The Hispanic Market: Key Considerations for Businesses

Whether you refer to it as the Hispanic or the Latino market, individuals from Spanish-speaking descent compose the fastest growing group of consumers in the United States. The current population of 42.8 million Hispanics in the United States has increased by 3.6% annually in each of the previous 10 years—outpacing the general population growth by over 3 to 1 (US Census, June 9, 2005).

When you consider the size of this market, you have probably wondered if your business is getting its piece of the pie. Maybe you recently realized that you are missing out on the enormous potential of this market and, as a knee-jerk reaction, began throwing money into campaigns marketing your financial products & services to the Latino market only to find that your products & services designed for non-Hispanics were not well received by the Latino population.

What changes have to be made to products and services to appeal to the economic preferences of Hispanics? How can a business create a customer purchasing experience that accommodates cultural idiosyncrasies? Once products & services and purchasing environments have been optimized, what are the most effective marketing and sales strategies for acquiring Latino clientele?

Each of those questions present critical issues to be addressed to effectively and genuinely serve this rapidly expanding market.

How big is the Hispanic market, and how much bigger will it get?

In 2006 Hispanic consumers will inject in excess of $700 billion into the United States economy—meaning that the average Hispanic spends just over $1,300 domestically on a monthly basis. Even in smaller states such as Utah, with Hispanic populations as low as 250,000, Latinos will still contribute well over $4.2 billion annually to the state’s economy.

Did you miss that? Yes, that was $700 billion nationwide, and $4.2 billion even in smaller states.

On that note, let us ask again, is your business getting its piece of the pie?

The current size of the Hispanic market in the United States is considerable, but the growth potential in coming years is even more impressive. Miguel Rovira, a state-level Director of International Trade emphasized that potential by comparing most urban areas in the United States to the Washington DC area. He stated that “Most of the US is like Washington DC was 20 years ago when the only Hispanic region was the Adams Morgan area with 1 Cuban restaurant. Then we started to see a population explosion. Today there are at least 23 Hispanic chambers of commerce in the DC area alone. We can expect the rest of the country to follow a similar pattern of growth.”

Projections indicate that Hispanic domestic buying power will continue to expand to over $1 trillion by 2010. Some individual states can expect to receive a disproportionate amount of that growth. While the population of Hispanics nationwide expanded by 3.6% annually during the previous 10 years, population growth in most Midwest and mountain states exceeded 7% annually. For instance, during the 1990’s in Colorado the Hispanic population grew by 118% (US Census 2000) and by 2003 Latinos in Colorado exceeded 9.9% of the total population (US Census 2004).

In addition to the general population growth of Hispanics, the higher rate of children in Latino households means that a larger portion of young consumers—a marketing department’s ideal long-term audience—will be Hispanic than ever before. The US Census projects that by 2017-2018 Hispanics will account for between 15%-19% of all high school graduates, which is a two-fold increase from current levels (2004, IPUMS Dataset).

Demand for Financial Services among Hispanics

Hispanics demand financial services at rates equal to or higher than the general population within the United States. Specifically, Latinos have a higher per capita usage of financial instruments such as auto loans, home equity loans, and personal loans.

Paradoxically, although Hispanics have higher than average usage rates of the aforementioned financial services, other services have significantly lower than average penetration among the Latino population. For example, in the United States less than 51% of Hispanics have credit cards and less than 65% have personal bank accounts. Additionally, high-cost sub prime mortgages accounted for more than 40% of Hispanic mortgages in 2002, compared with 18% for the general population (National Council of La Raza, 2005).

Clearly the opportunity exists to monetize on this market by providing the financial services in highest demand (auto loans, home equity loans, and personal loans) as well as providing the financial services that have not yet fully penetrated the Latino population (credit cards, bank accounts, and sub prime mortgages). In addition to those financial services, Hispanics have another financial instrument that plays an even more important role in their daily lives: international money transfer services.

The Bank of Mexico reported in 2005 that remittances—money sent from an individual in the United States to another individual in Mexico—increased by four fold from 1994 to 2004. The bank reported that over $16 billion was transferred to Mexico that year alone. However, this figure only accounts for money transferred through formal banking systems. Remittances through independent money-transfer agencies are not included. When considering money transferred by both banks and independent agencies, estimates of the total amount remitted to Mexico on an annual basis ranges from some $65 to $100 billion.

Financial services firms can find significant growth by effectively offering their services to the Hispanic population within the United States. Nonetheless, careful planning must be made to manage risk, to prevent default, and to appropriately accommodate the cultural idiosyncrasies of Hispanics. The following section of this article discusses three main areas in which businesses fail when attempting to do business with the Latino population.

Business stumbling blocks in penetrating the Hispanic market

When contemplating the Hispanic market many businesses fail due to three common pitfalls:

1. Delaying Entry to the Market
2. Advertising without other Preparation
3. Failing to Create a Comprehensive Plan

Although entering the Hispanic market poses challenges some companies have implemented comprehensive strategies with great success. Yvette Diaz, the former executive director of the Utah Department of Community & Culture, pointed to the example of Zions Bank. Mrs. Diaz stated “Zions has been a good example of creating a comprehensive plan to serve the Hispanic market. Their efforts include modifying their banking products (for example, a market leading finger scanning identification system for check cashing), hiring Hispanic-appropriate personnel, pursuing cultural and legislative priorities, and creating a culturally sensitive customer experience.”

Success does not have to be elusive. It simply requires business leaders to develop a solid plan and to make a genuine commitment to dedicating the necessary resources to this market. “Companies must recognize that the Hispanic market in Utah will continue to grow consistently, and therefore requires businesses to adopt a long-term strategy for penetrating that market” stated Mr. Rovira.

Delaying Entry to the Market

Businesses that delay entry to the Hispanic market obviously leave the door open for competitors to establish their brand and company as the perceived market leader among Hispanics. Because the Latino community operates in large part on a “word of mouth” and personal trust basis, the first companies to offer products and services gain a significant psychological advantage in the mind of Hispanics.

“Businesses cannot wait to pursue this market. Hispanics recognize and reward those companies that make the first or leading effort to serve their needs. Businesses that delay 3 to 5 years to begin pursuing this market will lack credibility and branding among Latinos and thus lose considerable ground to their competitors” stated Yvette Diaz.

Pursuing the Hispanic market immediately allows businesses to build a market-leading brand that enables them to capitalize and monetize on their products and services at an exponentially increasing rate that will follow the Latino population growth.

Advertising without other Preparation

Effective advertising and marketing is critical to any successful business venture—doing business in the Hispanic market presents no exception. Additionally, different ethnicities within the Latino population (i.e. Mexicans, Hondurans, Cubans, etc.) necessitate slight modifications to appropriately reach each distinct group.

“It is important to tell companies that part of the due diligence process requires them to recognize the difference between ethnic groups,” stated Miguel Rovira, “For instance, marketing to Mexicans is not the same as marketing to Puerto Ricans. Each group has its own idiosyncrasies in cultural and economic preferences.”

Advertising and marketing to Hispanics becomes ineffective when businesses fail to prepare in two ways: First, failing to diversify their campaign to accommodate differences among unique Hispanic ethnic groups; Second, failing to customize their products & services and their customer purchasing experience for the preferences of Latinos.

Instances of advertising without preparing for unique Hispanic ethnic groups takes on many forms. Translation and the selection of Spanish-language wording is one specific example. Some Spanish words have completely different cognitive and actual meanings to different Hispanic nationalities. For the sake of demonstration, consider a hypothetical English-based ad generated in London that contained the statement “This radar unit will help you detect the presence of a Bobby.” What is the radar unit used for? And what is a “Bobby”? Some US-based consumers may know that a “Bobby” is a British word for “policeman,” however, many would be confused by the use of an unfamiliar word, even in their own language.

The Spanish translation process should use nationality-neutral wording and should be reviewed by individuals from each targeted nationality. In addition to the translation process, businesses must consider technology penetration rates, channels for new product introduction, English usage rates, and other demographic characteristics that distinguish unique Hispanic ethnic groups.

The second area in which businesses may begin to advertise but fail to prepare is in product & service modification and purchase experience enhancement. In other words, businesses fail to identify which products and services to offer to Hispanics, how to brand and package those products for Hispanics, and how to create a customer purchasing experience that Hispanics would expect and prefer.

Companies that fail to go through this basic preparation process before advertising will simply not retain Hispanic clientele. For instance, you may recall General Motors comical attempt to market the Nova in Mexico in the 1970’s. Although this car was popular and well received in the United States, the attempt to market the vehicle in Mexico failed immediately as Mexican citizens laughed themselves silly when they saw the word “Nova” on a car—which in Spanish means “does not go.”

Failing to Create a Comprehensive Plan

Related to the need to prepare before advertising, is the need to create a comprehensive plan to penetrate the Hispanic market. Any good manager or entrepreneur would never open a new business unit without creating a solid plan covering basic areas including product & service selection, personnel requirements, public relations strategies, target customer identification, reporting and management systems, branding and marketing guidelines, and providing necessary financial resources.

Jaime R. Carlo-Casellas Ph.D. from Saludos Hispanos Magazine emphasized the need to create a comprehensive plan to venture into the Latino market. “At the onset of the venture, it is unlikely that an organization would have all of the required technical expertise to launch the venture. In the absence of such expertise, the organization should consider recruiting the services of Hispanic market consultants, a translation team and a group of facilitators to provide training and workshops for company staff on the activities associated with penetrating the market.” (August 16, 2006 4:30 p.m., http://www.saludos.com/saludosmagazine/saludosmagazine.html.)

Conclusion

Why have many businesses not pursued the Hispanic market with greater “ahinco” or zeal? Three erroneous beliefs have prevented concerted efforts from being made. First, a belief that the revenue increase from marketing to Hispanics does not justify the expenses. Second, the belief that market forces will naturally bring businesses their equal share of Hispanic customers. Third, inbred stereotypes that prevent business leaders from thinking about Latino customers in a normal way.

The information presented in this article has demonstrated the fallacious basis for each of the three aforementioned beliefs. We have illustrated the significant market contribution of Hispanics, the disproportionate population growth, and the need to accommodate cultural differences to attract and retain customers.

“Mainstream businesses don’t recognize the business impact of the Hispanic market. Many business leaders are simply not accustomed to thinking of the minority population in a normal way. Businesses that can see past inbred stereotypes recognize that the Hispanic population in the 1990’s grew four times faster than the regular population. These businesses see that this demographic will continue to expand disproportionately and they ask themselves, ‘How are we going to accommodate and penetrate that market?’” said Yvette Diaz, former executive director of the Utah Department of Community & Culture.

It is time for all financial services firms to not only seek to penetrate the Hispanic market, but to do so with a comprehensive plan that will ensure success. By working with Hispanic industry groups, consulting firms, and marketing agencies, businesses can access a degree of expertise that is lacking in almost every initiative to penetrate the Latino market.