Age, education, geography and income are the traditional demographic tags products are designed, priced and marketed for. Baby Boomers, Gen X, Millennials and Gen Z were labels used to group people assumed to have similar aspirations and attributes. Today, however, brands have to ask themselves how well they are engaging with digital natives and their evolving shopping habits. Luxury brands, in particular, have struggled to connect with new consumers who are not identifying with traditional demographic definitions.
Often misused to label a generation that came after millennials, this cross-generational term describes those born into a world where technology is an integral part of everyday life. Mark Prensky, the U.S. author who coined the expression in his seminal 2001 paper “Digital Datives, Digital Immigrants“, also has a name for all those born before the digital era. If you transitioned from analogue to digital and had to learn tech speak, you are a digital immigrant – no matter how many tech gadgets you flaunt today.
Some of the challenges Presky explores the relationship between digital immigrants (parents, teachers) and natives (children, students) are also evident in the intricate relationship between established brands and consumers. Luxury brands in particular (still mostly managed by digital immigrants) are struggling to connect with digital natives because they are not adapting to their view of the world.
For many luxury brands, connecting with digital natives meant hiring a few hipsters and social media influencers to manage their online presence. This narrow-minded approach has rarely returned dividends.
One characteristic of digital natives that makes applying traditional business models difficult is their tribal nature. “They grew up in a ubiquitous digital environment. How they make sense of the world is highly vertical,” says Jeff DeGraff, a professor at the University of Michigan’s Ross School of Business.
DeGraff says the challenge for premium brands is to move away from their traditional way of marketing products by assuming consumers will want to embody the people in their ads. “The way in which luxury brands became luxury brands in the first place, was that a product caught on with an elite class or group of influencers, and they basically cascaded to mass media.” However, he says digital natives don’t trust mass media sources and “they see everyone as existing on an equal level,” making it difficult for luxury brands to connect with this group.
On the other hand, this group cannot be ignored. In 2015, there were 92 million millennials (the first digital natives) in the US alone. This is a substantially higher number than the next generational group of Gen Xers (61 million) or even Baby Boomers (77 million). It is, however, also a generation with less disposable income, limited job safety and encumbered with debt.
Technology has helped define the way Millennials spend the money they have. They use their digital prowess to access online reviews, seek opinions within their digital tribes and compare prices. They also do not attach the same meaning to ownership as their predecessors did. According to the Goldman Sachs Global Investment Research, Millennials are reluctant to buy items such as cars, music and luxury goods, preferring to opt into services that provide access to goods and services without the burden of ownership.
So where does that leave existing brands, especially luxury ones? Milton Pedraza is the CEO of Luxury Institute, a luxury industry research group. He says what catches a Millennials eye is often not monetary attention but human. “It’s about being personal,” says Pedraza citing examples such as offering a glass of water to an ageing parent accompanying a millennial shopping; or hotel staff remembering a customer’s pet and attending their distinct needs.
According to Pedraza, brands have to consider three key elements to appeal to millennials. First, the product has to be differentiated, compelling and (to a degree) affordable. The experience must be relationship-oriented, generous and delivered in a personal way. And finally, the brand has to have the credentials of being good for society.
“Communicate with millennial consumers and build upon this a human relationship,” says Pedraza. The relationship, however, has to benefit both parties. Many of the millennials he interacts with while lecturing at universities say they don’t necessarily want to shop online but are frustrated by in-store experiences. They say they are usually better-informed about products than the salespeople.
Another challenge for luxury brands today is the importance digital natives give technology. Handbags, for example, are no longer only defined by design, craftsmanship and the brand. Digital natives want to know what purpose it serves. Does it recharge their phones (any model), count their steps or perhaps have a panic button that sends their GPS coordinates to the police? In their minimalistic view of the world, they cannot justify paying premium prices for what they deem futile.
For some companies, this means rethinking their entire product strategy. Although a number of premium brands have dabbled with incorporating technology into their products, success stories have been few and far between.
“I think what some luxury brands are afraid of is the trite nature of some technology and the fact that, just like an iPhone, it’s not a differentiator,” says Pedraza. The other issue he sees is the lack of exclusivity. “If I create a technology, I’m not going to give it exclusively to one brand.”
At present, there are a number of acceptable excuses for luxury brands to keep doing business as they do. There are plenty of wealthy individuals in emerging markets that are still willing to pay a premium for traditional luxury. Or perhaps it is about waiting for the right technology product or company to partner with. These, however, are short-term views.
Premium brands not wanting their brand equity to erode in the long run must find ways to become relevant to digital natives today. Brands will come and go and generational labels will change, but digital natives are here to stay.