Moving beyond the Hispanic “Right Spend” Argument
November 3rd, 2011
Posted by Jose Villa
If there is a concept older than the abuelita in the Spanish language TV spot it’s the argument that marketers are not investing enough in U.S. Hispanic advertising and media – that they haven’t reached the mythical “right spend” figure. Right spend
is usually defined as the percentage of a marketers advertising and marketing budget devoted to reaching U.S. Hispanics. Most of the research and discussion around the right spend issue has been spearheaded by the Association of Hispanic Advertising Agencies (AHAA), who started publishing annual reports on the right spend in 2002.
You may be wondering what the right spend
figure is? Well, according to the latest AHAA report the number is 14.2%.
In AHAA’s latest report – “Advertising 2011 Budget Alignment” – AHAA reframes the right spend argument from the perspective of return on investment – performing regression analysis on Nielsen Hispanic media investment data to quantify the correlation with a company’s overall revenue (over a 5 year time period). While I applaud AHAA and Santiago Solutions Group (the research company commissioned for the study) for their analysis and evolving the right spend argument, they still arrive at the same result – a single number (or a range of 6.4-14.2%, if you take their
two top spending categories) that is implied by their analysis to be the right investment level for most U.S. companies.
Fundamentally, I think too much emphasis is being placed on this one single right spend number. My biggest concern with the emphasis on the right spend figure is how it’s calculated and what it measures. First of all, right spend, as calculated by AHAA, focuses on paid media spend on largely above-the-line (Cable & Spot TV, local radio, national magazine, and local magazine) Spanish language media tracked by Nielsen. The calculation not only ignores digital and direct response-oriented media (where historically a lot of Hispanic marketing investments are focused), but fails to take into consideration the other 2 pillars of the POEM (Paid, Owned, Earned Media) model – earned (PR, grassroots, events, social media, etc.) and owned media (in-store, POS activations, Websites, content marketing, etc.). It focuses only on paid media, a perspective that I feel is dated and unrepresentative of the entire spectrum of marketing activities taking place in the U.S. Hispanic market. Equally important, the logic for arriving at most of the right spend figures I’ve come across is overly very simplistic and flawed – the idea that advertising expenditure in the Hispanic market should be pegged to Hispanics percentage of the U.S. population (around 14%).
More importantly, I think the right spend figure is being improperly applied to individual firms and the decisions they should make. At its core, right spend is a macro measurement, that attempts to paint a picture of the entire U.S. Hispanic advertising market. Much like the field of economics, applying macro analytical tools to micro firm-level decisions is inappropriate. In a market-driven economy, individual firm decisions are influenced by macro-economic conditions, but not solely driven by them. Therefore, treating a right spend figure as a benchmark to be applied directly by individual firms is inappropriate.
So if economy-wide right spend figures are not to be used by marketers as a direct benchmark, what is a Hispanic marketer to do to determine the right advertising spend in this space? I would argue that individual firms should move beyond right spend and apply a toolbox approach to this very important decision. Below are four options much more appropriate for individual firms to consider:
Budget Allocation Modeling (Demand-based modeling) – As I discussed in a blog post last year, an effective analytical tool for determining Hispanic marketing budgets is to model 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).
Incorporating game theory – Game theory provides a valuable analytical framework for firms to evaluate competitive forces. Basically, it involves thinking through what your competitors will do based on various choices (in this case Hispanic advertising investment levels). Game theory can provide useful input, leveraging competitive investment data, to determine a firm’s potential Hispanic advertising spend.
An agile, option-based strategy – For new entrants into the Hispanic market, I often recommend an iterative, option-based strategy that will guide the right spend decision. This basically involves drawing up a series of incremental investment levels based on the successful achievement of milestones at each decision-point, or option point. The underlying concept is to start with controlled market tests, utilizing highly actionable data to guide success. In a recent article I fleshed out this agile approach in the context of Hispanic social media programs.
A total business approach – Building on the fact that the right spend calculations fail to consider the totality of investments in Hispanic marketing beyond paid media, determining the right Hispanic investment level for a company involves looking well beyond marketing. Particularly for new entrants into the Hispanic market, making sure you take a total business approach, considering product development, customer service, channel strategy, among others, is critical. Therefore, the right spend calculus needs to consider much more than marketing expenditures.
Right spend analysis, as it’s been developed to date, is a good starting point for companies trying to evaluate how they should invest resources in the U.S. Hispanic market. We just have to be careful to move the complex decision making around U.S. Hispanic market investments well beyond this starting point figure.
(an edited version of this article originally ran on MediaPost’s Engage Hispanic blog on 11/3/2011)
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