Selling to Many Cultures — Within the U.S.

International markets have been increasingly important for many U.S. companies, and they are the assumed priority for future growth. Wal-Mart Stores Inc. is representative: In 1998 it obtained 6% of its revenue internationally; by 2008, international revenues constituted 25% of Wal-Mart’s much larger sales base. No growth-minded executive should argue against such initiatives.

But while many companies have plans to penetrate emerging markets like the so-called B-R-I-C nations (Brazil, Russia, India, China), too many continue to overlook enormous opportunities within the U.S. — such as growing ethnic markets. The combined African-American and Hispanic markets in the U.S. are larger than the economies of all but 13 countries, and more than 2 million people in the country speak Chinese. White people, 67% of the U.S. population in 2005, will represent less than half of the population (47%) by 2050, while Latinos will be nearly 30%, Blacks 13% and Asians 9% by then. What’s more, a 2009 Pew Research Center study indicated that one in five Americans will be immigrants in 2050 (versus one in eight in 2005), thanks to a foreign-born population that is growing at almost three times the rate of the overall U.S. population.

However, a superficial understanding of these data can lead to uninformed beliefs — and needlessly high costs — in selling to ethnic markets within the U.S. Our experience indicates that many current “multicultural marketing” efforts are both limited and limiting because they lump groups into broad categories that do not reflect actual purchase preferences and buying behavior. For example, the term “Asian-American” refers to a very diverse array of groups, and recent immigrants from Vietnam and India may not have that much in common when it comes to buying behavior.

Companies must go beyond gross demographic data in order to craft effective strategies for marketing to specific ethnic groups. What languages other than English do these customers speak? What are the countries of origin of different Asian or Hispanic groups in a given market, and what are the implications for your website, product literature, retail locations and other marketing variables?

Rewards for this type of analysis can be significant. After rethinking its initiatives, PepsiCo Inc. found profit opportunities in taking a sophisticated multicultural approach to its home market and existing product line. Targeted winners in the U.S. include guacamole-flavored Doritos chips and Gatorade Xtremo, both aimed at Hispanic Americans, as well as Mountain Dew Code Red, targeted to African-Americans. In 2009 PepsiCo continued this approach when it launched a marketing promotion related to the Diwali holiday in New Jersey, a state with a large and concentrated population of Asian-Indians.

Discovering opportunities such as these requires truly segmenting, not just partitioning, ethnic markets. Using only U.S. Census data is an example of partitioning a market based on easily accessible information and the selling company’s current product line. It reveals little about — and often obscures — important differences between various groups, such as Asian-Indian Americans and Asian-Pakistani Americans. Ironically, an executive posted to the Asian subcontinent would receive training about these differences, but the same company may ignore this cultural competency building in the U.S. In contrast, segmenting a market starts from understanding distinct values and buying behavior.

In approaching ethnic markets, too many companies are persuaded by external parties who have incentives to recommend broad, national campaigns and the budgets that accompany them. The danger is that national campaigns based upon general demographic data dilute resources and the ability to address differences in purchasing behavior within ethnic categories. More focused regional launches drive learning and are easier to test for quantifiable returns. For instance, nearly 40% of Asian-Americans reside in the Los Angeles, San Francisco, New York and Chicago areas. Why invest nationally when four metropolitan areas can offer a very meaningful initial market? Similarly, Asian-Indian Americans constitute a far larger percentage of U.S. healthcare professionals than of the country’s overall population, as some pharmaceutical companies discovered when they focused on the approximately 50,000 physicians who belong to the American Association of Physicians of Indian Origin (AAPI).

Another challenge is the need for better dialogue among corporate decision makers. Here, companies must overcome self-imposed barriers. Within large companies, so-called “political correctness” often dominates discussion of ethnic and racial groups. Fearful of being perceived as stereotyping, managers from outside an ethnic group often shy away from any generalization about those customers.

There are also overlooked assets within many companies. Employee network groups are an often-untapped source of information about purchasing preferences of target groups. And employees who have lived in both the U.S. and a country that has supplied a sizable number of recent immigrants to the U.S. can be important conduits for dialogue.

With the growth of China, India and other economies, U.S. companies should be investing overseas. But they should also broaden their understanding of marketing within the U.S. itself.