Millennials are a unique segment of the consumer marketplace. They do things differently than the generations that precede them and aren’t afraid to make their opinions known (and often very loudly). In particular, businesses are learning that millennials are extremely price sensitive.
The Millennial Psyche
According to data gathered and published in an IRI survey, millennial consumers are more likely than other age groups to engage in deal-seeking behavior while shopping for consumer product goods. Roughly seven out of 10 millennials will buy the lowest-priced item while grocery shopping, compared to just 59 percent of all adults. Millennials are also the most likely generation to purchase over-the-counter medication and beauty care items that are on sale (rather than a preferred brand).
“Consistent with their deal-seeking behavior, millennials are also more apt than adults in general to consider the selection of store brands and the presence of a strong loyalty or discount program when choosing a store,” Marketing Charts explains. “While store brands enjoy strong perceptions among all generations, they’re particularly favored by youth. Indeed, more than eight in 10 feel that store brands are just as good in quality as national brands, and more than three-quarters feel that store brands are better value than national brands.”
Millennials are almost euphoric for good deals. In fact, they have a hard time passing up a good deal when they find one. This leads many millennials to buy items that they don’t need (or even want), which results in overspending and buyer’s remorse.
Millennials are so price sensitive and deal conscious that they’ll even buy gift cards online for a percentage of the face value as a way to save extra money. It’s the chase for a deal that keeps them going.
Some of the price sensitivity in millennials is bred out of need. Those between the ages of 25 and 34 have an average of $42,000 in debt each, which means large monthly payments for student loans, credit cards and vehicles. To make their budgets work, these millennials are forced to be highly price sensitive for consumer products.
Another driving factor in price sensitivity is the unique nature of the online marketplace. Millennials have been raised in an environment where they have unlimited information and plenty of options available at their fingertips. In essence, there’s no reason to overpay for a product from one company when it can easily be purchased for less from another company.
Reaching Price-Sensitive Millennials
For businesses that don’t want to compete on price, the high price sensitivity of millennials is alarming and frustrating. It creates lots of questions and challenges, but it also opens the way for opportunity. This segment of the market can be reached — but you’ll need a plan. Here’s how some businesses can reach price-sensitive millennials:
1. Find what millennials will pay for.
“The IRI study reveals that despite being relatively price conscious oriented, millennials have an above-average willingness to pay a premium for environmentally friendly ingredients (37 percent),” Marketing Charts explains. “That aligns with other research showing a greater sensitivity towards corporate social responsibility and environmental friendliness for youth."
Millennials are also willing to pay a premium when it comes to home delivery. The data shows that 23 percent of millennials will pay a premium for this perk (compared to just 17 percent of all adults).
2. Increase average purchase size.
Are you familiar with the Target Effect? It’s the phenomenon by which people — often millennials — will go into a store looking for one item and walk out with a dozen. Stores know that they can get customers to spend more money by pricing individual items as deals. A customer picks up a $25 item for $12 and thinks, “I just bought this for half off. Now I can go buy something else.” And before they realize it, they’ve spent away all of their savings and more.
Many retailers are now focused on increasing the average purchase size to improve profitability per customer.
3. Fight for brand loyalty.
Finally, brands can fight for brand loyalty. While it’s an uphill battle in this marketplace, establishing brand loyalty is a surefire way to overcome price sensitivity and create customers for life. Just ask brands like Apple, Nike, Target, and Chick-fil-A.
Discover What Works
For businesses and retailers, millennials can be a frustrating demographic. They control most of the purchasing power in the marketplace, yet are reluctant to overspend. Either businesses have to compete on price or they must discover a way to rise above the noise and touch millennials where they’re most responsive.
Related story: Discount Sites and Promotions: A Retail Strategy That Works