Commentary
Moving Beyond The Hispanic 'Right Spend' Argument
- by Jose Villa , Columnist, November 3, 2011
If there is a concept older than the abuelita in the Spanish language TV spot, it's the argument marketers are not investing enough in Hispanic advertising and media – that they haven't reached the mythical "right spend" figure. Right spend is usually defined as the percentage of a marketer’s 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, which started publishing annual reports on the right spend in 2002.
According to the latest AHAA report the right spend number is 14.2%.
In its 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 five-year period. While I applaud AHAA and the research and analysis of Santiago Solutions Group for evolving the right spend argument, they still arrive at the same result – a single number. It is a range of 6.4 - 14.2%, if you take their two top spending categories. Their analysis implies this to be the right investment level for most U.S. companies.
I think too much emphasis is being placed on this one single right spend number. My biggest concern with the emphasis on the figure is how it’s calculated and what it measures. First, right spend – as calculated by AHAA – focuses on paid media spend on largely above-the-line Spanish language media tracked by Nielsen. That includes cable, spot television, local radio, national magazine and local magazine. The calculation not only ignores digital and direct response media – where Hispanic marketing investments are historically focused – but fails to consider the other two pillars of the POEM model: Earned – PR, grassroots, events, social media, etc.; and owned media – in-store, point-of-sale 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.
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 decisions.
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 understanding 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 your Hispanic ad 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 points. The underlying concept is to start with controlled market tests, utilizing very 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, and channel strategy, among others, are 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 down and dirty decision making around Hispanic investments well beyond this starting point figure.
The other critical missing pieces that keep getting left out of this argument are the disparate costs of media, and language/acculturation stratification.
Hispanic CPPs tend to be lower, but the CPMs can actually be much higher, meaning that even allocating 14%-16% of your budget to Hispanic can leave the market underserved in some instances - from a purely numerical standpoint.
Additionally, Hispanic marketers usually try to avoid the messy questions of crossover exposure among acculturated or 2nd/3rd generation Hispanics. Unfortunately, the impact of an existing GenMkt campaign on the Total Hispanic can't be consistently quantified, since the creative in each campaign would have to be analyzed on a case-by-case basis. In other words, there will probably never be a "right" number that fits all advertiser, nor should there be.
I don’t completely agree with AHAA’s approach to “right spend”. However, “right spend” is a critical tool for all U.S. marketers. True U.S. Hispanic experts have a broader understanding of this tool than the way the industry in general speaks about it today.
The “right spend” conversation should not result in one-size fits all number. Enabling the interpretation that all entities should allocate 14.2% of their overall investment to reach U.S Hispanics is dangerous.
Marketers must correctly define the value U.S. Hispanic consumers to their business. Above all the “right spend” calculation is a “demand based” model and its result will vary by category and brand. The calculation itself forces marketers to put the value of U.S. Hispanic consumers in the context of their overall business.
Marketers need to think about how both mainstream and targeted media work together to truly engage U.S. consumers who happen to live in a mainstream and Hispanic context. We are nurturing a narrow definition of “right spend” as the percentage of a marketer’s advertising and marketing budget devoted to reaching U.S. Hispanics via targeted U.S. Hispanic media. But really the exercise makes the marketer define the total percentage allocation before dividing it into mainstream and targeted media.
Marketers need to clearly define their situations before setting objectives and embarking on planning. The “right spend” calculation must never be used in isolation of market conditions, product life stage and competitive circumstances. The formula results in a guideline spend that can be adjusted up or down for the brand’s particular situation.
The idea of “fairshare” or “right spend” existed for quite some time before AHAA commissioned and published its first “Right Spend” study. Institutions such as McDonald’s Corporation and P&G have been working with allocation formulas and models since the eighties. It’s a critical first step for marketers from which objectives, strategies, tactics and measurement will flow when conducted correctly.
Jose, you have made some very valid points. We completely agree with you that the results of the AHAA Budget Alignment Study should not be misinterpreted as a magical threshold for all companies regardless of brand equity, product relevance, value, distribution, customer experience, etc. In fact, we want to clarify that we have not emphasized a single "right-spend" number in our report for the same reasons you identify - rather, we only indicated that, thus far, our findings have found indisputable evidence that allocation directly and positively impacts revenue growth among marketers who consistently apportion more than 14.2 percent to Hispanic marketing.
To that end, we acknowledge that advertising allocation is just scratching the surface of the total Hispanic marketing mix, and that other critical marketing elements also are at play. Now that we have found sound proof of the relationship between Hispanic advertising allocation and overall corporate growth, we want to use this report as a springboard to expand our study to include the various paid and non-paid marketing disciplines you describe and explore what range of investment and integration move the corporate needle.
Over the next year, AHAA is committed to further tests, forums and research with more data partners to broaden the base of original variables in order to shed more learnings with member firms and marketers - both statistical findings, as well as best practices like some of the ones you mentioned. We invite you to form part of this discovery, as we continue to build a solid and irrefutable case for companies to increase their Hispanic marketing spend to the fullest potential.