Connecting with Generation Y

They’re still young, but their importance to your firm’s future is undeniable. Does your firm know how to connect with this influential demographic? By Ehab Samy, Senior Product Manager – Pivotal CRM, CDC Software

They’re young, they’re tech-savvy, and they’re critical to your firm’s future. “Generation Y” (also known as “Millennials” or “Echo Boomers”) is the group of individuals born between 1982 and 1995, and they’re the largest generational group since the Baby Boomers, 75 million stong. Though they are still in their teens and early twenties, their buying power is growing rapidly. In fact, their earnings are expected to go up by 85% within the next 10 years and will outstrip their parents’ earnings by as much as $500 billion.

Generation Y is a group financial services firms can’t afford to ignore, not just because of the wealth and business they represent, but because they’re different. As the first generation to grow up in an age of computer and Internet ubiquity, their attitudes, behaviors, and expectations are different from those of their elders. Financial services firms that assume the same approaches and strategies used with prior generations of customers will work with Generation Y may be in for a rude awakening – one that could be expensive to rectify.

Who Is Generation Y?

“Gen Y” has grown up in the dazzling age of multimedia and the Web – or at least, dazzling for those to whom it was new. For Gen Y, it’s the norm. Much has been made of the short attention span that reportedly characterizes Gen Y, but the simple fact is that this is a generation of immediacy. Gen Yers have since birth had a vast array of information and entertainment at their fingertips, accessible instantly. A certain amount of impatience with sluggish responses or overly complex processes seems a fairly predictable result.

Other Gen Y traits that are particularly relevant to financial institutions are this group’s tech-savviness, practical-mindedness, and social consciousness.

According to the results of a survey of more than 1000 people conducted by Deloitte and Harris Interactive, 45% of Gen Yers cite their own research as their top influence in making financial decisions, and not surprisingly, most used online tools as their top research method. Perhaps more interestingly, a far larger percentage of Gen Yers than of any other generational group were likely to rank family recommendations as their top influence. Gen Y is also practical, valuing simplicity and likely to base decisions on price, rather than brand. Finally, Gen Y is civic-minded and may consider an institution’s social consciousness in evaluating its products and services.

Building a Relationship with Generation Y

The desire to connect with Generation Y poses new challenges for financial services firms. For one thing, Gen Y is skeptical of much traditional marketing and may be difficult to reach with traditional approaches such as product-focused marketing. This necessitates a more relationship-focused approach that may require significant changes in process and culture for some financial services organizations.

To build these relationships, financial services firms need to reexamine and refine their customer relationship management (CRM) systems and strategies to ensure they meet the higher demands of Generation Y. Gen Y routinely uses a wide range of tools and methods to communicate and engage with others, including cell phones, texting, instant messaging, blogging, podcasts, social networking sites, and more. This opens up a wide array of channels financial services firms can use to reach Generation Y, but it also introduces broader multi-channel complexity in managing interactions with these customers. Generation Y has high expectations of its financial services providers, and to meet these expectations, firms need to provide a seamless and consistent customer experience across channels and accommodate the simultaneous use of multiple channels. To achieve this, firms really need to step up their use of CRM to ensure they effectively record and apply the knowledge gained in every customer interaction and coordinate customer “touches” effectively.

Generation Y has also grown up in a culture of individualism and self-esteem promotion, raised with constant reaffirmation that each person is special. As a result, generic mass-marketing, even tailored to the Generation Y demographic, is unlikely to move them. Personalization is thus an important pre-requisite to connecting with Generation Y. This again necessitates much more sophisticated use of marketing automation and CRM: firms need to be able to collect deep customer information and apply it skillfully in multi-variant, multi-channel contextual communications. Simply using the customer name in an e-mail subject line or salutation is not enough.

The Challenge of Retention

In addition to being challenging to win as customers, Generation Y is the most difficult generation yet for financial services firms to retain over the long term. Notoriously fickle, Gen Y customers are less likely than other groups to be loyal to a single brand – even one they like. Financial firms have their work cut out for them in terms of keeping Gen Y customers.

Again, this Gen Y trait demands a new level of customer relationship management. Financial services firms need to shift from communicating and interacting with customers when and how it suits the firm to more customer-driven interaction, using event-based triggers, tracking and responding to milestones such as college graduation or home purchase, and building up an ongoing dialogue with Gen Y customers that is more tailored to their behaviors and preferences and personalized down to the individual rather than simply demographically segmented.

Furthermore, the challenge of retaining Gen Y customers highlights the need for financial services firms to implement adaptive systems and infrastructure. If Generation Y is characterized by fickleness and lack of loyalty, it is a safe bet that this group’s behaviors and preferences will change over time. If financial firms implement rigid systems and processes that are difficult and time-consuming to modify, they will find themselves always a step behind with this changeable customer base. Rather, firms need to look to implement flexible systems that help them both detect changes in customer patterns and respond to them with new messages, products, services, and engagement styles.

If this sounds complex and costly, it can be, and it is true that given Generation Y members’ current youth, the costs of connecting with them may outweigh the rewards in the short term. On the up side, Generation Y is more likely than other generations to consider purchasing additional products and services from their bank or brokerage, meaning their lifetime value and up-sell/cross-sell potential is very attractive.

Furthermore, Generation Y exerts unprecedented influence over their parents’ choices as well, indicating that by winning over a Gen Y customer, financial firms may gain multiple follow-on customers. Finally, it should not be overlooked that many of the trends and attributes of Generation Y are simply the vanguard of behaviors and preferences that are spreading through other generations as well. Generation Y may be the early adopters of social networking, for example, but this mode of interaction is having an increasing impact within Generation X and older groups. All of these factors indicate that it is a worthwhile investment for financial services firms to invest in methods to reach and retain Generation Y, building a relationship now that can grow with them into the future.

Ehab Samy is a senior product manager at CDC Software responsible for Pivotal CRM for Financial Services, a leading customer relationship management product line. To learn more, visit www.pivotal.com/financialservices.