2007 1st Quarter:

The Secret to Reaching the Thriving Hispanic Market

Hint: Sharpen Your Aim

The cold, hard truth is that even the most targeted marketing campaigns sometimes manage to miss their mark. Derek Dugan, creative strategist for Harland Marketing Services, has plied his trade in advertising for many years and, as a specialist in reaching the fast-growing Hispanic market, he offers a cautionary tale.

“One of my account managers—her last name is Gonzalez— had been receiving direct mail letters at home that were written in Spanish,” he said. “The problem was that she’s Irish and, although her husband is of Spanish descent, he’s fourth-generation American. Neither speaks Spanish at home.”

The letters ended up in the trash. Talk about throwing away marketing dollars! Yet as big business clamors after this desirable market, it is likely that more arrows will fall short of the bull’s-eye. Dugan would like to help banks and credit unions sharpen their aim.

A Huge Opportunity

Corporate America cannot be blamed for seeking the attention of this highly influential population. According to Dr. Karissa Price, director of corporate development at Lexicon Marketing USA, Inc., a leading provider of educational products to the Hispanic community, “At a time when the nation’s economy is stagnating, the U.S. Hispanic market is emerging as one of the most promising areas for growth.”

The statistics back this up. Research from HispanTelligence, a market research firm in Santa Barbara, Calif., reports that the purchasing power of the Hispanic market has grown more than 30 percent since 2001, reaching $768 billion in 2005. It is expected to surpass $1 trillion a mere three years from now. In terms of sheer numbers, Hispanics account for nearly 14 percent of the total U.S. population, and their growth is outpacing that of two other major ethnic groups: African-American and Asian.

However, advertising to reach Hispanics has not kept pace. For the past five years, Hispanic ad spending has remained fl at, at 2.3 percent of total U.S. ad expenditures, according to HispanTelligence. This suggests that significant opportunities exist for companies to capture a greater share of this burgeoning market. Indeed, if advertising dollars are viewed purely as a percentage of purchasing power, then companies would have to shell out four times what they currently allocate for the Hispanic market, just to match what they spend overall on advertising at a national level.

Dugan witnessed this firsthand. “I recently gave a talk to 32 financial marketers, some with credit unions but most from community banks, and everyone wanted to reach out to the Hispanic community,” he said. “Yet only three were actually doing it, and only one in a way I’d recommend. I don’t see many financial institutions making this a strategic focus.”

A Complex and Elusive Market

So how should financial institutions go about making this population a strategic part of their marketing plan? The first thing, according to Dugan, is to recognize that this market segment is possibly the most misunderstood and difficult to reach. Being Hispanic or Latino means identification with one of 25 different nationalities from Mexican (the largest sub-segment, comprising more than two-thirds of U.S. Hispanics) to Venezuelan (among the smallest).

Hispanic Origin Chart

“Each has its own dialect and customs that may differ greatly from one another,” Dugan said, adding that many families are multi-generational, which is yet another complication in terms of marketing. “You may have 10 people in a household, from children to seniors, some of whom are new immigrants and others who have lived here many years, and they all have different needs,” he explained. “So simply mailing out a bilingual postcard is not the most effective way to reach out to this particular market.”

Financial institutions must analyze the local demographics of their branch locations, because some areas are experiencing greater growth than others. Although the Hispanic population is highest nationally in California, Texas and Florida (in that order), certain cities are undergoing very rapid growth. These emerging Hispanic markets include Charlotte, Atlanta, Nashville, Raleigh and Indianapolis. Following close behind are Minneapolis/St. Paul, Salt Lake City, Seattle, Baltimore and Boston.

Banks and credit unions also must determine if they are trying to reach immigrants and first-generation Hispanics, who might not be fluent in English, or the second or third generation, who were born here and thus are likely more assimilated.

Once a decision is made to pursue this market, Dugan recommends a few rules of thumb. “One of the best ways for financial institutions to reach the Hispanic market is not to position the bank as a product-pusher, but rather as an educator about the products and services that fit their needs,” he advised. This is particularly true for reaching new immigrants, who may be less familiar with the U.S. banking system. Yet Dugan pointed out that the real growth is coming from second- and third-generation Hispanics.

Banks should tailor what they offer to the recipient’s degree of acculturation. For example, prepaid debit cards are popular among newly arrived first-generation Hispanics. Savings accounts and credit cards may appeal more to the second and third generation. And third-generation Hispanics may want more information on mortgage and insurance products. If the materials include artwork, Dugan stressed the importance of recognizing culture— for example, by using photos depicting Hispanic people. This is especially important in multigenerational households, where the material may be shared among several family members who have different degrees of acculturation.

Do Your Homework First

When targeting Hispanics, financial institutions need not only think about the “what,” but also the “how,” meaning the logistics for reaching them. “One of the biggest mistakes is not paying enough attention to mailing lists,” Dugan said. Remember Ms. Gonzalez, the non-Hispanic who received those direct mail letters in Spanish? The problem was a bad list.

“Using last names alone won’t work,” Dugan said. If a bank or credit union plans to purchase a list, he recommends asking the vendor the following questions:

  • Where does the data come from? Good list vendors should get names from a combination of verifiable sources including one-on-one research, magazine subscriptions, and information captured on loan or credit applications. The list should take into account such factors as length of time in the U.S. and predominant language spoken. “There have been significant advances in list sourcing over the past decade,” said Dugan, who recommends using a vendor that specializes in the Hispanic market. Financial institutions also can capture much of this information when accounts are opened—for instance, how does the accountholder prefer to receive bank communications, and in what language—and then create their own internal databases.
     
  • How is the data managed? Data should be updated at least quarterly. “Once the data is collected, it’s already 30 to 60 days old,” Dugan said. “And it might be another 90 to 120 days before the pieces mail.”
     
  • Has the list been tested? Find out how well the list has performed in the past. “Look for what’s known in direct mail as ‘lift ,’ ” which Dugan explained is an increase over a baseline response rate. “You also want a ‘clean’ list, and one that isn’t being used time and time again.”

Translating from English to Spanish can be another stumbling block. “Avoid vendors that use translation soft ware,” warned Dugan. And although most financial institutions feel it is okay to use generic “classroom” Spanish, it is worth considering the benefits of translating into the local dialect used by the specific nationality they are trying to reach, whether Mexican, Puerto Rican, Cuban or Dominican. “It’s more expensive,” Dugan said, “but it’s more in tune with how Hispanics speak with one another, so it may connect better with the reader.”

Dugan believes that the first step for any financial institution wanting to go this route is to do a detailed needs assessment to clarify bottom line issues, such as why they want to market to Hispanics, whether they have done this before and, if so, what were the results. Then, it is vital to do a customized market analysis to identify local demographics.

“The trick to improving direct marketing results,” Dugan said, “is to do your homework first.”