Reaching Out - A Special Report on Hispanic Direct Marketing
Hispanic Market Weekly
Published: March 14, 2005
The trend started when pharmaceutical companies gained permission to market directly to consumers, and took off like wildfire. Today, direct marketing permeates nearly every corner of the industry, particularly when it comes to the Hispanic market. Growth has been significant in the DM space, where everyone from major telecoms and financial services firms, to small and mid-sized product and service providers are speaking directly to the growing population of Latino consumers.
The trend started back in 1997, when pharmaceutical companies gained permission to market directly to consumers, instead of through doctor's offices and hospitals. It took off like wildfire since then, with direct marketing (DM) advertising today permeating nearly every corner of the industry, particularly when it comes to the Hispanic market.
The basic premise behind DM is simple: companies create advertising that is targeted to consumers, as opposed to businesses. Those efforts include television ads, print ads in consumer publications, direct mail and radio ads, to name just a few avenues. Growth has been significant in the DM space, where everyone from major telecoms and financial services firms, to small and mid-sized product and service providers are speaking directly to the growing population of Latino consumers. "We've seen exponential growth in the Hispanic DM market," says Humberto Freydell, president at New York-based direct marketing agency Directo Hispano. He estimates that together, new companies' spending on Hispanic DM and existing firms that expanded their efforts in this area, pushed spending up roughly 50 percent last year compared to 2003.
Although most involved in direct marketing point to continued growth, the industry is still in development and mostly experiential. The data and spending tracking vehicles already popular for television, radio, print and even magazine advertising are still not active for direct marketing, particularly in the Hispanic market. Freydell adds that financial services firms and non-profit organizations are leading the charge in the industry. One need only look to the overall direct marketing field for proof of the medium's attractive qualities. According to Vertis Retail Direct Marketing, for example, direct mail pieces alone drive 25 percent of recipients into stores, while 25 percent of adults who read direct mail have visited a store in the last 90 days - prompted by a retailer's direct mail piece.
Latinos are even more apt to respond to such contacts, primarily because they receive one-tenth the amount of direct mail that their non-Hispanic counterparts get. Michael Saray, president of Michael Saray Hispanic Marketing in New York and chairman of the DMA's Directo Council on Hispanic Marketing, says publishing firms are also jumping into the fray, using direct marketing to reach Latino consumers. "We're seeing an awful lot of new players using Hispanic DM," Saray comments. "While certain companies have been using DM since the 1990s, we've definitely seen an increased interest over the last year."
Playing the Game
For San Diego-based prepaid debit and credit card provider CardMartPlus, advertising directly to the Hispanic consumer is extremely important. That's because the firm offers a 2-in-1-card - one for the U.S.-based consumer, and the other for his or her family back home. Using a combination of Spanish-language ads in Hispanic media - including Peruvian and Colombian newspapers and in La Opinión in Los Angeles - as well as direct response infomercials alongside 30- and 60-second television spots, all backed up with a call center staffed with bilingual personnel, the company hopes to beef up the numbers of Latino consumers using its cards this year.
"We're using DM to reach out to the large group of non-bank users who lack the credit needed to get a traditional credit card," says Jeff Bazán, vice president of business development, who sees a larger number of firms using similar advertising strategies. "There's definitely a lot of interest there." Bazán says he's currently developing a national campaign and plans to spend about 80 percent of the firm's marketing budget on Hispanic DM, starting with a $150,000 test run in the San Diego market. "Once we have a clear message and can see our cost-per-acquisition, we expect to be spending about $1 million in our first year in the Hispanic market," says Bazán "That's not to say that if we see some great results we wouldn't bump it up and get greater reach."
Saray says the Direct Marketing Association doesn't break out Hispanic spending, but he insists that DM in general continues to grow at a rate of 8 to 9 percent annually. Right now, much of the growth on the Latino side is being driven by large financial services firms that are "calling all Hispanic agencies for help right now," according to Saray.
Among the key agencies handling this scope of work are Zubi Advertising, La Agencia de Orcí and Dieste, Harmel & Partners. "Having worked with Capital One, I know their DM spending is in the multi-millions," says Saray, who points to Columbia House, Reader's Digest and AOL Latino as other "heavy users" of Hispanic DM. Drawing them in, he says, is the pure accountability that the medium provides. Put $100,000 into a campaign, for example, and either get more than that back (in the form of ROI), or tweak your campaign and try again. "Direct marketers can clearly say, 'this campaign resulted in this much profit'," says Saray. "So anyone who continues using it is obviously making money on it. AOL Latino, for example, is mailing millions of CDs in different formats. To do that, the company must be getting some type of response."
Roger Arevalo, vice president and director of media at Sante Advertising in Phoenix, says similar efforts are playing out across the country as more firms of all sizes wake up to the $575.5 billion in buying power that the 43.4 million U.S. Hispanics possess, according to data from Synovate's Diversity 2004 Hispanic Market Report.
"Marketers are followers by nature, so when one does it, the rest tend to copy," says Arevalo. "It took the Proctor & Gambles of the world to say, 'okay, this is a viable medium, let's use it.' Then everyone else follows suit." Arevalo has seen it firsthand. His name makes him a moving target for any marketer looking to penetrate the Hispanic population with DM. "I get put on a lot of lists, so I get a lot of direct mail in Spanish," says Arevalo. Currently, he says that ads targeting "non-banked" consumers, pushing pre-approved car loans and selling wireless service and phones are the most prevalent.
Directo Hispano's Freydell points out that banks like Wells Fargo, MNBA and Wachovia are leading the Hispanic DM charge, followed closely by credit card providers Visa and MasterCard, insurance companies including Allstate and Aegon, and music sellers Columbia House and BMG. Driving those firms to put their ad dollars in the DM space, notes Freydell, is not only the realization that Latinos make up the largest and fastest-growing minority group in the U.S., but also that those consumers respond to advertising. "The average Hispanic household receives 20 pieces of direct mail annually, compared to 300 for the general population," says Freydell. "That alone presents a significant opportunity, not to mention the fact that Latinos are information-seekers who would like to receive more mail and more DM efforts. They don't think of it as junk mail, like many other consumers do."
Derene Allen, senior vice president at Santiago Solutions Group in New York, says the largest growth in DM comes from those firms that, by the very nature of their business, have direct contact with consumers. Retailers are one good example. "They see the consumer walking in their door every day, so they know who they need to communicate with," says Allen, who also sees manufacturers like PepsiCo testing the DM waters. "They're analyzing in-depth the Hispanic opportunity, whereas their previous efforts were much more lip service in terms of the importance of this marketplace," says Allen. "Now, they're actually digging into the information to see how to best service the Latino consumer, and what message they can create to best reach this customer. That's a significant shift from the past."
On the pharmaceutical front, Allen indicates that companies like Pfizer (Bravo), Schering-Plough (Reynardus & Moya), Johnson & Johnson (Casanova Pendrill), Ortho-McNeil (La Agencia de Orcí) and GlaxoSmithKline (WING Latino) are using DM to reach Latino consumers. Handling much of the business are agencies like Casanova Pendrill (Johnson & Johnson) WING Latino (GlaxoSmithKline) and Bravo (Pfizer). While the return on investment achieved by these efforts is not available. Allen says a quick analysis of investment levels over time by pharmaceutical companies reveals positive results. She indicates the pharma investment in Hispanic, as a percentage of overall advertising, grew from 0.6 percent in 2000 to 0.9 percent in 2003. Still, notes Allen, pharma investment levels in the Hispanic market are still extremely conservative.
DM in Action
Today's marketers are using a wide variety of DM mediums to reach the Latino market - from television and radio commercials to direct mail pieces and billboards. "Television is particularly powerful, says Arevalo, from Sante Advertising. "So is radio." Directo's Saray explains that direct mail is growing in popularity among Hispanic DM advertisers, particularly for financial services firms that are trolling for new clients. Direct response television (DRTV) advertising, with its toll-free phone number response mechanism, is also gaining ground, notes Saray, adding that the U.S. military uses such efforts on Spanish-language television stations.
Use of outbound telemarketing is another option, according to Saray, who points out that the number of Latinos who have signed up for the Federal Do Not Call list is "much smaller in proportion than the number of consumers overall who have opted out." While some marketers experience healthy returns on their DM investments, others come into the field with high expectations and are quickly disappointed by how long it takes to achieve those returns, notes Freydell, from Directo Hispano. After all, he adds, advertising is about building long-term relationships, not just selling one product. Marketers appear to be getting more creative with their DM advertising vehicles, using everything from Spanish-language websites to prepaid phone cards (equipped with telemarketing prompts) to door-to-door and even co-op advertising programs to reach their intended audience. Saray says marketers are also using DRTV on Spanish-language channels, thus following in the footsteps of successful marketers like Inglés Sin Barreras.
Shayne Walters, president of Carmen's Cupones y Consejos, a glossy direct mailer with up to 24 bilingual offers, explains that he's seen an increase in the number of U.S. firms wanting to use his company's direct mail program to reach Hispanic consumers. Walters found that 72 percent of Latinos say they open and read direct mail, 66 percent say they respond to it and 30 percent say they want to receive more of it. Carmen's Cupones y Consejos, in full color 6"x 9" envelopes, is mailed to densely populated areas, targeting Hispanic homes where there is a female, 25-40 years old, children under the age of 18, and an average income of $28,000 and above (HMW Archives 5/20/02. Building). So, for about 3.5 cents per household, companies like J.C. Penney, Vanity Fair, Gillette, America Online and even the U.S. Postal Service are reaching over 2.5 million households nationwide. According to Walters, the firms are seeing "significant ROI," with many increasing their sales volume to Latinos by 10-12 percent as a result of their direct efforts.
Looking To Score
Saray, who was previously president of Cartel Contacto, the direct marketing arm of the San Antonio-based advertising agency Cartel Group, indicates that the formula for Hispanic DM success is fairly straightforward: invest money in a campaign that targets consumers with a quality product or service that they truly need, and the returns will come. Both direct mail and DRTV are particularly measurable, with results tracked either through codes included on the direct marketing pieces, or via the telemarketing service that's handling the DRTV calls. "That's the beauty of direct marketing," Saray adds.
Allen, from Santiago Solutions Group, explains that getting those television viewers to pick up the phone and place an order depends heavily on whether flexible payment options are offered. Dividing the market into multiple segments, based on their numbers of years in the U.S., Allen says the "newcomer" who has only been in the country for a few years is less likely to pull out a credit card to make a purchase. Knowing that this newcomer will drive much of the population's growth over the next five to ten years, Allen advises marketers to break the credit card mold and find more creative ways to receive payment. "That could mean partnering with a firm that has a retail presence, where the consumer can go to either buy a money order or even pick up the product in exchange for cash," Allen suggests. "The DR marketer has to be a bit more creative," says Allen, "by forging a model that successfully reaches out to that 'newcomer' segment of the population."
The Agency Connection
At The Vidal Partnership in New York, Alberto Ferrer says client interest in the Hispanic DM space has grown steadily over the last three years. Most recently, the firm has been working with DirecTV's direct sales group, and using a combination of DRTV, direct mail and alternative media like Val-Paks - the coupon mailing service - to reach the Latino consumer. Other users of DM include Inglés Sin Barreras and a number of automobile manufacturers, all of whom are "catching on" to the strength of Hispanic DM. "The Hispanic market has been getting a lot of attention lately, and a high tide lifts all boats," says Ferrer, vice president and director of online and direct marketing.
Historically underdeveloped, the Hispanic DM market is attractive for several reasons, not the least of which are the ROI and accountability that channels like direct mail and DRTV can provide. As an increasing number of firms seek out ROI and accountability from their media purchases, Ferrer expects Hispanic DM use to expand. "Hispanics get a fraction of the mail that the general market does, and they actually read it," confirms Ferrer, adding that DM tends to work best for purchases that need extra consideration before buying. So while soap manufacturers may not use it, he says telecom providers and car manufacturers will.
According to Freydell, from Directo Hispano, several Latino agencies stand out in the DM world. Bravo is by far the largest, he says, with Vidal's DM group also claiming a portion of the business. Where those agencies are challenged, he says, is in finding qualified personnel to handle the account management, creative and production. "When you get brand-oriented people doing DM work, the frustration index rises very quickly," Freydell says. Expect that frustration level to rise as an increasing number of firms turn to direct means of reaching the Hispanic audience. While solid ROI numbers are unavailable, Freydell notes that the proliferation of programs is "an indication" of success.
"What agencies and marketers need to remember," he says, "is that Hispanic efforts must be flexible, and stated from the outset. It goes beyond break-even point." Take into consideration that most mailings are bilingual, that packages are the same size as in the non-Latino market, and that universes are far smaller in the Latino segments, Freydell points out. "So you lack economies of scale and efficiencies based on large volumes," he says. "Bring into your model lifetime value, a loyal customer who can become a brand advocate and is open to friend-get-friend and affinity marketing."
Affinity marketing includes e-mail promotions, banners or traditional media targeted at consumers and based on established buying patterns while friend-to-friend advertising promotions reward one "friend" for referring one or more friends, or relatives, to the advertiser. "What I'm saying," Freydell insists, "is that ROI, as other elements in the complex and dynamic Hispanic equation, must be seen in a more flexible light."
Jumping Through Hoops
The Hispanic market's youthful makeup is both a blessing and a curse for DM marketers, says Maria Almendáriz, director of new business development for U.S. Hispanic at Los Angeles-based In Clover Marketing. With a median age of 25.8 years (10 years younger than for the U.S. population as a whole), Latinos have more exposure to all types of media…and clutter. "They're bombarded by phone, internet and 77 Spanish television channels to choose from," says Almendáriz. "As a result, brand loyalties and preferences are being formed now among these young segments."
Standing out from that clutter takes a calculated approach. Those firms that produce culturally-appealing products and services, identify target markets by segments of the population and learn the formulas behind the media, payment processing and fulfillment of packages that apply to the Hispanic market, are finding the most success, Almendáriz notes. Dan Casey, executive vice president at Los Angeles-based WorldLink Media, remembers a time when a media buyer had two choices for Latino television: Univision or Telemundo. Now, to get a DM campaign launched on television or radio, marketers have their pick of the litter. "We're seeing a proliferation of Hispanic cable and satellite channels, many of which were already established in South America and moved separate feeds to the U.S.," says Casey. "There are a lot more options than there used to be."
Growing right along with those opportunities is the number of U.S. marketers targeting Latino consumers via DM. The proof is in the numbers, says Saray, who has watched the number of attendees at Directo's annual conference grow steadily over the last few years. Also growing are the number of calls that his firm receives each week from companies interested in getting a piece of the Hispanic DM pie. Freydell sees the numbers of marketers using DM growing exponentially over the next two years, as corporations like Ford, AT&T and Sears all take aim at the Latino consumer via DM efforts. Following in their footsteps will be the nation's small to mid-sized firms, eager to tap into the Hispanic market's buying prowess and growing size.
To effectively reach them, Freydell says marketers will have to focus on developing long-term relationships with multiple generations of Latinos, not just hitting them up for the one-time deal. "Hispanic DM provides an opportunity to advertise in a way that is personal and direct," Arevalo adds, "and that communicates in a language that is understood and is relevant to the Hispanic consumer."