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Responding to New

Consumer Trends

Navigating the

Future 2017CONFERENCE

Navigating the Future 2017

Responding to New Consumer TrendsAdjusting Business Models

In an increasingly competitive world, it is crucial for brands to differentiate themselves with a strategy that resonates with the wants, needs, and preferenc-es of consumers. Recent trends and new segments resulting from generational shifts are giving way to the development of an “inside-out” business strate-gy, in which consumers are in the driver’s seat and influence the way companies do business in a more collaborative way. In order for brands to remain com-petitive, they must accept consumers as co-creators of value and adapt their business models for the fu-ture.

Consumer Segmentation: Understanding Who Is Driving New Trends

To thrive and respond to new consumer wants, it is essential for companies to understand the consumer. As technology continues to permeate every aspect of life, forcing all industries to adapt, segmentation by demographics becomes more relevant, defined not only by age but also by lifestyle choices and mindset. There are four salient demographic categories1: Baby Boomers (born between 1945-1964); Generation X (born between 1961-1981); Millennials (born between 1975-1995); and Generation Z (born between 1995-2015).

Older generations, particularly baby boomers, have not undergone significant changes in their purchas-ing behaviors. For this reason, greater emphasis will be placed on the younger segments, namely the Millennials and Generation Z, as these groups have experienced the most significant evolution in their buying approaches. Furthermore, these generations have taken over the roles of trend-setters and influ-encers, leaving no room for them to be ignored.

Understanding Consumer Wants: How to Appeal to Millennials and Generation Z

Brands must define a new approach when dealing with the younger generations. Millennials value au-thentic content and empowering storytelling, prefer original content created for them, and prioritize con-sistency and coherence, as well as value over price.

Research shows that Millennials spend an average of 25 hours per week online, and they crave con-tent-driven media. Engaging with brands through an online community gives this generation a sense of empowerment and ownership over brands. In order for brands to successfully attract this segment, it is crucial for them to make the content genuine and au-thentic.

Generation Z values personalized communication, social media, multiple mobile platforms with inter-active features, and transparency. These consumers use social media as their primary source of infor-mation2. This information should excite consumers and ignite instantaneous engagement. Most import-ant, the preferred channel should target the smart-phone.

This traditional segmentation and understanding of values is, nonetheless, overly simplistic.

Consumer Behaviors That Create New Trends

There are five main trends in the consumer goods space that are driven by consumer demands and pref-erences. First, consumers prioritize the experience of the product or service over ownership. Car-shar-ing services, including DriveNow, Zipcar and Mobility, allow consumers the experience of a car without the cost of owning one.

A second trend is constant connectivity. The propaga-tion of social media encourages consumers to expect constant interaction and engagement with brands. Facebook experiences four million likes per minute3. Social media empowers the average consumer to voice their concerns and preferences, and influence peers. As a consequence, a positive brand experi-ence may prompt Millennials to take favorable pub-lic action on behalf of their chosen brand. A negative or disappointing experience can, on the other hand, turn consumers into vocal critics with the power of spreading the word through social media.

Third, the new consumer rejects generic products and seeks personalization. A recent study shows that 86% of consumers cite personalization as having at

1”Connect At Any Age - Big Arrow Group”. Big Arrow Group. N.p., 20172Moraes, Meaghan. “8 Modern Tips For Marketing To Millennials”. Blog.hubspot.com. N.p., 20173George Carey-Simos, How Much Data Is Generated Every Minute On Social Media?, 2015

Navigating the Future 2017

least some impact on their purchasing decisions4. A personalized experience allows consumers to per-ceive themselves as unique and differentiated indi-viduals.

Fourth, consumers, particularly Millennials and Generation Z, view brands as an extension of their self-identity. These consumers expect brands to rep-resent the status and values that they stand for or wish to project. In this case, companies have the op-portunity to convince consumers that they are “do-ing good” with their purchase5. One example is Toms Shoes, which promises to help a person in need with every purchase. Similarly, American Apparel, a cloth-ing manufacturer, promotes its goods as “sweatshop free.” Additionally, many companies use celebrities or widely-followed Instagram users to market their products through social media. Consumers who identify themselves with these influencers are at-tracted to the brands that influencers promote.

Finally, consumers are becoming increasingly con-cerned with the impact of their consumption. Re-search shows that 66% of consumers in developed countries buy “responsible” products or services, signaling a clear trend towards social responsibili-ty6. Hence, businesses are beginning to change their business models to focus on responsibly-sourced products, including with the labels of green, organic, socially responsible and sustainable.

Collectively, these changes in consumer behaviors necessitate a shift from materialistic values at the time of purchase to experiential ones during con-sumption.

Case Studies: Dollar Shave Club, Tag Heuer, and Nespresso

To respond to evolving consumer wants, businesses are experimenting with new approaches and busi-ness models.

The Dollar Shave Club (DSC), an online retailer of razor blades, has garnered success as a result of a disruptive model that targets consumers directly online, leveraging product affordability, convenient

order and delivery and a personalized purchasing experience. By 2016, a few years after its introduc-tion, it already accounted for an estimated 10% of the U.S. razor blade market.7 The company curates audi-ence-specific messages and its close relationship to the consumer drives product development. DSC was recently acquired by Unilever along with other inno-vative businesses that hold a strong appeal among Millennials. With DSC, Unilever perceived an entry point into the razor market that was traditionally dominated by its competitor P&G8.

Tag Heuer is another long-established player that has demonstrated its capacity to adapt to changing consumer wants. Despite being known as a luxury watchmaker, it recently opened its doors to tech-nological transformation in the industry to attract Millennials and Generation Z. As a result, it created its own smartwatch, a connected modular high-end watch. To address other consumer preferences, Tag Heuer is moving toward innovative stores that em-phasize the consumer experience and, surprisingly, do not feature any products. In an effort to leverage consumer insight, it has also created an advisory board of teenage influencers to better understand trends driven by Generation Z.

Lastly, despite Nespresso’s responsible coffee sourc-ing, which includes training of coffee farmers and paying premium prices for superior product quality, the company’s single-serve aluminum capsules cre-ate unnecessary waste. In addition to its corporate sustainability program, which details its plan to cre-ate value for suppliers, consumers and society, Ne-spresso intends to source aluminum responsibly and promotes recycling in its boutiques9. However, as re-cycling is still limited, the use of aluminum capsules gives rise to a consumer paradox. On the one hand, Millennials want to stand behind their purchases, which includes minimizing the ecological footprint that they make. At the same time, they want modern and trendy products10.

Unique Consumer Segmentation: Relevance for Business Strategy

In order to have a clear and relevant response to new 4Infosys., Rethinking retail, 20135Barton, C., Koslow, L. and Beauchamp, C., How Millennials Are Changing the Face of Marketing Forever, 20176Marty Smits, Dan Wald, Diederik Vismans, and Emmanuel Huet, An Imperative for Consumer Companies to Go Green, 20147Trop, Jaclyn. “How Dollar Shave Club’s Founder Built A $1 Billion Company That Changed The Industry”. Entrepreneur. N.p., 20178Cao, Jing, and Mittelman, Melissa. “Why Unilever Really Bought Dollar Shave Club”. Bloomberg.com. N.p., 20179Gunther, M., The good, the bad and the ugly: sustainability at Nespresso, 201710IMD MBA 2016 Industry & Competition Analysis: Household Appliances, 2016

Navigating the Future 2017

consumer trends, businesses must address factors that influence consumer decisions. In addition to life-style, the consumers’ mindset, which represents an established set of attitudes and values, must be taken into consideration to understand consumer choices11.

Segmentation goes beyond demographics; subsets within these populations have different attitudes when it comes to lifestyle and mindset. Most Mil-lennials and Generation Z members are believed to experience a change in both of these elements, ne-cessitating special attention. These consumers buy products that are in line with their diverse values and lifestyle needs, making it crucial for businesses to in-vest in retaining their loyalty.

Tag Heuer’s decision to respond to new trends and appeal to the millennial consumer demonstrates the company’s efforts to address this segment. Similar-ly, knowing that the company’s traditional marketing could not successfully address the millennial lifestyle and mindset space, Unilever decided to acquire Dol-lar Shave Club. Nespresso, on the other hand, must acknowledge that although its consumers are mov-ing toward sustainability, they still expect the same coffee sophistication as before.

Into the Future: Main Implications for Business Mod-el Adjustments

Responding to consumer-driven trends has import-ant implications for the transformation of business models. In order to remain competitive, brands must recognize the new expectations of their consumers and acknowledge that collaboration creates value. An adequate response to new consumer trends must consider changes to the overall business strategy, placing consumer insight at the center of the orga-nization. Finally, businesses must recognize the im-perative to create brands that resonate with the val-ues and beliefs of their consumers. Addressing these challenges will be key for businesses as they navi-gate their way through fierce competition and into the future.

11Mindset - Lifestyle – Work, 2015

Team

Sophie Auchapt

Abhijat Chahal

Valeria Cuevas

Mads Ring Damgaard

Martina Heyse

Jana Valkovicova

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