Who Are Millennials and Why Do They Matter?

They have never shopped without a smartphone. They have fundamentally different buying habits than their parents or grandparents. And when it comes to advice about getting The Next Big Thing, they rely more on peers than on ads (sorry, Mad Men).

They are the Millennials – the generation born between 1981 and 1996, as recently crystallized by the Pew Research Center. Companies today are learning that if they want to sales to soar, they’d better  pay attention to them. What’s at stake? Consider that Millennials, sometimes referred to as Generation Y, make up more than a quarter of the population. That amounts to some serious purchasing power. The U.S. Chamber of Commerce Foundation estimates that they already spend about $200 billion a year on goods and services. 

Perhaps the biggest difference between Generation Y and their predecessors is the degree to which they rely on peer networks for information and opinions. For decades, major brands seemed to pull the strings when it came to consumer buying decisions; the more they spent on TV and print ads, the more market share they could claim.

That’s all changing with younger shoppers. In one survey, a mere 1% of Millennials said their trust in a brand is increased by its advertising. Instead, they’re turning to sources like friends, family members and online reviews. According to a study conducted by Kelton Research, a staggering 84% of people in this generation turn to user-generated content to shape their decisions. And many of them write product reviews of their own.

As a result, the role of marketers is beginning to change. Rather than shaping opinions directly, they’re acting as facilitators of a conversation. Take online retailer ModCloth, which prominently features user reviews for the items on its website. Sometimes that means publishing some not-so-complimentary reactions as well. But in the minds of younger, more cynical consumers, doing so helps establish ModCloth's credibility. The site also posts "fan favorites," photos of customers wearing its clothing (a folksy touch that also suggests how good the feminine styles look on "real people").

Because of Millennials' affinity for social media, some companies are also seeing an opportunity to build a deeper, two-way relationship with their clientele. For example, after Coca-Cola Co.’s rolled out its personalized-name soda cans last year, it invited customers to share their own photos and comments using the hashtag #shareacoke on Twitter.

Another corporation trying to boost customer involvement through social platforms is Johnson & Johnson, parent of the Clean & Clear brand of skincare products. Last year it launched a campaign in which teen Millennials could take to YouTube and share their experiences dealing with acne. Not only did the campaign generate excitement for the product line, but it tapped into the sense of community and real-people experiences that so many members of this age segment value.

While smartphones are now common across all age groups, their biggest users belong to Gen Y. A 2014 Nielsen survey found that more than 85% of Americans aged 18-34 own at least one.

And, more than any other age bracket, they’re using those devices. According to one report, the average Millennial reaches for his or her smartphone as often as 45 times a day.

The trend is putting pressure on companies to have a much stronger cell-phone-accessible presence if they want to attract younger buyers. That means creating mobile-friendly websites where consumers can more easily research products or conduct a transaction.

The prevalence of mobile devices among teens and young adults is even affecting in-store purchases. According to Annalect, a digital marketing strategy firm, a majority of Millennials are also using their smartphones to compare prices and look for coupons as they roam the aisles. For more on this topic, see How Smartphones Are Changing Advertising & Marketing.

Here’s another point that companies ignore at their peril: Millennials are perhaps the most diverse generation in American history. According to the U.S. Chamber of Commerce Foundation, the number of people aged 18-29 who classify themselves as “non-Hispanic white” is just 60%. Among survey respondents who are 30 or older, that number is about 70%. 

Furthermore, those in Gen Y possess varied family backgrounds; as such, they tend to have a more progressive take on gender roles than older adults. Images of the traditional nuclear American family (one mom, one dad, two kids, all of the same ethnic group) don’t carry the same resonance with these young people.

As a result, the one-size-fits-all approach to marketing is going by the wayside.To stay relevant, businesses are segmenting the market – that is, parsing their message based on the demographics, lifestyle choices and values of each narrow sliver of the consumer audience, and adopting different campaigns and approaches targeted to those different slivers.

With more than 80 million members, the Millennial generation represents a key consumer segment (see The Importance Of Millennial Consumers). As a result, companies are busy figuring out how to appeal to this highly diverse, tech-savvy age group. There's lots of incentive to earn the trust of Millennial consumers now: As they mature and their careers advance, their influence and purchasing power will only increase.