In Part 1 of this series, I discussed The Reciprocity Theory and introduced the need for brands to be purpose-driven. In Part 2, I discussed the foundational human behavior that underlies the purpose economy. In Part 3, I discussed what we can learn from technological revolutions. And, here, in Part 4, I’ll discuss the socio-economic evolution that we’re seeing coming from this latest technological revolution.
The Trouble with Millennials…
The trouble with Millennials is that their behavior and consumption habits may not be “just a phase”.
Young adults are increasingly likely to have lower incomes. ~2.1M more twenty-somethings, and ~300K more thirty-somethings lived with their parents in 2013 than did in 2007 – Even though many are now employed. Real median household incomes among 25 to 34-year-olds dropped 8% between 2007 to 2012 (-7% for 35 to 44-year-olds).
Meanwhile, student loans have driven up consumer debt burdens. Share of households aged 25 to 34 with student loan debt increased 13% between 2001 to 2010 (from 26% to 39%). 16% of these households have $50K+ student debt (more than tripled from 5% in 2001). Average credit score for Fannie Mae-backed mortgages rose from 694 to 751 between 2007 to 2013, while scores for FHA loans rose from 640 to 693, respectively.
It’s a bit like watching Maslow’s Hierarchy in action. 49% of 18 to 34-year-olds say they have taken a job just to pay the bills. 35% have gone back to school – likely racking up more debt. 24% have taken an unpaid job. 24% have moved back in with parents. 22% have postponed having a baby, and 20% have postponed getting married.
Seems a bit like lower order, coping behaviors to me.
So, how is this generation coping? Let’s go back to the technological revolution lifecycle discussed in Part 3 of this series.
The Collaborative Economy
Until recently, this revolution has been disrupting the technology industry itself – industries with an information technological core, such as devices and media. But, today, it’s about disrupting industries that do not have an information technological core –industries such as transportation, education, hospitality and retail.
We see this today in the Collaborative Economy, which is a peer-based movement that empowers individuals to get what they need from each other. For example, Etsy empowers people to design and sell their own craft products. Kickstarter empowers people to fund an array of projects – including new products and businesses – through crowdfunding. Airbnb empowers people to earn extra income by renting out everything from a spare room to a living room couch. Uber enables drivers to earn a better income, empowers anybody to earn an income driving others, and provides a better transportation experience to customers that need a ride. Indeed all of these companies deliver exceptional experiences, amplified by their underlying cause (or purpose).
This trend is leading to a new definition of freedom for teenagers and young adults. Millennials are buying 2 million less cars per year in the U.S. – down 10% since 1985. And, this is a global trend. Per a study conducted by the University of Michigan Transportation Research Institute, “The percentage of young drivers [is] inversely related to the availability of the Internet.” Why buy a car that’s going to sit unused in a parking lot most of the day when you make less money than previous generations and have so much access to rides via companies like Uber and Car2Go in the moment of need? Plus, cars used to be a way for teenagers to gain some independence from their parents and to see and connect with friends. Now they can escape and connect with their friends on their mobile devices. Freedom and the smartphone are becoming synonymous.
The Great Shift to a Post-Capitalist Society.
Peter Drucker, “the founder of modern management”, anticipated an age where we would generate more value with our minds than with our muscle, and described the rise of “knowledge work”. Three decades later, Drucker became convinced that knowledge is a more crucial economic resource than land, labor or financial assets, and that we were headed into a “post-capitalist society”. Think about this: with robotics and genetics converging, Darwinian human evolution will no longer be about strength, but rather, about intelligence.
Now ask yourself this: how do you measure intelligence when our entrenched education system is disrupted, and knowledge is democratized?
Information is now readily available and at your fingertips. From all the world’s information organized and available in Google, to niche information like restaurant and hotel recommendations in Yelp and TripAdvisor. All this information is available anytime you need it on an ad hoc basis.
More companies are going to offer on the job education and training via their own personalized universities, just like Intel and GE do. Go to your company’s university for a couple days to learn strategy or corporate finance or operations. Then, head back to work on Monday morning and implement what you learned.
It’s worth calling out some of GE’s language too: “individual excellence and collective progress.” Sounds a lot like the individual and community inter-play from The Reciprocity Theory.
In their 1998 HBR article and book, Joseph Pine and James Gilmore introduced the concept of The Experience Economy. They argued that experiences had emerged as the next step in the progression of economic value, and that the next competitive battleground lied in staging experiences. They illustrated this history of economic progress through the evolution of the birthday cake: in the Agrarian Economy, mothers made cakes from scratch, mixing farm commodities (flour, sugar, butter and eggs), each costing mere cents. In the Industrial Economy, moms paid a dollar or two for Betty Crocker premixed ingredients. In the Service Economy, parents ordered cakes from a bakery or grocery store, which at $10 or more, cost 10x as much as the packaged ingredients. In the Experience Economy, parents “outsource” the birthday event to Chuck E. Cheese’s, the Discovery Zone or some other business that stages memorable events for the kids. And, they spend tens, if not hundreds, of dollars to do so.
Pine and Gilmore defined four realms of an experience, based on two key dimensions: Participation and Connection. Participation can be defined as Passive or Active. Passive Participation would be akin to symphony-goers who experience the event as observers or listeners. Active Participation would be where customers play a key role in creating the performance or event that yields the experience. Connection can be defined as Absorption or Immersion. In Absorption, customers absorb the event/experience that is happening in front of them. In Immersion, customers and their senses are immersed in the experience that surrounds them.
The intersection of these dimensions creates the realms – Entertainment, Educational, Escapist and Esthetic. Entertainment experiences involve Passive Participation where the customers are absorbing the experience. HBO is a brand that clearly plays in this space. Educational experiences involve more Active Participation, but customers are still absorbing the experience. SXSW festival and other trade shows and conventions play in this space. Escapist experiences involve Active Participation and Immersion. These are experiences like skiing, running, hiking or even 3-D gaming. GoPro is a great example of a brand that caters to Escapist experiences. Esthetic experiences involve Immersion, but Passive Participation. Think of Virgin America, which immerses you in young, fun, music-oriented experiences from the moment you check in throughout the flight to the moment you step off the plane. But, you as a customer, don’t have actively participate in creating that experience. You’re merely consuming it.
Generally, the richest experiences find a sweet spot encompassing aspects of all four realms. This early notion of the Experience Economy combined with Apple’s famous success and as experience oriented, design-driven company has proliferated the movement towards the Experience Economy that we now fully live in. I would argue that The Purpose Economy is the next evolution in this trend.
In the next and final post in the series, I’ll discuss Business Transformation and provide a framework to guide business leaders and, in particular, marketers how to adapt and evolve.