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Insight 02.05.2022

How will consumption patterns change with the next generation?

How will consumption patterns change with the next generation?

Demographic patterns and changes are a key driver of demand and consumption of goods.

Generation Y (or Millennials), born between 1981 and 1996, and Generation Z, born between 1997 and 2012, are characterised by strong consumer preferences, but these trends are not equal in developed and emerging markets. This is because they do not face the same challenges:

  • Millennials born in developed countries are likely to be affected by high housing costs, student debt, and job instability, and tend to be poorer than their parents who enjoyed years of economic boom. They are therefore more likely to focus on value for money.
  • Millennials born in emerging markets tend to have more opportunities, to be more internationally oriented and probably wealthier than their parents. As a result, they place more emphasis on aspirational consumption, such as luxury products and experiences.

Globally, Generation Z is strongly focused on accessing services rather than owning products – more so than any previous generation; examples include ride-sharing and subscription-based streaming services. In addition, because they are much more technology-savvy, their online purchases and experiences are critical to them.

We asked both Antoine Duvauchelle, Adjunct Professor of Entrepreneurship at INSEAD, and Cédric Le Berre, Investment Specialist at UBP, the same question:

“Will access to price-comparison and information tools by the new generation of consumers change their pricing power?”

Watch this video for Antoine Duvauchelle’s views

According to the INSEAD Adjunct Professor, changes in consumption patterns will be driven by new criteria. The next generation will choose brands and products they can relate to. They will expect a deeper connection and will mostly interact through digital distribution channels.

As Cédric Le Berre points out

Digital and home-based consumption has accelerated with the Covid-19 crisis. Younger consumers were already more inclined to shop and spend online. What we observe now are other generations embracing the same trend. This has further helped the e-commerce industry to grow at a rapid pace, led on the one hand by the hyper-connected Millennials and on the other by older generations forced to go online during the pandemic.

Technology, and the digitalisation of virtually everything, has had a substantial impact on how consumer patterns have evolved. These developments have enabled consumers to be more demanding and more discerning in what they consume but also, crucially, how they do so; there is now more choice for consumers than ever before as entry to the market is facilitated by the internet and social media as means of direct, cost-effective advertising.

Today, we have same-day delivery options, price comparison and review forums which mean that if you are not producing the best value, in the most time-efficient manner and to the customer’s complete satisfaction, then you will fall behind.

Omni-channel experience for shopping is now becoming the norm, and fast becoming the basic expectation, especially for the digital natives of the younger generations. That means offering the best in online and in-person shopping experiences (and everything that falls between). An overarching aspect of the transformation of consumer trends is the decline of the middle man and the move towards direct and B2B transactions.

This ongoing sea change in how we shop today is crucial in the consumption story as not understanding or adapting to this consumer expectation is detrimental to any brand: recent studies found that one in every three consumers would walk away from a favoured brand after just one bad experience. Consumer loyalty to a brand is strong but will waiver if, as in the example above, the brand can’t keep up with the times.

Millennials and Gen Z are especially sensitive to the sustainability of what they buy, do, and consume. Since Gen Z is predicted to make up half of global consumers, this is not insignificant. This also goes back to the earlier point that the consumer is increasingly demanding today; more and more consumers, especially in this demographic, are saying they will substitute a traditional brand for a more environmentally friendly version if available. The ability to make this choice is of course further facilitated by technology.

Rising awareness among consumers of the issue of sustainability as regards climate change and biodiversity has necessitated a shift for suppliers, retailers and the like to offer these options to their customers or risk losing them entirely. This is especially pertinent as research has shown that today’s and tomorrow’s consumers focus on value for money but at the same time they are willing to pay more for products and services they deem ‘better’ in terms of their environmental and ecological footprint.

Multi-Asset Allocation
Cédric Le Berre Cédric Le Berre
Senior Analyst

Global equities

Invest in companies with superior and sustainable value creation.

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