Many companies underspend in Hispanic Segment
Dana James
Marketing News
March 11, 2004
Summary
Despite results from the 2000 Census, many companies still invest in the Hispanic consumer segment at levels that are below what at least one industry organization recommends.
Results from the 2000 Census were supposed to be a clarion call for marketers to get serious about the Hispanic market. Yet many companies still invest in this segment at levels that are below what at least one industry organization recommends. Companies that do not reallocate resources to target this market risk eventual extinction, warns Aida Levitan, co-chairman and CEO of Miami-based Publicis Sanchez & Levitan and president of Association of Hispanic Advertising Agencies (AHAA).
"There's still too many advertising decision-makers who are not really familiar with key facts about the Hispanic market," she says. "They're hesitant to enter a market they don't know well."
There's no one right way to calculate how much to spend against the Hispanic consumer market, and approaches can range from the systematic to the instinctive. Firms that rise to the challenge and ratchet up their Hispanic marketing spending will often determine budgets based on tried-and-true measures, such as demographics in key markets, advertising exposure and effectiveness, product category consumption, sales data and test market results. Still, at a time of shrinking budgets and marketing departments, event he most enthusiastic marketer may need to gradually increase his spending goals and budget allocations, rather than try to catch up to the growth in the Hispanic market in one year or two.
Elusive results
Even for those companies that are investing heavily against these consumers, maintaining increased budget levels for the developing Hispanic market can be a challenge because results are often elusive. Some companies will have to be creative in the way they calculate ROI — such as relying on distributor delivery information — and perhaps get comfortable with no concrete measures at all.
"If a marketer is underspending against the Hispanic consumer, it means that the company is severely overspending for lesser dollar usage among non-Hispanic households," according to Carlos Santiago, president of Santiago Solutions Group, based in San Francisco. "Companies need to exploit these opportunities that are being underserved by their competitors."
The Hispanic population is growing at a rate of more than 4% a year — 14 times faster than the non-Hispanic white population. Moreover, while Hispanic buying power lags behind that of non-Hispanic consumers, their disposable income is expanding 60% to 70% faster than sheer population growth, with yearly gains of 7.3%, according to Santiago Solutions Group.
A paltry sum
Yet advertisers spend only an average of 3.2% of their measured media advertising resources targeting Spanish-dominant and bilingual U.S. Hispanics — well below the 8% recommended as an appropriate average spend level for goods and services targeted for these consumers, according to research from McClean, Va.-based AHAA. A 54-page AHAA study, "The Right Spend II: Marketing Allocation Levels to Optimize Spanish and Bilingual Hispanics' Purchase Behavior Across Major Hispanic Markets," released last spring, uses a formula devised by Santiago Solutions Group to calculate recommended spending levels, which vary by the market and product category. One extreme example: Brand managers peddling diapers in Los Angeles should put 94% of their ad resources into Hispanic campaigns.
There's no one right way to calculate spending levels, with marketers relying on an array of measures. But experts recommend that companies adopt some type of systematic approach to stay one step ahead as the Hispanic market evolves and grows. Many marketing agencies focused on the Hispanic market — the AHAA Web site (www.ahaa.org) offers a partial list -- can help companies decide on measures and approaches.
Just part of the story
Gleaning Hispanic demographic data in target markets is an obvious starting point. But Santiago cautions that the share of Spanish-dominant and bilingual Hispanic households in a market is only part of the story: Marketers must also delve into product consumption habits. Depending on the product category, Hispanics may have much higher consumption levels than non-Hispanic households. For instance, Hispanics spend more than $ 204 per household member annually on poultry, compared to more than $ 137 per household member for non-Hispanics, according to the Food Marketing Institute.
Companies should also measure Hispanics' exposure to media advertising. But even beyond exposure, experts recommend that marketers focus on advertising effectiveness among the target group. They explain that consumers who are bilingual and exposed to English advertising may still prefer to get messages in Spanish.
"There's a myth out there that Hispanics can be reached through English advertising, (that) Hispanics who are young and have money speak English, so there's no need," says Levitan of the AHAA. "But research from Roslow Research and Simmons" — two research firms that track advertising effectiveness among Hispanics — "has demonstrated time and again that Hispanics can be most effectively persuaded if communicated to in Spanish."
Another factor to consider during the budget process is the Hispanic population's sales and volume contribution. Meg Bernot-Rodriguez, senior vice president and managing partner for Bravo Group, a New York-based Hispanic communications agency, says that some companies — in telecommunications and retail, for instance — can produce that data themselves through the sales department. Others can conduct research or test markets to obtain sales and lead information, Chivas Regal, the White Plains, N.Y.-based whiskey maker, commissioned custom marketing research to determine how much of its total sales volume was coming from the Hispanic population. Another company, Long Beach, Calif.-based Molina Healthcare of California, faced a shrinking broadcast advertising budget with a small-scale 13-week test of its broadcast advertising efforts in the California market. The test pinpointed Hispanics as the segments that generated the most and highest-quality leads.
More than one path
While many marketers will gather and synthesize a variety of data sources to calculate the right spending, it's not the only path pursued by companies. Some companies even let their Hispanic marketing programs drive spending levels.
Howard Lefkowitz, president of the city destination Web site Vegas.com, based in Henderson, Nev., says, "I have a certain belief in market research, but I also believe in gut instinct and common sense and doing it the right way." He said he didn't want to simply pay lip service to this critical population, the fastest growing segment on the Internet. Fourteen months ago, he launched a major initiative to have the entire Vegas.com site translated (by people, not computers) into Spanish. The site (www.espanol.vegas.com) launched in early September and is supported by Spanish-language advertising and Spanish-speaking customer support professionals.
Vegas.com's marketing budget is in the "millions of dollars," and he estimates that the Spanish Web site and marketing effort comprises 20% of that spending.
Previously, Vegas.com channeled no money into the Hispanic market. "It was more expensive and it took longer than we originally thought, but because it was done the right way, I believe it will pay off," Lefkowitz says.
But of course, not all marketers will have top-level support and expandable budgets. And so, once marketers calculate an appropriate amount to spend against the Hispanic market, the next step is to secure the dollars -- a formidable challenge at a time when companies' resources are likely to be thin.
A systematic approach
Experts agree that a systematic approach is key to getting approval for greater Hispanic market spending. "Once companies have something laid out using a more systematic approach, it increases their comfort level in what they're spending in the market," says Bernot-Rodriguez.
But, marketers may have to consider a strategy of ramping up their objectives and dollars gradually. "Most companies are uncomfortable doing a quantum leap," Santiago explains. "If you're going from 2% to 10%, that 8% needs to be 'stolen' from another brand."
He suggests that marketers present a proposal in which resources and objectives are scaled up over time -- "so (the increase is) bite-size rather than quantum," he says. "Also, throughout time, this gives the company an opportunity to be convinced that they're accomplishing their objectives."
Finally, the best way to sell the idea of increasing the Hispanic marketing budget is to demonstrate the potential return on investment. For example, Chivas Regal, through its research, found that 40% of its sales volume was coming from Hispanics. "That was a key finding for us," says Saul Sola, brand manager for the whiskey product.
For its part, Molina Healthcare shifted all broadcast advertising dollars out of the general media and into Hispanic outlets, because the market tests showed that quality leads from the Hispanic vs. non-Hispanic segments were greater by a ratio of 3-to-1.
'Nothing like results'
"When you see where the leads are coming from, it becomes a very sellable argument to senior management," says Janice Hopkins, Molina's associate vice president of marketing. "There's nothing like results."
Because the market is still developing, however, traditional metrics may not always be in place, putting pressure on marketers to be more creative in their arguments.
Chuck Tryon, director of ethnic food sales at Minneapolis-based General Mills Inc., notes that getting Hispanic marketing initiatives off the ground in the last year was easy because targeting Hispanics is central to the company's growth strategy. "The more difficult thing, and what a lot of package food companies have difficulty with, is keeping (those initiatives) going," Tryon says.
One of General Mills' recent strategies has been to import popular ethnic food products from Latin America to sell in ethnic food stores in the United States, but most small ethnic outlets do not have scanners to capture results. Instead, Tryon's department asks distributors to track deliveries to small ethnic stores. His team also relies on ACNielsen data, which captures some Hispanic consumer information from retailers in Hispanic areas, and on custom qualitative research that gauges brand awareness among target groups.
Says Tryon: "We're living in a world where results will be less precise, and I think for large companies that is the hardest thing: to make decisions and continue initiatives without those precise numbers."
Copyright © 2003 American Marketing Association / MarketingPower Inc.
