Generational Perspective: How our past defines our future buying behaviors

BY Shannon Andrick

Everyone’s trying to figure out what drives consumers to purchase. But to understand how they shop, you need to know what makes them tick.

Alliance Data’s Analytics and Insights Institute conducted a study with more than 2,400 respondents to better understand consumer buying habits and expectations. These insights, cross-referenced with results from our "Understanding Customer Loyalty" study, confirmed that consumer buying habits track closely with life stage and each generation’s cultural identity.

The study showed that buying behaviors were clearly influenced by what consumers were exposed to in their habit-forming years. Among the key takeaways from Alliance Data’s The Generational Perspective Study:

Current shopping behaviors are driven by generational experiences. For example, Gen Xers and Millennials grew up during the information revolution and want options and instant gratification.

All consumers share baseline expectations of brands, regardless of their generation — non-negotiables include payment security, easy brand interactions, and transparent promotions.

Each generation connects with brands differently — consider that Millennials define loyalty differently than the Silent Generation, and are willing to go out of their way for a brand they love.

Generations connect with brands differently based on lifestyle and lifestage

Retailers may miss the boat when it comes to connecting with consumers in a very authentic way if they ignore generational influences because consumer buying behaviors mirror values formed at an early age — behaviors indicative of life experiences by generation. In other words, retailers may not meet emotional needs that help to build relationships with customers. Millennials, for example, may not like being labeled as the “me” generation, though it makes sense when you think about the influences that shaped their formative years.

Brands must think generationally about the customer experience and take a targeted approach when it comes to engaging customers.

Millennials (ages 18-35) came of age during the social media boom and rely on technology for everything. From price comparisons to product reviews, this connected generation uses their smartphones to research options before purchase. They need to feel emotionally connected to brands, and the overall brand experience matters a great deal to them. To win with millennials, brands should allow connection to their social networks and enable self-service options such as chatbots to deliver in-the-moment service.

Generation X (ages 36-51) is the first group to be raised with email, the Internet, and the rise of e-commerce, and the convenience that came with it. Now they work and drive the car pool, so they gravitate toward shopping experiences that are efficient, getting them what they need when they need it. Retailers should focus on solutions that save time for these shoppers, like the options to order online and pick up curbside.

Baby Boomers’ (ages 52-70) coming of age ushered in an era of consumerism. But they didn’t grow up with 24/7 connectivity, so they don’t rank technology as a top priority. They care more about product quality and value, and now they may be empty nesters, which means they have more discretionary income. Retailers must tell them why a product is worth the price. Brands also should offer white-glove, personalized treatment to retain Boomers’ loyalty.

Raised by Depression-era parents, the Silent Generation (ages 71+) chose traditional careers and stuck with them. They put trust in institutions, managed risks, and were prudent with their retirement accounts — and they have the financial stability to show for it. They shop with brands they know and trust, but value for the money they spend is most important to them.

They also have a “waste not, want not” philosophy about what they buy, so retailers must appeal to their sensible nature and focus on value first. In-store associates are a retailer’s best brand ambassadors for this generation, who want the salesperson to know them by name.

Consumer confidence dictates spend

When consumers are more confident, they spend more. They’re choosier about where to spend, they’re able to invest in larger purchases (like home improvement and auto), and they’re looking for value and quality in their everyday purchases (like clothing and accessories).

Retailers will therefore benefit from digging into their customer data and getting to know the different generational segments on a deeper level. Understanding why those customers shop the brand and what need the brand fulfills for them will help them attract and retain loyal customers.

Even the youngest millennials are growing up, getting married, and starting families, so it’s no surprise that they’re driving the trend toward home purchases and new cars as they trade little splurges for major investments. And when the economy is strong enough, it puts these purchases within reach, especially with the built-up post-recession demand and use of credit as a tool to help them meet their long-term wants and needs.

The present influence of future shoppers

Despite all the headlines, brick-and-mortar stores are still king. But in the future, a digitally connected shopping experience will dominate — from browsing at home to checking product reviews in-store — providing customers with the options, ease, and convenience they want.

Putting the customer’s needs first has led to “brick-and-mobile” becoming the new standard in customer experience—one that transcends individual channels and provides a unified brand experience. Successful brands recognize that the customer experience must be seamless across all channels, and they must keep their eyes on the next generation so they can accommodate their emerging shopping preferences, especially as Generation Z gains spending power.

Generation Z (ages 6-20) will shop brands, not channels. Raised in the era of smartphones and 24/7 connectivity, Gen Z consists of true digital natives, so they’ll expect near-instant gratification from brands. They’re more pragmatic, conscientious, and culturally diverse than Millennials. Challenged with today’s social, environmental, and political issues, this generation will likely play it safe financially and aim to make a positive difference in the world. Sustainability matters to this group. Brands that champion smaller environmental impact will resonate with them. Gen Z will want to know how your brand makes the world a better place.

Each generation connects with brands differently based on their life experiences, and brands must know the differences to deliver relevant solutions that match their shopping and buying behaviors. Brands that embrace what drives each generation will increase sales and win customer loyalty long term.

Shannon Andrick is VP of marketing advancement at Alliance Data’s card services business, and focuses on emerging trends in the retail landscape. With more than 20 years of retail merchandising experience, Shannon’s areas of expertise include CRM, patterning and competitive analysis, deepening customer loyalty through innovative products and services, and growing credit sales penetration.


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Online home decor giant gains momentum in Q2

BY Deena M. Amato-McCoy

Despite posting a loss for the second quarter, Wayfair’s brand continues to gain traction and square off against competitors.

For the second quarter ended June 30, the home decor and furnishings e-retailer narrowed its net loss to $38.9 million from $48.3 million in the same period a year ago. It also posted a smaller-than-expected second quarter loss of 26 cents per share, beating analyst expectations of 46 cents per share, according to FactSet.

On a positive note, revenue rose to $1.12 billion from $786.9 million, a jump of 42.7% year-over-year (YoY). This also beat the consensus of $1.06 billion, according to FactSet.

Direct Retail net revenue, consisting of sales generated primarily through Wayfair’s sites, increased $346.8 million to $1.1 billion, up 45.9% YoY. Gross profit was $269.5 million or 24.0% of total net revenue.

The number of active customers in Wayfair’s Direct Retail business increased 43.1% YoY to hit 9.5 million. Repeat customers placed 61.3% of total orders in the second quarter of 2017, compared to 57.6% in the second quarter of 2016.

"We are pleased to report yet another exceptional quarter with strong momentum in revenue growth and profitability," said Niraj Shah, CEO, co-founder and co-chairman, Wayfair. "As consumers increasingly embrace the selection and convenience of shopping online instead of in physical brick and mortar stores, we are taking advantage of that shift and capturing market share by offering a truly differentiated, customer-centric shopping experience.”

Besides competing against brick-and-mortar competitors, this strategy also positions the company to take on Amazon, which is increasingly creating a foothold for itself in the furniture category. Besides expanding its merchandise assortment and custom designs, and building at least four massive warehouses focused on fulfilling and delivering bulky items, the online giant also offers custom-furniture design services.

However, Shah is relying on Wayfair’s unique customer service tools and merchandise to keep it one step ahead of Amazon. For example, its Search with Photo feature allows customers to quickly find merchandise within seconds, and its augmented reality technology enables shoppers to virtually stage items in their home — at scale — before they make a purchase.

“Our Castlegate and Wayfair Delivery Network initiatives enable us to delight customers with faster delivery speeds and a seamless shopping experience, and we are continuously expanding our product offering across multiple categories including plumbing, flooring, door and cabinet hardware, mattresses, seasonal décor and housewares,” Shah said.

“All of these developments are resonating strongly with customers, and we are excited to see strong traction for the Wayfair brand and shopping experience across the United States and our international markets in Canada, the United Kingdom and Germany,” he added. “We look forward to entering the second half of the year with tremendous momentum."


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Office Depot Q2 profit misses amid sales decline

BY Marianne Wilson

Weak sales made for a rough second quarter for Office Depot.

The retailer said its profit fell to $24 million, or 5 cents a share, short of Wall Street expectations, compared with $210 million, or 38 cents a share, in the year-ago period. (The 2016 quarter included a $250 million fee paid by Staples to Office Depot after Staples abandoned its intent to acquire its rival.)

Total sales declined 9% to $2.4 billion, also less than expected, compared to $2.6 billion in the year-ago period. Retail division sales were $1.1 billion in the quarter, down from $1.2 billion in the prior year period.

Office Depot attributed the decline in retail sales to the impact of planned store closures over the past twelve months and a 6% decline in comparable store sales due primarily to lower store traffic and average order value of purchases.

The company said it closed 31 stores during the quarter, ending with a total of 1,408. For 2017, 75 stores are scheduled to close. (As announced last year, Office Depot expects to close 300 stores over the next three years.)

Office Depot said its adjusted operating income for the first half of the year was on target at $220 million, versus $202 million in the first half of 2016

“We continue to build our capabilities across the organization as we focus on driving the omnichannel growth opportunities we have identified in the North American market,” said Gerry Smith, chief executive officer of Office Depot. “I’m pleased that we have delivered year to date adjusted operating income that is ahead of the prior year and we remain on track to achieve our full year target. Longer term, we are maintaining our focus on executing initiatives to strengthen our existing business, expanding our last-mile advantage, while evaluating opportunities to transform the company for future growth.”

During the second quarter, the company completed the sale of its business in South Korea. As announced on June 2, 2017, it also reached an agreement during the quarter to sell its business in mainland China, with that sale being finalized on July 28, 2017.

In addition, the company also announced on April 18, 2017, that it had entered into a definitive sale and purchase agreement related to the company’s operations in Australia and New Zealand.

Office Depot continues to expect total company sales in 2017 to be lower than 2016, primarily due to the impact of planned store closures, prior year contract customer losses, continued challenging market conditions and returning to a 52-week fiscal year. However, the company expects the rate of sales decline to improve in the second half of 2017 based on improvements in customer retention, implementation of new customer wins and growth from strategic business initiatives.


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