Friday, January 24, 2020

Demographics is your destiny

In a short break from my recurring posts on innovation building blocks (see articles on innovation bias, finding important unsolved problems and discovery and exploration) I was motivated to write today about demographics and destiny.  As a person who really enjoys understanding how the future will unfold, there are few more important trend lines and signals than demographics, yet far too many companies ignore the clear signals that demographic change indicate.

Of course, to understand what any trend tells you, you and your team must be gathering and interpreting trends.  Some trends are easy to see - what's the hot toy for Christmas this year?  Other trends emerge over several years.  New technologies take a few years to gain traction and cross the chasm to the majority of users.  Other trends are always in motion, moving at a somewhat more glacial pace, but arriving with the destruction and reshaping force of a glacier.  Demographics is one of those more glacial trends that you should be paying more attention to.

The lesson of Oldsmobile

In the good old days of the automotive industry, GM had a product for every segment and buying population.  You might start with a Chevrolet, and then move to a Buick and eventually to an Oldsmobile or Cadillac.  This was a graduated strategy, moving early buyers to more sophisticated and higher end brands.  Eventually, it also had to do with age.  Older people graduated to the more stately Oldsmobile and status symbol Cadillac.  A car for every age and stage.

But what happens when new entrants (BMW, Mercedes) and new causes (green, ecofriendly) and new rationales (grandkids) happen to your target audience?  European and Japanese "luxury" automobiles competed for a slice of Oldmobile and Cadillac's business and market.  Today, most of my elderly friends and relatives seem focused on ecofriendly cars - the Prius and others are often a car of choice.  Plus, many older buyers are moved to buy minivans and SUVs to cart their grandkids around.

These social and demographic trends (luxury, ecofriendly, family pressures) have led to the demise of Oldsmobile and cause a radical rethinking of Cadillac's branding.  Now Cadillac offers ads that tells you that your posse needs to roll in a Cadillac.

But what also killed Oldsmobile and damaged Cadillac was demography.  Their potential buyers aged out or passed away, and Oldsmobile failed to capture the next generations - the Boomers and the Gen Xers - who might have followed their parents to buy Oldsmobiles and Cadillacs. Except, of course for the fact that Oldsmobiles were their parent's cars, and were for older people.  Boomers and Gen Xers rejected the brand, partially because of the branding, fit and finish and positioning of the cars, and partially because their generation had different goals and needs.

The population implosion of Russia and Japan

If you want to see the power of demographics at work, look no further than Russia or Japan.  While many think of Russia as a powerful force in the global economy, Russia is on track to shrink in population by close to 30% over the next 30-40 years.  Russia currently has a population of about 144M people, and with the existing immigration rates and birth rates, that population is anticipated to fall to 130M by 2050.  Few people are migrating into Russia, many are migrating out, and the birth rate is below the replacement rate and has been for years.  Russia as a country will soon face very dire demands for care for its elderly, and only demands for oil will keep the Russian economy afloat.

Japan faces the same dire challenges from demography.  Japan limits immigration and it is aging rapidly.  The Japanese have a higher standard of living than the Russians, so the elderly will live longer and demand more resources from the state.  Both Russia and Japan face a rapidly aging population with few younger people to support the aging population or replace retiring workers.  This is demographic change you can watch, witness and predict.

What demographic and societal trends should we be paying attention to in the US?

Thanks to immigration our country is still growing in population.  Currently, we are just at the replacement rate (births versus deaths).  We have a radically changing population, however, which should influence products and services that are created now and in the near future.

The generations that built our current economy - the silent and the greatest - are rapidly leaving the scene.  These generations are represented by people who are today over 75 years of age.  Their wants, tastes, attitudes, perspectives and more were formed in the Depression, World War II and the aftermath of the war.  Even the boomers are starting to age.  The oldest boomers are now in their early 70s and many will be leaving the workforce and their consumption will decline.

This means that Gen Xers and Millennials will create the environment for new products and services.  It is important to note just how different these generations are from their parents and grandparents.  They are:
  • more exposed to and more tolerant of different races, religious beliefs, etc
  • more exposed to more opinions and more media
  • far more experienced with information, information technologies and social media
  • far more willing to share information publicly
  • far more experienced with international travel and work
  • far more diverse themselves as compared to their parents and grandparents
  • far more educated than their parents and grandparents
All of which will lead to different needs, different expectations and different demands for products and services.

While other generations witnessed a lot of change - think about the change someone born in the 1930s in rural America has seen over the lifetime - the pace of technological change, of societal change and of government change in the US in just the last 15-20 years has been even more dramatic.  Thus, we are losing generations of the population who were accustomed to stability and sameness over time, and our markets and governments are increasingly full of people who are used to dramatic, rapid change on a near constant basis.

These social and demographic changes have impacts for your products and services

It should come as no surprise that these demographic and social changes will have a real impact on your products and services.  The good news is that some of the demographic segments are large - the Millennial generation is a large cohort and will be in consumption mode for quite some time.  The challenging news is that their wants, tastes, habits and expectations are pretty different from their parents and grandparents, and those differences are more fickle than before.

For example, Millennials will need homes, just like other generations did, but are probably more likely to rent longer, and buy smaller homes in more urban settings than their parents.  They will need clothes, but will be much more likely to buy and consume online rather than in stores, and use and discard clothing far more frequently than their parents and grandparents.

I don't know all of the implications - this is why you need to do the work of sorting out what trends are going to emerge, what expectations and needs will emerge and what importance these emerging generations place on products and services.  I only know that they will resemble their parents's needs and wants, but will not replicate them.  Understanding these subtle differences is what will separate the winners from the mere survivors.  As Twain said and I frequently write - history does not repeat but it does rhyme.

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posted by Jeffrey Phillips at 6:54 AM


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