike Inc.'s sneaker sales are tumbling as the brand sinks in teen popularity polls. Levi Strauss & Co., no longer the hippest jeanmaker on the shelf, is battling market share erosion. Meanwhile, newcomers in entertainment, sports equipment, and fashion have become hot names.
What's the problem? These kids aren't baby boomers. They're part of a generation that rivals the baby boom in size--and will soon rival it in buying clout. These are the sons and daughters of boomers.
Born during a baby bulge that demographers locate between 1979 and 1994, they are as young as five and as old as 20, with the largest slice still a decade away from adolescence. And at 60 million strong, more than three times the size of Generation X, they're the biggest thing to hit the American scene since the 72 million baby boomers. Still too young to have forged a name for themselves, they go by a host of taglines: Generation Y, Echo Boomers, or Millennium Generation.
Marketers haven't been dealt an opportunity like this since the baby boom hit. Yet for a lot of entrenched brands, Gen Y poses mammoth risks. Boomer brands flopped in their attempts to reach Generation X, but with a mere 17 million in its ranks, that miss was tolerable. The boomer brands won't get off so lightly with Gen Y. This is the first generation to come along that's big enough to hurt a boomer brand simply by giving it the cold shoulder--and big enough to launch rival brands with enough heft to threaten the status quo. As the leading edge of this huge new group 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--and not like the boomers who preceded them.
Indeed, though the echo boom rivals its parent's generation in size, in almost every other way, it is very different. This generation is more racially diverse: One in three is not Caucasian. One in four lives in a single-parent household. Three in four have working mothers. While boomers are still mastering Microsoft Windows 98, their kids are tapping away at computers in nursery school.
With the oldest Gen Yers barely out of high school, it's no surprise that the brands that have felt their disdain so far have been concentrated in fashion, entertainment, and toys. But there's a lot more going on here than fickle teens jumping on the latest trend. While some of Gen Y's choices have been driven by faddishness and rebellion, marketing experts say those explanations are too simplistic. ''Most marketers perceive them as kids. When you do that, you fail to take in what they are telling you about the consumers they're becoming,'' says J. Walker Smith, a managing partner at Yankelovich Partners Inc. who specializes in generational marketing. ''This is not about teenage marketing. It's about the coming of age of a generation.''
Smith and others believe that behind the shift in Gen Y labels lies a shift in values on the part of Gen Y consumers. Having grown up in an even more media-saturated, brand-conscious world than their parents, they respond to ads differently, and they prefer to encounter those ads in different places. The marketers that capture Gen Y's attention do so by bringing their messages to the places these kids congregate, whether it's the Internet, a snowboarding tournament, or cable TV. The ads may be funny or disarmingly direct. What they don't do is suggest that the advertiser knows Gen Y better than these savvy consumers know themselves.
Soon a lot of other companies are going to have learn the nuances of Gen Y marketing. In just a few years, today's teens will be out of college and shopping for their first cars, their first homes, and their first mutual funds. The distinctive buying habits they display today will likely follow them as they enter the high-spending years of young adulthood. Companies unable to click with Gen Y will lose out on a vast new market--and could find the doors thrown open to new competitors. ''Think of them as this quiet little group about to change everything,'' says Edward Winter of The U30 Group, a Knoxville (Tenn.) consulting firm.
Nike has found out the hard way that Gen Y is different. Although still hugely popular among teens, the brand has lost its grip on the market in recent years, according to Teenage Research Unlimited, a Northbrook (Ill.) market researcher. Nike's slick national ad campaigns, with their emphasis on image and celebrity, helped build the brand among boomers, but they have backfired with Gen Y. ''It doesn't matter to me that Michael Jordan has endorsed Nikes,'' says Ben Dukes, 13, of LaGrange Park, Ill.
Missteps such as Nike's disastrous attempt to sponsor Olympic snowboarders two years ago and allegations of inhumane overseas labor practices added to Gen Y's scorn. As Nike is discovering, success with this generation requires a new kind of advertising as well as a new kind of product. The huge image-building campaigns that led to boomer crazes in everything from designer vodka to sport-utility vehicles are less effective with Gen Y. ''The old-style advertising that works very well with boomers, ads that push a slogan and an image and a feeling, the younger consumer is not going to go for,'' says James R. Palczynski, retail analyst for Ladenburg Thalmann & Co. and author of YouthQuake, a study of youth consumer trends.
Instead, Gen Yers respond to humor, irony, and the (apparently) unvarnished truth. Sprite has scored with ads that parody celebrity endorsers and carry the tagline ''Image is nothing. Obey your thirst.'' J.C. Penney & Co.'s (JCP) hugely successful Arizona Jeans brand has a new campaign showing teens mocking ads that attempt to speak their language. The tagline? ''Just show me the jeans.''
NET EFFECT. Which isn't to say echo boomers aren't brand-conscious. Bombarded by ad messages since birth, how could they not be? But marketing experts say they form a less homogeneous market than their parents did. One factor is their racial and ethnic diversity. Another is the fracturing of media, with network TV having given way to a spectrum of cable channels and magazine goliaths such as Sports Illustrated and Seventeen now joined by dozens of niche competitors. Most important, though, is the rise of the Internet, which has sped up the fashion life cycle by letting kids everywhere find out about even the most obscure trends as they emerge. It is the Gen Y medium of choice, just as network TV was for boomers. ''Television drives homogeneity,'' says Mary Slayton, global director for consumer insights for Nike. ''The Internet drives diversity.''
Nowhere is that Net-driven diversity more clear than in the music business. On the Web, fans of even the smallest groups can meet one another and exchange information, reviews, even sound clips. Vicki Starr, a partner in Girlie Action, a New York-based music promoter, last year booked No Doubt, a band with a teen following, into a small Manhattan venue. She says that on opening night the house was packed with teenage girls dressed just like the lead singer. ''How do they know this? How do they keep up with what she's wearing? It's not from network television,'' says Starr. ''It's online.''
The Internet's power to reach young consumers has not been lost on marketers. These days, a well-designed Web site is crucial for any company hoping to reach under-18 consumers. ''I find out about things I want to buy from my friends or from information on the Internet,'' says Michael Eliason, 17, of Cherry Hill, N.J. Even popular teen TV shows, such as Warner Bros. (TWX) Television Network's Buffy the Vampire Slayer and Dawson's Creek, have their own Web sites.
Other companies are keeping in touch by E-mail. American Airlines Inc. recently launched a college version of its popular NetSaver program, which offers discounted fares to subscribers by E-mail. ''They all have E-mail addresses,'' says John R. Samuel, director of interactive marketing for American. ''If a company can't communicate via E-mail,'' he says, ''the attitude is 'What's wrong with you?'''
This torrent of high-speed information has made Gen Y fashions more varied and faster-changing. Young consumers have shown that they'll switch their loyalty in an instant to marketers that can get ahead of the style curve. No brand has done a better job of that than Tommy Hilfiger (TOM). When Hilfiger's distinctive logo-laden shirts and jackets starting showing up on urban rappers in the early '90s, the company started sending researchers into music clubs to see how this influential group wore the styles. It bolstered its traditional mass-media ads with unusual promotions, from giving free clothing to stars on VH1 and MTV to a recent deal with Miramax Film Corp., in which teen film actors will appear in Hilfiger ads. Knowing its customers' passion for computer games, it sponsored a Nintendo competition and installed Nintendo terminals in its stores. Gen Y consumers have rewarded that attentiveness by making Hilfiger jeans their No. 1 brand in a recent American Express Co. (AXP) survey.
Compare that record with Levi's, one of the world's most recognized brands and an icon of boomer youth. It got a harsh wake-up call in 1997, when its market share slid, and research revealed that the brand was losing popularity among teens. With its core boomer customers hitting middle age, both Levi's advertising and its decades-old five-pocket jeans were growing stale. ''We all got older, and as a consequence, we lost touch with teenagers,'' says David Spangler, director of market research for the Levi's brand. Now, Levi's is fighting back with new ads, new styles, a revamped Web site, and ongoing teen panels to keep tabs on emerging trends. "We never put much muscle into this sort of thing before, but now, we are dead serious about it," says Spangler. "This is a generation that must be reckoned with. They are going to overtake the country."
Marketers who don't bother to learn the 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 directly their way have taught this group to assume the worst about companies trying to coax them into buying something. Ads meant to look youthful and fun may come off as merely opportunistic to a Gen Y consumer. That's what happened to PepsiCo in its attempts to earn Gen Y loyalty with its Generation Next campaign, says William Strauss, co-author of the 1991 book Generations: The History of America's Future. The TV ads, in which kids showed off branded trinkets, from jackets to gym bags, fell flat. ''They were annoying,'' says Philip Powell, 14, of Houston. ''It was just one long 'Please, please, buy me.'''
Ironically, Pepsi already has one of the biggest teen soda hits with Mountain Dew, but the drink's success has little to do with advertising. Instead, kids found out about Dew from their most trusted endorsers--each other. ''[Kids] believe--true or not--that they're the ones who figured out and spread the word that the drink has tons of caffeine,'' says Marian Salzman, head of the brand futures group at Young & Rubicam Inc. ''The caffeine thing was not in any of Mountain Dew's television ads. This drink is hot by word of mouth.''
Along with cynicism, Gen Y is marked by a distinctly practical world view, say marketing experts. Raised in dual-income and single-parent families, they've already been given considerable financial responsibility. Surveys show they are deeply involved in family purchases, be they 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, according to a 1998 survey of college freshman for Northwestern Mutual Life Insurance Co. ''This is a very pragmatic group. At 18 years old, they have five-year plans. They are already looking at how they will be balancing their work/family commitments,'' says Deanna Tillisch, who directed the survey.
GRASSROOTS. That means marketers who want to reach worldly wise Gen Yers need to craft products and pitches that are more realistic. To rejuvenate its Gen X hit House of Style, for example, MTV switched the emphasis on the weekly fashion show from celebrity lifestyles to practical information, with segments on decorating your bedroom and buying a prom dress. ''We adapted the show to be more of what they wanted to see,'' said Todd Cunningham, director of brand research for MTV.
To break through Gen Y's distrust, marketers are also trying to make their campaigns more subtle and more local. A growing number, including Universal Studios, Coca-Cola (KO), and McDonald's (MCD), use ''street teams.'' Made up of young people, the teams hang out in clubs, parks, and malls talking to teens about everything from fashion to finance, trying to pinpoint trends as they emerge. Other marketers are trying to build grassroots support for their brands. Following the lead of underground rock bands, mass marketers have taken to ''wild postings,'' that is, tacking up ad posters on street corners and construction sites. Others sponsor community events or hand out coupons and T-shirts at concerts and ball games. Golden Books Publishing Co. distributed sample chapters from a new teen book series at movie theaters. The idea is to let kids stumble onto the brand in unexpected places.
Last year, when Lee Apparel introduced Pipes, a line of oversize, multipocketed pants aimed at 10- to 14-year-old boys, it spent its marketing dollars on the Internet, outdoor posters, and skateboard magazines. ''As a brand, you need to go where they are, not just pick a fashion statement, put it on TV, and wait for them to come to you,'' says Terry Lay, president of the Lee brand. Even Coke, a master of slick advertising, looks for more personal ways to reach Gen Y. Last summer, it courted teens with discount cards good for movies and fast food. To build credibility, it mailed them directly to high school sports stars and other leaders first before handing out more at stores.
Of course, plenty of marketers continue to reach for this group with national TV campaigns. The ones that work are funny, unpretentious, and often confusing to older consumers. Consider Volkswagen of America Inc. Although VW doesn't market directly to teens, both its Golf and Passat models show up on surveys as Gen Y faves. Part of the credit goes to the carmaker's quirky TV commercials, which are about as far from the traditional image-building ads Detroit churns out as possible. ''We're a little edgier, a little more risk-tolerant, and not so mainstream,'' says VW marketing director Liz Vanzura. While other marketers fled the airwaves when Ellen DeGeneres came out of the closet on her show last spring, VW used the groundbreaking episode to introduce a new commercial showing two guys in a car who pick up a discarded chair. The ad, funny and oblique, became a favorite among young adults and teens.
With the oldest Gen Yers turning 20 this year, a lot of other companies will soon find themselves grappling with this new generation. Toyota Motor Corp. (TOYOY), noting that 4 million new drivers will come of age each year until 2010, unveiled the Echo at this year's Detroit auto show. With low emissions and a price well below the Corolla, the new subcompact is aimed squarely at boomers' kids who are buying their first cars. General Motors Corp. (GM) is putting together a task force to figure out how to appeal to Gen Y. The auto maker brings teens and children as young as sixth-graders into car clinics, where researchers probe their opinions of current models and prototypes of future cars. Michael C. DiGiovanni, GM's head of market research and forecasting, says Gen Y kids have an entirely different aesthetic from their parents. Their sense of how a product should look and feel has been shaped by the hours they spend at the keyboard. ''One of the trends that will manifest itself is computers,'' says DiGiovanni. ''The design of products will be influenced by the way a computer screen looks.''
Meanwhile, computers and other high-tech products are starting to look less industrial and more sleek in an effort to attract younger buyers. By using bright colors and cool designs, Motorola Inc. (MOT) helped transform the pager from a lowly tool for on-call workers to a must-have gizmo for teens. Apple Computer Inc. (AAPL) appeals directly to the same group with products such as its rounded, space-age-looking iMac computer. ''For this generation, the computer is like a hot rod,'' says Allen Olivo, Apple's senior director for worldwide marketing, who says kids are constantly comparing features and styling with their friends' systems.
Apple's stylish iMac may or may not become the computer of choice for this new generation. But Apple and other marketers that attempt to chart the Gen Y psyche now could have an advantage as this generation moves into adulthood. After all, some of the biggest brands on the market today got their start by bonding with boomers early and following them from youth into middle age. Will the labels that grew up with baby boomers reinvent themselves for Generation Y? Or will the big brands of the new millennium bear names most of us have not yet heard of?