Think Multicultural

(a condensed version of this blog was run on MediaPost’s EngageHispanic on 2/4/10)

One of the principle reasons I decided to enter the world of Hispanic advertising was to bring a more rigorous and data-driven analytical approach to what I viewed as the unsophisticated and heuristic nature of some of the most important decisions made in our industry. While our industry has come a long way, including the omnipresence of account planning and the growing and rich field of Hispanic direct response, there is still one very important process that has managed to move forward, year after year, according to the same simplistic approach: the allocation of Hispanic marketing budgets.

As anyone who has ever worked at an agency or media/publisher will tell you, overall marketing budgets typically come down from the “heavens” (i.e. the C-suite) with little input from outside marketing professionals. However, how those overall marketing budgets are allocated across markets, products/services, and marketing mix elements is typically a joint exercise between the client, their agencies, with some occasional input from select third parties such as consultants, media and publisher partners.

Yet, more often than not, the decision as to how much to invest in Hispanic advertising is made heuristically or worst yet, simply handed down as the “scraps” of what is left after general market and other lead agencies lay their claims. As the AHAA (Association of Hispanic Advertising Agencies) Right Spend report has been chronicling for years, advertisers have failed to allocate the minimum recommendation of 8% (based on Hispanic population and buying power alone) of their advertising budgets to the Hispanic market. While each industry and company will ultimately invest varying allocations to the Hispanic market based on their particularly situation, the aggregate 8% AHAA benchmark indicates that on average companies are under-investing in the Hispanic market.

So how much of an advertiser’s marketing budget should be allocated to the Hispanic market? The more relevant question is how should companies, together with their agencies partners, approach the question of budget allocation? A decision as important as how much to invest in the fastest growing minority group should be based on more than “rules of thumb” or an after-thought exercise of pooling left-over resources. I suggest that budget allocation models should be used, and that marketers gradually use more sophisticated approaches based on increasing availability of data.

As I’ve alluded to so far, most companies use simple heuristics, or rules of thumb, such as allocating marketing budgets based on some arbitrary percentage (e.g. 5% of total marketing resources) or a bottoms-up decision rules approach (e.g. determining desired awareness or reach /frequency levels, and then backwards calculating required marketing spend). Instead, I recommend using the two-part marketing allocation approach described by Harvard Business School’s Gupta and Steenburgh “Allocating Marketing Resources” (2008) paper that initially models demand and then uses those estimates as an input into an optimization model to determine appropriate allocations across the marketing mix. Without getting too academic, Gupta & Steenburgh suggest modeling the demand that will be created, or how much additional Hispanic consumer sales will be generated by an increase in Hispanic marketing resources (i.e.demand elasticity.) There are three ways to model this Hispanic demand:
1. Option 1 – Statistical Models: when historical figures for Hispanic market sales and marketing expenditures are available, the impact of Hispanic marketing activity on sales can be modeled using a demand function. This is the best option, available to companies with recent experience marketing to Hispanics
2. Option 2 – Experiments: When there is a lack of reliable, recent data on Hispanic market sales/marketing activity, companies can undertake experiments to gauge Hispanic consumer response to new marketing activities. This incremental approach allows companies to use small test initiatives to model out expected results from larger-scale initiatives.
3. Option 3 – Expert Judgment: When past data is not available and experiments are not feasible, companies should use the managerial judgment and experience of their Hispanic agencies to forecast Hispanic sales

While the data-based approaches of Options 1 & 2 provide the most accurate models of Hispanic demand, use of any of the 3 approaches will provide companies with an excellent starting point to model Hispanic demand, and therefore determine proper Hispanic marketing budgets. As opposed to taking a passive approach to Hispanic marketing, these models provide companies the basis for a proactive approach to the Hispanic market based on the bottom-line return on investment they will reap from their marketing investments. The next step is to optimize a Hispanic marketing budget among the growing marketing mix of elements ranging from promotions, to direct response, to branding and across vehicles such as TV, digital, radio and out-of-home (a topic for another day!)

So back in November I posted a critique of ad agency Web sites, prompted by the heralded launch of Lopez Negrete’s (a prominent Hispanic ad agency) new Web site. Besides a single comment on the post criticizing me for throwing stones while living in a glass house (I never claimed my agency’s Web site was a case study to be emulated), I heard that a lot of folks in the Hispanic ad business were not happy with my post.

I’d like to take this opportunity to clarify and further explain the point of my post, which seems to have been lost on the example I used.

I recently read somewhere that there are 75,000 different ad agencies in the U.S. Most of them were started before 2007 (a key “dividing line” in my mind between when digital was considered just merely a vehicle (pre-2007) and a disruptive technology that upended everything we know about marketing and communications (post-2007)). Therefore most agencies are not what I would call “digital natives” – firms that inherently understand and have integrated digital communications into their “DNA” (to use a hackneyed agency term). This lack of digital focus / DNA is particularly acute among ethnic ad agencies, especially Hispanic ad agencies.

Now my post was meant to start a discussion around this very important issue – are ad agencies, and Hispanic ad agencies specifically, truly ready to embrace the new central role of digital in what they do for their clients? I recently wrote an AdAge article claiming that they are not, and the Web site example that prompted my original post was simply meant as living example of this gap between where agencies need to be and where they currently are.

Don’t get me wrong – I believe deeply in the importance and increasingly important role that Hispanic ad agencies play and will continue to play in the ad industry. I want to see our industry evolve, grow, and prosper. Understanding and truly embracing digital is no longer a nice bullet point to include in a new business pitch – it’s the difference between thriving and being left behind in this rapidly evolving industry. I want to see my Hispanic marketing colleagues thrive!

If you’re in the ad business, you’ve no doubt read about the big social and digital media programs launched by the tax preparation giants TurboTax and H&R Block.

AdWeek published an article on their large, integrated, and ambitious social media programs.

Missing from all the buzz is any mention of Hispanic digital media or social media programs. Particularly H&R Block, who is using the Web and social media to answer consumer questions and create an “educational” halo around their service and brand.

Seems like a perfect platform to extend to the Hispanic market through social media, as tax preparation is usually more of a long term relationship based on education and trust in the Hispanic market. Screams social media to me…