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The Age Curve
How to Profit from the Coming Demographic Storm

By Kenneth W. Gronbach

 

Chapter 24: Marketing to Generation Y

The Age Curve

I stopped my Volvo wagon at the top of our drive, got out to retrieve the mail, and got back in the car.

We get a lot of mail. My two daughters, ages thirteen and sixteen, chorused “Anything for me?” I thumbed through the stack, determined that they both had received letters with coupons from their favorite clothing retailer, and passed the envelopes to the backseat, where they were ripped open.
Then begins the drill: “Dad, can you take us to Bob’s?” This is not a real question, because they know I’m trapped. How else will we save all the money reflected in the coupons? I am very familiar with the process because the retailer keeps these snail-mail incentives coming with train-schedule regularity.

There is a lesson here. Consider that my daughters are pretty typical. They have iPods, laptops, DVD players, and cell phones. They instant message, text message, voice message, and talk on their cells with a vengeance. They watch DVDs and listen to downloaded music. They do watch a little television, but the amount of time they spend in front of commercial broadcast/cable TV is declining significantly. They don’t listen to broadcast radio or read newspapers at all.

So who cares? Marketers care. Why? Because they can’t brand or, for that matter, even reach this new generation with any of the usual bag of advertising and marketing tricks. Gen Y has the potential to be the most consuming generation in the history of the United States—perhaps the world. It will be 100 million strong when the generation ends in 2010. It is consuming at 500 percent more than its parents, age for age, in adjusted dollars. The fact that marketers can’t brand them borders on tragedy. In case you haven’t heard, consumer brand-name preference is dropping like a stone. It’s no wonder, considering that the largest and only emerging U.S. consumer market, Generation Y, is very difficult to reach with commercial, branding, and advertising messages.

This brings me back to the top of my driveway. Gener­ation Y loves direct snail mail. I know this seems strange in a cyberage, but if you need to brand Gen Y and you are not using the U.S. Post Office, you are making a big mistake. Put some compelling coupons in a snail-mail offer and watch what happens.

How do you get a good mailing list? Work at it. You can buy a list for almost any market segment. Remember, however, it is one thing to buy a mailing list from a list vendor; it is quite another to maintain it and keep it current and clean. Don’t get lazy with a mailing list, or the price of production and postage will kill you. If you are a retailer selling to members of Generation Y, don’t let any of them leave your stores before you involve them in a carefully crafted retention program. For example, both of my daughters have Gap ID cards. Gap and Old Navy do a very good job of branding Generation Y.

Direct Mail’s Magic 2 Percent
I can remember a very tense meeting in my office at KGA Advertising about seven years ago. The potential client wanted to understand the in and outs of direct marketing—in this case, direct mail. She owned a company that represented celebrities and public speakers who were typically hired to deliver keynote speeches for major organizations and corporations. The problem was that her sales had fallen off significantly and she was looking for a new way to promote her stable of speakers, especially some whom she had recently signed.

I knew she was a “just-the-facts” person, so I invited the owner of the direct-mail agency that KGA often partnered with to join me in the meeting. I did not want to get stumped on a question and look foolish. Direct mail is a tricky sell. I am well acquainted with broadcast and mass media, radio, television, newspaper, magazines, and billboards. Direct mail was in a class by itself, so I wanted backup.

“So what does all this cost and what do I get for my money?” she said. I explained that KGA would do the creative concept based on her description of the market and the actual targeted reader of the piece. We would then turn it over to the direct-mail experts, who would write the copy, design the component elements for printing, and put it in the envelopes. The direct-mail people would also be responsible for the selection of the appropriate mailing list and the actual mailing. The cost in this case was just under $10,000, all-inclusive, to mail about 5,000 pieces—about two dollars per mail piece. The price was not unusual for this type of narrow mailing, keeping in mind that the postage costs are fixed. There are only so many people in the United States who have the potential to hire public speakers. In a manner of speaking, this was definitely not mass marketing; this was focused, targeted marketing.

“And what exactly do you think my return will be?” she asked. I was about to answer when my direct-mail counterpart jumped in and said, “We don’t know. Our responses historically have been running about 2 percent. However, your market is very esoteric and narrow, so this is anyone’s guess—maybe one percent.” I felt myself losing control of this presentation, but there was little I could do.

“Do you mean that 98 percent of this direct-mail product that I am paying for will be ignored or thrown away?” our stunned lady asked. Mr. Direct Mail looked at me as if to say, “Is this person really this unsophisticated (or stupid)?” He then turned to her and said, “What did you expect? We can’t just mail to people who are ready to hire a public speaker. That mailing list does not exist.” That was the last time I used him and the last time I saw her.

Mr. Direct Mail was a jerk, but he was right. A 2 percent return is considered a success in direct mail, which remains one of the most effective marketing tools for reaching Generation Y.

Snail Mail, Billboards, and the Internet
Billboards can be very effective marketing tools when used correctly. I love them, and I have built businesses with massive billboard campaigns. Yes, there will come a day when billboards will disappear. Billboards are also in the crosshairs of environmentalists who consider them a blight on America’s landscape. For example, my wife was a member of the local chapter of the Garden Club of America. Her fellow members loved her, but I was a social leper because I posted commercial messages on billboards on Connecticut’s beautiful highways.

Generation Y can be reached with creative billboard campaigns; the more creative, the better. Remember, billboards are not limited to two dimensions. I would routinely put huge three-dimensional objects on my boards to add to the drama. For our bedding client, we had an enormous 3-D mattress built out of Styrofoam and secured to the face of the billboard. For our retail clothing and footwear client, we had a giant athletic shoe built and mounted on the board. People loved it and remembered the board. So build a mammoth iPod. Apple will help you.

Ok, so snail mail and billboards may sound like strange ways to reach Generation Y, but please take this advice seriously. I am very acquainted with good marketing and the value of early branding. Trust me, I have racked my brain to come up with a more sophisticated way of using media to brand Generation Y. These two mediums have left most of standard media behind—even, for now, the Internet.

Don’t get me wrong. Internet marketing is the future. No question. However, the returns on investment (ROI) from Internet marketing are spotty at best. There are some real success stories, but most marketers don’t have a clue what to do. That’s the bad news. The good news is they will learn because they have to. Currently you cannot market to Generation Y without a dominant Internet component, period.

Here’s an example. I once drove my kids to school while listening to National Public Radio. They were listening to their iPods. The reporter was interviewing a young male marketing expert about the enormous strides Google and others were making in reaching customers for their advertisers. Google essentially knows everything about everyone. It knows if you are a buyer or a looker. It has your buying history. It knows what you buy, when you buy it, how much you paid, and exactly how you paid for it. It knows what sites you visit and what you look at when you are there. It knows your buying patterns and how long you look before you buy. Google tailors the ads you get to see according to your tastes, habits, and history. You are truly an audience of one.

I know this is not breakthrough thinking, but Google is making it mainstream and very successful. Advertisers are flocking to it, and this is only the beginning. I have been in marketing and advertising for thirty-five years, but I am like an immigrant in the world of cyberadvertising. (I understand it, but I speak with a thick accent.) As I listened to this NPR interview, I realized that I really disliked this glib young marketing expert from an Internet agency with a goofy name as he described how my world was slipping away and his was taking over. But he was right. I thought immediately of my disastrous direct-mail meeting with the woman who wanted to reach only those people who were ready to hire a public speaker. My glib young cybermarketing expert, from Snake Bite or whatever the name of his agency was, could deliver this ready-to-buy market with ease.
My oldest daughter removed her earphones (or whatever you call them today) and asked, “What was that guy talking about?” I answered, “The end of my life as I knew it.” She laughed. “What do you mean?” I explained that the world of marketing has changed, really changed, and turned the corner. Internet marketing until just recently was considered an untested novelty that produced marginal results. That would not be an accurate description now. The Internet is mainstream marketing. Radio, television, newspapers, magazines, and billboards are now anachronisms, relics waiting to be written about in history books. The newly rejuvenated beer wars and the battle between Coke and Pepsi will now have to be fought on a different battlefield. The mastery of the medium will be everything. It’s a new day. “Really,” she said. “But remember, Dad, people are still people and you know about people.” Daughters are wonderful!

Hello Pepsi, Goodbye Coke: The End of the Cola War
Demography is all about change, and change is all about opportunity. Changing demography has an uncanny way of unseating incumbents; incumbent politicians, incumbent ideas, and incumbent products. Let’s examine an incumbent product that is soon to be a victim of changing demography.
Coca-Cola has been the number-one-selling soft drink for generations—“The Real Thing” (whatever that is). What is Classic Coke anyway? It is a caramel-colored, flavored, carbonated water with enough corn syrup to float a boat. But so what, it sells. Coke enjoys the biggest market share of the soft drink market, with sales in the tens of billions of dollars. Coke’s claim to fame was brilliant and effective marketing. You see, soft drinks are a demographically sensitive product because most soft drinks are consumed by teenage boys who can easily inhale a six-pack-plus per day. (Soft drinks are also great for the complexion and might have something to do with the nation’s runaway child obesity issues. But that’s another issue.)

Let’s get back to the point. Astute marketers know that consumers age out of the sweet spot for their products, so they need to reach, market to, and brand younger consumers on an ongoing basis or their consumer bases will soon shrink. Coca-Cola employed this exact strategy for decades, winning new converts in the “cola wars” with the best TV and radio ads in the industry. Now along comes young Generation Y. You would think that Coke sales would go through the roof, right? Wrong. Why? Because the edge that Coke had over Pepsi—superior marketing—is ineffective with Generation Y. It barely watches television and it doesn’t listen to commercial radio.

This is a dilemma of epic proportions on Madison Avenue, because marketing experts are unable to resolve this problem: They cannot find a way to effectively market to and brand Generation Y. As a result, Generation Y could easily become the most brand-disloyal generation in U.S. history.

Here is the real rub. Pepsi sales are up. Why? Think about it. What is Pepsi’s signature product anyway? It is caramel-colored, flavored, carbonated water with enough corn syrup to float a boat. Yes, I know some people can tell the difference in taste tests, but Coke and Pepsi are really pretty much the same stuff. Strip Coke of its huge marketing advantage, and sales of the two products fairly displayed on supermarket shelves will force them to parity. I recently bought Pepsi stock.


Chapter 25: Case Study: No Leg to Stand On - A Levi's Footnote

Retail is detail. Retail can get into your blood. It takes a special disposition to work retail because the pay is not good, the work is difficult, and the hours are long. But some people like it. I was one of those people. I worked in a popular New England retail jean store called Bob’s Surplus while I was in high school and for a few years after I got out of college. Bob was a brilliant merchant and I learned a great deal from him.

One of my most memorable lessons was the result of a conflict between Bob and the giant Levi Strauss and Company. Levi’s jeans sold like hotcakes and Levi Strauss insisted that its product be sold at the manufacturer’s suggested retail price or we didn’t get to sell them. This did not stop Bob from discounting Levi’s jeans, because he operated, after all, a surplus store and he really didn’t like to be told what to do. Levi’s pulled its line after a shouting match on the selling floor between Bob and the Levi Strauss sales rep. I thought to myself, “It must be nice to be in such demand that you could demonstrate this kind of arrogance.”

I don’t know who mended the fences, but a few years later Levi’s were back in Bob’s Surplus. The law regarding a manufacturer’s ability to dictate “manufacturer’s suggested retail price” had changed, but Levi Strauss’s arrogance had not. It had a new ploy. If you wanted to buy the jeans, you had to buy the other less salable products. I can remember the rep saying, “We can sell Levi’s jeans in a drug store. We don’t need you to sell our jeans.” He would then calculate how much of the undesirable products Bob’s ordered to determine how many Levi’s jeans he would let Bob’s have.

In Levi’s defense, at the height of its popularity its product was like gold. Through the seventies, eighties, and early nineties, Levi Strauss’s sales grew and so did Bob’s Surplus, which is now called Bob’s Stores. At one point at the height of Levi’s popularity, they were selling for $75 a pair in Europe and the plan was to bring the United States price point as close to that level as possible. However, in the late 1990s a strange thing happened: Levi’s jean sales went flat. Really flat.

My Free Lesson in Changing Demographics
In 1998, I got a call from a Levi Strauss marketing executive in San Francisco. As ad agency president, I directed everyone to be quiet. “I’m taking this call.”

Levi’s was the largest apparel manufacturer on the planet. Annual revenues were $8 billion. There was no “offshoring.” It made its products domestically. At the time, I was the owner and president of KGA Advertising. At the time, we had handled all of Bob’s Stores marketing for the last twenty years and had watched it grow from $10 million in sales to over $400 million. I had advised Bob’s about our new research into shifting demography and how it was going to have to rethink its merchandise strategy, including the type of jeans that it would sell to the new, very young Gen­eration Y market. Apparently, word had gotten back to Levi’s that shifting demography just might be the reason its sales had gone south.

“I heard about your research in demographics. What does it say about us?” the Levi’s executive asked me. As soon as I took the call, he told me Levi’s wasn’t looking for an ad agency and didn’t intend to pay for the information. So I said, “All right. I’ll just tell you the truth anyway. You’re going to go out of business if you don’t change.”

There was a long silence. After he asked why, I said, “Because you’ve failed to see that the eighteen- to thirty-four-year-old market that is responsible for your success is not static.” “Yeah, but that’s the group that buys the most clothes,” he countered. I gave him the math. “There are 11 percent fewer of those eighteen- to thirty-year-olds entering your market. The Baby Boomer generation that loved your product for the last twenty years can’t fit in them anymore and has almost entirely exited its Levi’s-buying years.”

He asked me what I thought Levi’s should do. I told him to totally refocus Levi’s marketing. The Boomers were no longer prime jean customers. Generation X did not have the critical mass necessary to replicate the Boomers’ sales volume. So the only answer was to put every marketing dollar it could into branding Generation Y, even though Generation Y at the time was peaked at only eight years old. He said they couldn’t do that. “We’re geared up for eighteen to thirty-four-year-olds and that’s where we need to stay.”

Unfortunately for Levi Strauss, this logic put them directly in the path of a market that would reduce its sales volume by 75 percent. The arrogance was gone.

I wondered, where are the executives getting their information? It seemed like they weren’t doing their homework. They were certainly not gathering information from the simple, obvious arithmetic any U.S. Census chart would give them. This privately held business didn’t go out of business. But they went from an $8 billion company to one with revenues of under $2 billion. Yes, Dockers (also made by Levi Strauss) have become part of a Boomer male uniform. In my opinion, Levi’s got lucky on this.

Generation Y Will Lead the Fashion Parade
My advice to those who are currently running Levi Strauss would be to get ready for Generation Y. Generation Y’s consumption of fashion will be huge and could launch Levi’s sales to the levels of the old days. However, don’t expect Generation Y to embrace the old standard Levi’s styles automatically. It’s not going to go down like that. This is a huge generation with very fragmented and individualistic ideas of what its members should look like. It’s déjà vu all over again.

Remember the Boomer clothing styles of the late sixties and seventies: platform shoes, bell-bottom pants and jeans, Frye boots, sandals, carpenter’s jeans, painter’s pants, overalls, tie-dyed shirts, Indian shirts, acetate shirts, low-rise pants and jeans, leisure suits, hot pants, miniskirts, go-go boots, designer jeans, jogging shoes, sweat suits, leather jackets, and Levi’s 501 prewashed jeans. These styles were precipitated by a generation that was finding its way. The Boomers are a huge generation and its impact on fashion and the clothing industry in general was profound.

As I mentioned in Chapter 22, humans are the most concerned about clothes when they are looking for mates, and the average age we get married in the United States is twenty-six. That’s part of the reason the effect Generation Y has on the fashion industry should be nothing less than staggering.

An example of a company that speaks Generation Y’s language is Converse. Converse takes its product—cool retro sneakers—directly to Generation Y’s hangout, the Internet. Generation Y kids love this product because they can customize their purchases to the nines on an extremely well-done website that is designed especially for them. They can create their own shoes exactly the way they want them, buy them online, and have them in no time. How about price? Who knows, it is not an issue. Generation Y does not find this process unusual, but it does find it very cool and is buying a lot of Converse sneakers. Marketers are going to have to realize that marketing to Generation Y must be done on Generation Y’s terms. You could market to Generation X using Boomer ads. You definitely cannot market to Generation Y using Gen X concepts.

On a final note, Levi’s advertising has always baffled me. The message was clear: You buy Levis’ products and you get to have sex. The premise: Sex sells. The more sales declined, the more strident the ads became. Even their promotion of Dockers slacks to Boomer men promised sex. The harder the company tried, the less this strategy worked. Times change and “sex sells” is now an anachronism. May it rest, but not in peace.

 


Excerpted from The Age Curve: How to Profit from Coming Demographic Storm by Kenneth W. Gronbach.  Copyright © 2008 Kenneth W. Gronbach. Published by AMACOM Books, a division of American Management Association, New York, NY.  Used with permission.  All rights reserved.

 

Kenneth W. Gronbach

Copyright © 2008 Kenneth W. Gronbach. All rights reserved.