Insight The Future of Consumption: Strategic Approach to 'Generation Z' (1)

16 Jul 2024
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Generation Z, which accounts for one-fifth of the global population, is expected to double their income by 2040, making them highly influential future consumers. However, targeting Generation Z consumers is challenging due to their polarized behavior. They value social and environmental responsibility but are reluctant to pay a premium for these values and tend to waste money on small luxuries.

The contrasting behaviors of Generation Z can be understood by considering their core values, such as creativity, a sense of belonging, and a desire to disconnect or retreat, which influence their distrust of technology and cautious spending. Key strategies to leverage Generation Z behaviors include hyper-personalized loyalty programs, segmentation implementation, and emotional connections. Prioritizing marketing on video-centric social media like TikTok and communication apps like WhatsApp and Discord, with a focus on co-creation and communication, can effectively reach Generation Z.

Generation Z constitutes a significant portion of the population and is emerging as a central consumer group. However, they cannot be fully understood through demographics alone. In some countries with a large proportion of Generation Z, the purchasing power of the younger generation is relatively small, whereas in countries with high purchasing power, the elderly population is significant.

For instance, in 2023, although Generation Z accounted for 41.5% of the population, countries with the largest Generation Z populations—India, China, Pakistan, and Indonesia—only contributed 17% to global Generation Z spending. Meanwhile, the budget of North American Generation Z (4% of the global Generation Z population, 33% of Generation Z spending) was larger than the cumulative Generation Z spending in Asia-Pacific and the Middle East & Africa (79.5% of the global Generation Z population, 32% of Generation Z spending). This proves that a comprehensive evaluation of various indicators is necessary to determine the optimal countries for Generation Z consumer potential.

Demographics and consumer budgets primarily determine consumption potential, but factors such as employment, education, and inequality also play significant roles. High levels of higher education positively impact Generation Z’s income, while factors such as high youth unemployment rates limit potential professional development and consequent income growth. High digital penetration also plays an important role by enhancing Generation Z’s accessibility, information awareness, and spending.

According to the Generation Z Market Potential Index, the United States stands out as the highest-ranked country with 89.3%, while Hong Kong, at 66.25%, is recognized as the highest among Asian countries.

Polarized Behavior of Generation Z

According to Euromonitor's 'Voice of the Consumer: Sustainability 2023' survey, despite Generation Z's concerns about climate change, most Generation Z consumers are reluctant to pay extra for products with sustainable attributes such as "sustainably produced or grown," "100% eco-friendly," or "environmentally conscious." In 2023, Generation Z remained in the lowest income group, and economic uncertainty and limited income seem to contribute to their increased pragmatism and budget consciousness, leading to hesitation in making purchases.

Nevertheless, the consistent decrease in willingness to pay a premium for sustainable attributes suggests a shift in consumer expectations. Generation Z increasingly expects brands to inherently embody sustainability and social responsibility and is less inclined to pay extra for these basic functions.

One in three companies recognized sustainability and social responsibility as priorities for their business over the next five years, with 27.9% stating that 'improving sustainability and social impact' is a priority. This implies the importance of bridging the value-action gap among Generation Z, requiring proactive efforts from companies.

Considering sustainability as a long-term strategic investment can be a way to bridge the value-action gap. This involves treating environmental and social investments as strategic costs and gradually expanding them over time. By absorbing these costs in the long term, companies can convey a strong commitment to responsibility and enhance their appeal to Generation Z as trustworthy and purpose-driven partners. To address the claims of Generation Z from a value perspective, it is crucial to empower individuals and emphasize a sense of community belonging. This seemingly contradictory strategy aligns with Generation Z's values, who strive to contribute to an identity that is individualistic yet community-focused.

Generation Z is a tech-savvy generation, yet they hold a skeptical view that technology negatively impacts social and mental health. In this regard, Euromonitor's 'Voice of the Consumer: Digital Consumer 2023' survey indicates that 41% believe 'companies should not share personal data with third parties,' and 40% think 'companies should be more transparent about how data is used,' reflecting a significant negative perception of companies' use of personal data.

Therefore, corporate transparency and collaboration are crucial in engaging the discerning mindset of Generation Z towards technology. Practical-minded Generation Z considers data an asset, and fostering self-expression and a sense of belonging through creativity is a key factor in enhancing their trust in technology. For example, Netflix increases transparency by providing and disclosing viewer data, showing where the data has been used. This reflects the company's continuous efforts towards greater transparency and effectively responding to critical opinions. 




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