Talking to Gen Y About the New Culture of Thrift
Kimberly Palmer

Companies fumble as they try to appeal to 20-something consumers

Generation Y -- the group of Americans currently in their late teens to early 30s -- gets called a lot of names.

Personal finance advisers dub gen Y-ers spendthrifts. Marketers consider them brand-lovers. Pop psychologists describe them as coddled products of helicopter parents: a generation that can barely survive in the real world on its own. But one of their defining characteristics -- their savviness as consumers, derived from growing up in the Internet age as well as experiencing the most recent recession -- has been largely ignored. As a result, many of the companies trying to win them over are doing it all wrong.

"Gen Y likes to feel influence and power. They like to feel that companies are serving them and really bristle at the idea of being taken advantage of," says Kit Yarrow, coauthor of Gen BuY: How Tweens, Teens, and Twenty-Somethings Are Revolutionizing Retail. These relatively new consumers are also on the lookout for potential scams and bad deals, she says, and are wary at the first sign that they are being manipulated.

Even before the recession, gen Y-ers' comfort with technology meant that they did more research and were more informed consumers than their predecessors, Yarrow adds. Now, the financial crisis has underscored that competency. An October Scottrade survey found that one third of respondents ages 18 to 26 said they've learned more about how the economy works and have become more familiar with their own personal finance situation in the past year. Some 37 percent said they are now doing more research before making investments -- a greater proportion than older age groups.

For the most part, banks, retailers, and other companies have failed to embrace this generation's new mind-set. Banks further erode the trust of many young customers, who already regard financial institutions with suspicion, every time they blast off a slew of product offers. "People feel like they're getting bombarded with irrelevant offers," says Ron Shevlin, senior analyst at Aite Group, a research and advisory firm. A recent Aite survey found that among 20-somethings, more than 1 in 5 reported a decreased trust level in banks over the past year.

Comparing prices. In the retail sector, traditional lifestyle advertising has become as outdated as low-rise jeans. Abercrombie & Fitch's reliance on its "cool and sexy" collegiate image no longer resonates with 20-somethings who now set a priority on saving money over following the latest fashion trends. Its same-store sales fell 22 percent in the third quarter of 2009. BIGresearch, an online marketing research firm, found that the share of 20-somethings who say the "newest trends and styles are important to me" fell to 28 percent last fall, down from 41 percent a year earlier.

A recent survey by Retail Forward found that although shoppers of all ages say they're buying less expensive versions of products, those in their 20s and 30s are the most likely to do so. "They know that sometimes to get the best price on something, you have to search around a bit. These consumers are very adept at Internet searches and feel comfortable price-comparison shopping," says Stephanie Noble, associate professor of marketing at the University of Mississippi. Instead of feeling embarrassed about being "cheap," they have a sense of accomplishment at finding the lowest price, Noble adds.

"It's almost like being frugal is in," says Andrew Fereday, 28, an insurance broker in Chicago. Even though he and his wife, who works in advertising, still earn a good living, they have scaled back on weekend trips and shopping expenditures. The recession, he says, inspired "us to put something away for a rainy day."

That's not to say gen Y doesn't also love brands. Old Navy, Forever 21, and H&M are among the favorites, according to research by J. D. Power and Associates. "The brands that resonate are the brands that provide value," says Mike Cooperman, senior director of marketing. "That's where a place like Old Navy comes in. They want cute stuff and a low price tag."

Anne Wyrsch, 27, a sales manager in Chicago, says she's been focusing on the sales racks at her favorite stores, including Banana Republic, the Gap, and Forever 21. She says the financial crisis has made her more aware of the need to be thrifty. "I don't want to be on some list of people that have to file for bankruptcy," she says. She still makes room for some expensive items in her budget, though. She says that instead of buying a handful of items from H&M, she'd rather invest in a Marc Jacobs suit that will last through several seasons. "There's a more mindful type of purchasing for longer-term-investment types of pieces as opposed to splurging on hundreds of dollars on something you'll throw away next season," says Mandy Putnam of Retail Forward.

That focus on value can work in retailers' favor, if they know how to exploit it. Nita Rollins, a trends expert at Resource Interactive, a digital marketing agency, urges companies to embrace the kind of secondhand swapping popular on sites such as Craigslist and eBay. A snowboarding company, for example, could allow customers to trade in their used snowboards for a discount on their next purchase. Such a program would show that the company "is cool enough to know [customers] want to recirculate their possessions," says Rollins. If the company refinished the secondhand snowboards it collected and resold them, it would show that it was in tune with gen Y's interest in sustainability, too, she adds.

"This trend of 'unconsumption,' where people don't just spend less but also try to repurpose what they've already got, is here to stay," Rollins says. American Apparel captured this sentiment by calling one of its biggest sales a "rummage" sale, which Rollins says fits into the "new culture of thrift."

That other defining characteristic of the demographic -- love of and access to technology -- has led some companies astray in their marketing efforts, especially on social networking sites such as Facebook. "It's almost obnoxious to me," says Fereday, the insurance broker, a frequent Facebook user. "That's definitely not the way to reach me."

The social network campaigns that work are the ones that feel the most authentic and real, say youth marketing experts. A stream of Twitter posts written by public-relations officials on corporate news (which MasterCard has done, for example) is unlikely to attract many followers. Tony Hsieh, the head of online apparel and shoe retailer Zappos and an avid social media user, tweets frequently about how he's spending his day ("Cab ride much faster than expected!"), quotes that inspire him, and sometimes company information ("Zappos & Amazon have officially tied the knot!"). He has attracted more than 1.6 million followers. Hsieh says his social media efforts are about forming better relationships with customers. Ultimately, he thinks his efforts boost sales.

Peer approach. One credit union found success by hiring a member of gen Y to do multimedia outreach. The Texas Dow Employees Credit Union hosts an annual contest for a gen Y spokesperson who finds free things to do around Texas and shares them on the campaign's website, www.youngfreetexas.com. (The campaign started at a Canadian credit union and has since made its way south.) Armed with a $30,000 annual salary, a Toyota Prius, a MacBook, and a high-definition video camera, last year's winner, DeAndré Upshaw, a graduate of Baylor University, posted videos and blog entries on financial literacy, budgeting, and other topics relevant to his peers. Website visitors can click through to more information on the credit union's offerings, but advertising products is not the focus of the site.

The approach seems to be working. Young and Free Texas's Trey Reeme says that in the past two years, the 18-to-25-year-old demographic has been its fastest-growing segment. "I think [the campaign] builds trust," says Reeme, who is 29. Upshaw, Reeme adds, seems more like a friend than a banker, and the annual contest sends the message "We want to learn from you, as well as help you -- not just take your money."

Not all of the old rules are outdated -- discounts and promotional deals also get 20-somethings' attention. Burger King found success with its "lose 10 Facebook friends, gain a Whopper" campaign, as does Starbucks with its giveaways through Facebook. For social networking outreach to work, companies have to generate content that somebody would want to forward to friends, whether it's a discount or an entertaining video, says Anastasia Goodstein, founder of Youth Pulse Inc., a youth marketing and research company in San Francisco. In other words, if you're a company, don't tell gen Y-ers about yourself. Instead, just let them know what you can do for them, and if you're lucky, they'll tell their friends. And that brings up one more name you can call gen Y: influential.