After millennials, Gen Z is about to reshape businesses

• Both millennials and the Gen Z seem to care less about brand loyalty compared to older generations
• India’s Gen Z population will rise to 472 million next year, according to a recent Bloomberg analysis.
  
• The purchasing power of Indian millennials is significantly higher than that of the previous generations

A demographic shift in favour of a much younger population could upend how businesses reach their customers.

Millennials – loosely defined as people born between 1980 and early 2000s – already make up a significantly high proportion of the population in India and China. They are also the fastest growing customer base for many retail and services industries. According to Deloitte, global millennial wealth is predicted to more than double by 2020 reaching between $19 trillion (₹1.3 quadrillion) and $24 trillion (₹1.6 quadrillion) globally.

But while many businesses have been trying to appeal to the hyper-connected, tech-savvy millennial population by investing in digital efforts, another equally important demographic, the Gen-Z, which comprises of the current 16 to 24-year-olds – is either entering university or getting ready to join the workforce, putting pressure on businesses to figure out ways to stay relevant to this demographic.

By some estimates, Gen Z may even overtake millennials in terms of their growing numbers in India. According to a recent Bloomberg analysis, India’s Gen-Z population will rise to 472 million next year, double that of China’s. India’s current population stands at about 1.3 billion people.

As “digital natives”, the Gen Z have a lot in common with millennials in terms of being tech-savvy and expecting a strong digital presence from consumer brands, but interestingly, they also show a great degree of variety in their preferences, research shows. For instance, a study by Accenture shows that Gen Z also have a liking for traditional methods of interacting with businesses, engaging with both offline and online channels.

Spending power

In the near-future, Asian millennials will continue to wield enormous influence in terms of purchasing power.

According to McKinsey, millennials in China will make up 35% of urban consumption by 2022 up from 15% in 2012. The purchasing power of Indian millennials is significantly higher than the previous generations with the majority of working millennials being the main income earners of their families. Globally, Gen Z is expected to account for $29 billion (₹2 trillion) to $143 billion (₹9.9 trillion) in direct spending by 2020.

That economic power is already reflecting in the luxury goods space. A significant chunk of luxury goods sales will come from millennials and Gen Z, according to the annual Deloitte report “Global Powers of Luxury Goods”.

By 2025, millennials and Gen Z combined are expected to make up more than 40% of the overall luxury goods market, up from 30% two years ago, said the report.

Bye-bye, brand loyalty

Both millennials and Gen Z seem to care less about brand loyalty compared to older generations, putting more value on the experience and product, and will quickly switch brands if they aren’t satisfied.

Millennials and Gen Z can have vastly different expectations from brands in different industries as well – ‘self-service’ technology from an app like Uber is much more important compared to a banking product where they might want a face-to-face interaction.

However, compared to millennials, Gen Z may have a lower tolerance for sub-par digital shopping experience. “Gen Z’s low threshold for mistakes and ‘system issues’ will make millennials look like patient saints,” says an EY report.

So how are businesses likely to adapt? According to Deloitte, millennials and Gen Z seek a ‘personalised’ shopping experience from retail brands.

As a result, many luxury retailers and financial services institutions have already started investing in technologies such as artificial intelligence and augmented reality in part to strengthen relationships with customers and accurately predict their shopping needs and behaviours.