Marketing to Digital Natives: How Brand Loyalty Is Changing

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Wharton's Americus Reed and Erik Gordon of the University of Michigan discuss reviving old brands for millennials and Gen Z.

Brand loyalty used to be something companies could rely on to grow and retain their customer base. It was driven in part by cool commercials on network TV and catchy jingles that consumers couldn’t get out of their heads. But younger people, specifically millennials and the Gen Z cohort, aren’t looking at the same media or ads that their parents did. Companies that were popular in past generations are quickly discovering that they need new strategies if they want their brand to appeal to the next generation of shoppers who can easily click and choose from millions of products from around the globe.

The Knowledge@Wharton radio show on SiriusXM invited two professors to talk about marketing to digital natives and what it means for companies. Americus Reed is a marketing professor at Wharton, and Erik Gordon is a professor at the University of Michigan’s Ross School of Business. The following are five key points from their conversation. (Listen to the full podcast at the top of this page.)

Fans Are Fickle

Gordon wonders whether brand loyalty ever really existed, or if companies simply mistook loyalty for laziness. Perhaps consumers stuck with a brand out of habit, even if the brand wasn’t adding much value to their lives. In the past, that purchasing pattern created a tenuous sense of loyalty.

Now, companies are realizing that the speed of modern communication means their image can change within a matter of hours, along with the public’s perception of the brand. Papa John’s Pizza is a recent, powerful example. Sales dropped about 10% in July and August after reports that founder John Schnatter used a racial slur during a conference call.

“How we relate to the brand can change very quickly,” Gordon said. “One comment from the CEO of a pizza company, and how we relate to the brand instantly changes.”

Reed agreed that companies often think customers are coming back again and again out of loyalty when their purchasing patterns are nothing more than habit. And habits can change.

“Erik’s touching on something that I talk about a lot in my classes, which is the idea of not being fooled into thinking that repeat purchase is the same as loyalty,” Reed said. “Habit is a very different proposition from describing a situation where a loyal consumer feels like their values, generationally speaking or not, somehow align with the brand and then connect them in a deeper way.”

Age Is Just a Number

The professors caution against using the catch-all term “millennial” to define youth. From a marketing perspective, each of the younger generations is distinct and segmented. Millennials, roughly defined as those born between 1980 and 1996, hold different values, beliefs and desires from Generation Z behind them. Marketers must figure out what resonates with different age groups if they want their products to be enticing to them.

“Cadillac got revitalized, Marlboro got revitalized. Snickers revitalized. But it sure is not easy to do.”–Erik Gordon

“This word ‘millennials’ gets thrown around a lot, and marketers seem super-hot on this word,” Reed said. “I think the real analysis comes into diving into what are the cultural, what are the political, what are the value-based … kind of ideologies that exist within these generational groups that we can then potentially tap into, and try to make some statement with respect to our brand?”

Gordon said it “drives [him] crazy” when companies use data in unsophisticated ways, such as breaking down customers into the age category of 18 to 35. There’s a lot of variation within that group, he said.

“We used it because that’s the data we had on hand, but it’s also very superficial,” he said. “Is it really that they’re 23? Or is it that their life, their values, their social sense of self is the same? And if you’re an advertiser, if you’re a retailer, what you want to tap into is not that they’re 23, because they’re not going to be 23 five years from now. It’s enduring values or at least more enduring values.”

Repackage, Revitalize, Rebrand

Many legacy brands find themselves in the tough position of having to repackage their products to appeal to the next generation of consumers. Some have done so with spectacular success; others have belly-flopped into failure.

Oldsmobile, which is now defunct, is an example of that kind failure on a grand scale. Oldsmobile was a well-known brand of mostly large sedans that were popular with baby boomers who saw the cars as an affordable luxury. By the late 1980s, the manufacturer embarked on a quest to capture Gen Xers who were interested in smaller, sleeker cars. It debuted a commercial in 1989 with the tagline, “This is not your father’s Oldsmobile.”

“But if you actually are doing what you claim you’re doing, and you can get a few influencers on social media to believe that and propagate it, then it’s much more powerful than any ads you can run.”–Erik Gordon

The problem, Gordon said, is that the first commercials featured older-generation celebrities Ringo Starr and William Shatner. Younger consumers just didn’t get it.

“[The company was] deliberately trying to get folks to see Oldsmobile differently. It didn’t work at all, for a variety of reasons. One, it was ill-thought out,” he said. “This idea of revitalizing a brand — sometimes it works. Cadillac got revitalized, Marlboro got revitalized. Snickers revitalized. But it sure is not easy to do.”

Campbell’s Soup is another example of failure to re-launch. At the height of its popularity, canned soup was presented as a nutritious, economical and caring option for a parent to serve a child. The product motto was “Mmm, mmm good.” But subsequent generations are far more health-conscious and question why anyone would even want to eat soup out of a can.

“Think about it now,” Gordon said. “It’s still convenient, it’s still frugal. But functionally, is it nourishing or is it just a can of high-fructose corn syrup?”

Reed said re-branding is always a double-edged sword. When done well, it can reap untold rewards in customer loyalty. But it’s tricky. “The better that you’re able to create a very strong, clear image to people means that you have the likelihood of really connecting with them. However, changing that is very hard because now you’re asking them to believe something different that they have not believed, necessarily, for a very long time. That’s a hard proposition, but all great companies have to do that.”

Taking Up Space

Another challenge with rebranding is the ability for a product to take up mental space in the heads of consumers. Companies need consumers to have strong, positive associations with a product, like a comforting can of Campbell’s soup warming on the stove during a cold winter afternoon. A Gen Xer may have that memory, but the imagery doesn’t connect with a millennial or a member of Gen Z.

“A younger consumer is like, ‘I don’t have any of that in my brain. What now? If you’re going to tell me soup, I may not even believe that soup should be in a can.’ Now, you have a big problem,” Reed said.

Gordon said it’s helpful to think about brands as the space they take up in the mind. Consumers may not allow IHOP, for example, to take up space in the hamburger category if the restaurant has always been associated with pancakes. It’s the same reason why Toyota, Honda and Hyundai gave entirely different names to their luxury lines, creating a disassociation with their lower-priced cars.

But there is a way brands can push a modern mindset shift: social media. With the right kind of messaging, a brand can gain street credibility with younger audiences. Wendy’s Twitter account is a good example, the professors say. The messaging is humorous and engaging, sometimes satirical, which builds a fan base on social media. People want to be mentioned, recognized and even roasted by Wendy’s online.

“I think what social media does is potentially a nice mitigating factor for what Erik is pointing out here,” Reed said. “If we can be on these platforms and be relevant and be authentic and interesting and not gimmicky, maybe that’s a way that we can make [customers] feel that we can occupy that space in their minds, because we’re speaking their language in terms of them being digital natives.”

Authenticity is key, however.

“Consumers see themselves now as co-creators of the brand, not just active listeners who are told something, and that something is either believed or not.”–Americus Reed

“If you do it and you’re phony, it’s discovered in about 30 seconds and disseminated to every corner of the Earth,” Gordon said. “So, if you think you’re going to control the message, even if it’s kind of a semi-phony message, social media is going to kill you. But if you actually are doing what you claim you’re doing, and you can get a few influencers on social media to believe that and propagate it, then it’s much more powerful than any ads you can run.”

Stop, Collaborate and Listen

The professor said marketers need to pay closer attention to what’s important to younger consumers and pivot accordingly. That means listening and adapting rather than dictating trends and hoping they catch on.

Reed said if companies want to connect with next-generation consumers, they must respect their role as brand collaborators.

“Consumers see themselves now as co-creators of the brand, not just active listeners who are told something, and that something is either believed or not,” he said. “Now, they are part of creating what that brand stands for in terms of how they reinforce those sorts of things over social media, etc. They expect to be kind of in the C-suite with you and giving you feedback, reinforcing what you’re doing, helping you understand where you should course-correct and where you should keep doing things well. It’s going to be kind of a collaboration more than an end-consumer sort of relationship.”

Gordon thinks that’s a smart strategy because a consumer who identifies as a co-creator will defend the brand, making the company’s effort to build loyalty much easier.

“A co-owner of the brand will set you straight early on because they want the brand to succeed, and that’s what you want,” he said. “Contrast it to the ‘Mad Men’ days, where folks ran focus groups and they brought people in for an afternoon and talked to them and debated about stuff, and they thought they understood the customers. Now, we have this endless, 24/7 focus group. And it’s even better because we don’t control it with our notebook full of agenda and questions. To get the people to co-create things with us and to co-own it with us, that’s wonderful. That’s how you create something that’s really powerful and really enduring.”

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