The Right Spend II

Marketing AllocationLevels to Optimize Spanishand Bilingual Hispanics’Purchase Behavior AcrossMajor Hispanic Markets

SPRING 2003

Last year, the Association ofHispanic Advertising Agencies(AHAA) released “MissedOpportunities:Vast CorporateUnderspending in the U.S. HispanicMarket.”This study concluded thatfor maximum effectiveness corpora-tions should be allocating a mini-mum of eight percent of their totalnational marketing budgets to theSpanish-dominant and bilingualmarket. It also revealed that amongthe top 50 leading Hispanic adver-tisers, current spending targetingHispanics across all categories isapproximately 3.2 percent of nation-al budgets — well below the eightpercent threshold.

Due to overwhelming interest inthe first study,AHAA released thefirst installment of “The RightSpend: Setting Your Budgets to BestReach the U.S. Hispanic Market.”This study analyzed media usage,consumption data and populationdata to recommend appropriatespending targets by product categoryacross all U.S. markets.

This current study “The RightSpend II: Marketing Allocation Levels toOptimize Spanish and BilingualHispanics’ Purchase Behavior AcrossMajor Hispanic Markets”, builds onthe data from AHAA’s previousstudies and defines marketing alloca-tion levels for Spanish-dominant andequally bilingual Hispanics acrossspecific industries and categories. Itfurther expands on data fromAHAA’s earlier study by providingmarket specific spending targets forthe key 5-10 Hispanic DMAs.

The ‘Right-Spend’ allocation lev-els in this study should serve as ageneral initial guide towards thedevelopment of a final, total nationalallocation. Internal factors such ascustomer lifetime value, profitability,price nature of brand (premium ordiscount price), market share relativeto competitors, awareness of brandattributes vs. general market, anddistribution or service barriers,among others, should be consideredon a case by case basis.This study’sresults represent a category-widebenchmark tool for the appropriatepercentage of total corporate mar-keting dollars in a given categorythat should be targeted to Spanish-dominant and bilingual Hispanics.

This research is commissioned,conducted and released by theAssociation of Hispanic AdvertisingAgencies (AHAA).The data wasgathered and analyzed at the requestof AHAA by The Santiago SolutionsGroup (TSSG)2, in-culture marketstrategists. Since its founding in1996,AHAA member agencies havebeen leading the advertising industryand working with corporations todevelop innovative strategies that sellproducts, build brands and foster arelationship between Hispanic con-sumers and corporate America.

AHAA’s goal in studying the rightspending levels for leading productcategories is to better help corpora-tions allocate their total nationalbusiness and marketing resources toachieve maximum return for share-holders.

BackgroundThe 2001 Census (CPS) reconfirmed that the Hispanic

population is growing 14 times faster than the non-

Hispanic white population. Hispanics comprised half of all

new consumers between 2000 and 2001, with natural

growth contributing the majority of the 1.7 million annu-

al population increase. Hispanic income is also expanding

60-70 times faster than sheer population growth.1

Findings

Food➤ Hispanics overindex in consumption of

most food categories, requiring resourceallocations well above their actual repre-sentation of Spanish/bilingual house-holds.

➤ To reach Spanish-dominant and bilin-gual households across top Hispanicmarkets commensurate with existinghousehold food consumption budgets:

• Instant coffee and yogurt com-panies should direct about $1out of every $3 in resources.

• Fast food, tomato sauce, potatochips, margarine, and ketchupproducers should direct $1 in $5of their resources.

➤ Frozen entrees appear as an underdevel-oped category requiring at least 11 per-cent of budget in key Hispanic DMAs.This is still much higher than actualspending by leading food companies.

Beverages➤ In the top 10 Hispanic markets, beverage

categories require an investment closerto the actual representation (17%) ofSpanish/bilingual households.

➤ Regular soft drinks (19%) slightly over-index diet soft drinks (14%) suggestinghigher allocation priority for moreefforts of regular sodas vs. diet.

➤ Beer consumption (19%) requires aninvestment slightly higher than that ofwine and liquor (both 15%).

Below are the summary

findings per category for

the key 5-10 Hispanic

DMAs. To see full data

charts by category and top

Hispanic markets, please

visit www.ahaa.org.

Findings

Personal Care Products➤ Hispanic households use more health

& beauty care products than non-Hispanic households and requireresource allocations for sales, market-ing, advertising, promotions, public-relations, events and sponsorships 50-100 percent higher than their actualrepresentation of Spanish/bilingualhouseholds in those markets.

Children’s Products➤ Hispanics’ consumption of children’s

products is obviously driven by thehigher presence of young children inHispanic homes. Just to stay in thegame with equal share of market andto deliver continued volume growth,children’s products urgently call forallocations much higher (100-350%)than the actual representation ofSpanish/bilingual households, or up to$1 out of every $2 spent on market-ing.

General Merchandise➤ Categories like athletic shoes and jeans

require allocations 50 percent abovetheir representation of Spanish/bilin-gual households.To reach this levelspending should be close to $1 inevery $4 of resources.This level ofspending should jump-start successfultrends that spread throughout thecountry in the largest urban centers.

➤ Household supplies and cleaning prod-ucts, a key to attracting high frequen-cy/high spenders to warehouse clubsand discount retailers, are other exam-ples of categories where Hispanicsoverindex the rest of the population.This requires allocations, about 50 per-cent higher than their representationof total market households or $1 outof every $5, for optimum developmentof retail, multi-channel and customerservice strategies.

➤ To maintain dominance in the trendyconsumer electronic gadgets andaudio/music devices, it is necessary formanufacturers and retailers to assignallocations much higher (70-100%+)than the Spanish/bilingual representa-tion of overall households in majormarkets.

Telecommunications➤ Nearly half (45%) of telcos marketing

budgets including DRTV, customerservice and telemarketing resources,should be directed at Spanish/bilingualHispanics in the top 10 HispanicDMAs.

➤ As with many price competitive tech-nologies, wireless penetration andusage is increasing among Hispanics ata very rapid rate.This offers opportu-nities to accelerate the development ofcategories, like wireless, by leveragingprior loyalties of Spanish/bilingualHispanics and migrating them to”one-stop” combined telco servicesincluding long distance, local, wireless,DSL, etc.

Insurance➤ Until the recent upswing in Hispanic

home ownership (already on par withAfrican Americans), insurance has beenan under-developed category, relativeto the Spanish/bilingual households.While investment rates are slightlybelow household totals, these invest-ments require significant increases overcurrent rates.

➤ Other parts of the insurance industrysuch as life and health insurance areripe for additional investment andremain underdeveloped.

Automotive➤ Family-friendly mini vans, pick-up

trucks and entry level (but hip) com-pacts warrant 25-50 percent higherallocations than the household share ofSpanish/bilingual households in thetop 10 Hispanic DMAs.

➤ “Right-Spend” levels for other carclasses are slightly below their popula-tion shares but show momentumopportunity among a rapidly expand-ing ‘New Latino/a’ middle class.

Specialty Retail ➤ “Right-Spend” levels fall quite closely

to the number of Spanish/bilingualshare of households.This is significant-ly higher than the current dismal allo-cations which are well below the 3.2percent national average of all cate-gories and markets.

➤ “Right-Spend” allocations by specialtyretailers targeting Hispanics isabsolutely critical for sustainable salesand margin increases.

Banking➤ “Right-Spend” levels for banking

products are about 25 percent belowthe top 10 Hispanic DMA’sSpanish/bilingual share of total house-holds. Still, banks should be allocating8-13 percent of total resources to thismarket.

Investment Services➤ “Right-Spend” for financial invest-

ment services is still generally 50 per-cent below the Spanish/bilingualhousehold share, largely due to unad-dressed cultural misperceptions andunfamiliarity of the U.S. system.However,“Right Spend” levels forsome investment products in somemarkets (particularly Miami) are ashigh as 20-30 percent of totalresources.

Travel and Entertainment➤ Domestic and foreign travel “Right-

Spend” levels are about 40 percenthigher than Spanish/bilingual house-hold share in top 10 markets or about$1 in every $5.

➤ The “Right-Spend” level for othertravel and entertainment categories isat or slightly below the populationshare.

➤ The “Right-Spend” level for state lot-teries is 40 percent above theSpanish/bilingual household share orabout 23 percent of marketing budg-ets.

Implications➤ Shareholders deserve consistent topline

growth from companies that have highcompetencies in understanding and fullydelivering to the needs of the fastest grow-ing consumer segment of today and tomor-row — Hispanics.

➤ A new resource allocation paradigm is wayoverdue to effectively align marketing andadvertising investments based on a perhousehold potential revenue and profitcontribution, current and long-term.

➤ To achieve profitable GROWTH in bothsales and margins, corporations have littletime left to take this market opportunityseriously and become experts with the U.S.Hispanic consumer.

➤ Smart competitors in underdeveloped cate-gories will seize the closing window ofopportunity and move aggressively toachieve market leadership.

MethodologyConsumption data in a wide variety of cate-gories for Hispanics and non-Hispanics werecollected from publicly available and syndicateddata sources: Arbitron/Scarborough, Inc.3,Simmons Market Research Bureau4, NielsenMedia Research and the U.S. Census.

AHAA measured the consumption as house-hold penetration or annual dollars spent perhousehold in each of the Hispanic and non-Hispanic market segments. ConsumptionIndices for up to 14 markets were developed.

These indices were then multiplied by aMedia Language Factor.This factor, based onNielsen Media Research survey data, is basedon the portion of Hispanic adults who say thatthey speak Spanish predominately or thosewho speak Spanish and English equally.

The Consumption Index and the MediaLanguage Factor in each market were multi-plied by the percentage of Hispanic householdsin each market as per Nielsen Media Research.

The final result represents the appropriatepercentage of advertising dollars in a given cat-egory and in specific markets that should betargeted to Hispanics.

➤ The Hispanic market’s current size, formation of largerhouseholds, heavy concentration in the top, youngest, trendsetting markets in the U.S., accompanied by their speedywealth creation, and high consumerism are at odds with theneglect of investment across most categories. It is imperativefor U.S. marketers to reanalyze and immediately adopt newchanges to ways in which they have historically divided-upcorporate marketing resources.

➤ Due to population concentration of selected key 5 or 10DMAs and often already higher consumption than non-Hispanic households, the proper “Right-Spend” level is farabove the share of Spanish-dominant plus bilingual speakingHispanic households in those markets.

➤ The recommended “Right-Spend” levels demonstrated inthis study are significantly higher than the average of 3.2percent that leading Hispanic advertisers have historicallyspent against the Hispanic market.

➤ To create an effective model of resource allocation thatmaximizes per household investment throughout all cus-tomer touch-points, marketers must take into accountamong other data:

• the proportion of Hispanic households as it relatesto each markets’ total households;

• the portion that is Spanish-dominant and bilingual;and

• consumption levels of individual product categoriesby language preference.

➤ As is true on a national level, if a marketer is severelyunderspending against Hispanics’ current spending habits ina particular market, then the company is severely over-spending among non-Hispanic households.

➤ Hispanics’ product usage is currently underdeveloped andripe for immediate revenue growth and shareholder returnsif corporations allocate resources in-line or higher than“Right-Spend” levels.

Conclusions

1 Selig Center2 The Santiago Solutions Group, Carlos Santiago, 415-206-9318

www.thesantiagosolutionsgroup.com3 Arbitron/Scarborough, Inc., Stacie de Armas, 310-824-6613

www.scarborough.com 4 Simmons Market Research Bureau,Tom Morrison, 954-427-

4104 x103, www.smrb.com

Footnotes:

8201 Greensboro Drive, Suite 300 • McLean, VA 22102 • 703-610-9014 • 703-610-9005 fax • E-mail: info@ahaa.org • www.ahaa.org