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The Enrollment Challenge

Retirement readiness decisions are a daunting task for most employees. According to a 2012 Participant Engagement Study conducted by Lincoln Financial:

  • 41 percent of employees are only somewhat engaged or fully disengaged from any retirement plan
  •  7 percent of employees only are fully engaged and interact with their retirement plan on a regular basis.

Plan communication and education can provide people with the financial knowledge needed to better understand their employee benefits and make better enrollment decisions to achieve better outcomes.

Communication Is Key

The U.S. Employee Benefits Security Administration’s ERISA Advisory Council published a key report in 2010 on how plan communication practices and design options impact participation and contribution rates. They researched strategies for tailoring communications to different subgroups of employees through direct communication, and their effectiveness in influencing participants of diverse demographic market segments, including segments categorized by income level, household status, generation, gender, and ethnicity.

The report then provided recommendations of best practices for enrollment that are statistically proven to be effective, including education to plan sponsors on specific proven techniques and communication practices. In evaluating what communication methods are most effective in encouraging participants to save for retirement, the following considerations were made:

  • Cost: an effort was made to balance the need for comprehensive plan communications against cost.
  • Delivery: A variety of methods were explored including the use of current and emerging social media.
  • Plan Design: The study reviewed how plan designs relate to increasing participant enrollment and savings. In particular, the Council studied the use of automatic features. Automatic enrollment plans automatically choose the employees’ contribution percentage and enroll the participant in an investment vehicle. This raises participation rates to close to 90 percent. However employees enrolled at low contribution rates of 3% or less tend not to deeply consider or increase their contributions.

bestpractices

9 Recommendations and Best Practices

The Council found that effective plan communication and education can provide people with the financial knowledge needed to understand their employee benefits, make better financial decisions, and achieve better outcomes.

Given that the most successful plan communications make use of many channels from print to external websites, online tools, social media, and creative marketing, the Council highlighted best practices that balance personalized, targeted content to help employees evaluate benefit offerings with cost efficiency. They highlighted specific techniques and communication practices that have been statistically proven to be effective in increasing the involvement of employees in saving for retirement. The following are 9 recommendations:

  1. Communications tailored to particular segments drive results
  2. One-on-one or small group meetings increase participation
  3. Immediate “on the spot” communication is most effective
  4. Short, simple and focused communication drives participant response
  5. Multiple “touches” with various creative formats increase participation
  6. Increased technology use is effective and cost efficient
  7. Behavioral economics and “social norming” can increase participant involvement and savings
  8. Incentives given by sponsors and “gamification” help trigger participant involvement
  9. Responsive marketing principles may assist plan sponsors in improving communications

Here is a brief synopsis of these 9 practical recommendations and some best practices:

1. Communications Tailored to Particular Segments 

tailored-skill-development-imageThe Council found that communications that target participants based on their interests, background, and/or economic status were more successful than the “one size fits all” approach.

Understanding the culture and background of the workforce being targeted is key. For instance, since Hispanics will soon constitute one-third of the US population, Council member Donna MacFarland of Lincoln Financial Group stated that in her experience education materials typically are translated from English to Spanish, whereas she recommended that sponsors design the material using the reverse approach, developing  materials first in Spanish to address specific cultural needs and language differences.

Human Resource professionals also have found that allowing employees to map out an action plan rooted in realistic scenarios is an extremely effective tool. Some plan sponsors have successfully used a “three-pronged” approach to reach out to their participants by combining simple income replacement projections, behavioral finance strategies and a personalized message. For example, JP Morgan developed 36 different personas based on three age groups (younger than age 30, age 30-50 and older than 50). The firm also targeted participants based upon their regional median income (e.g., Kansas’ median income is $30,000 while in New York City it is $70,000). The basis for this approach was to enable these groups to compare themselves against their peers and take the appropriate action toward saving for retirement.

By narrowly tailoring their target audience on behalf of the plan sponsors that retained them, JP Morgan subsequently monitored whether employees opened their email communications and took action toward saving for retirement. If the individual took action, that person was considered “active,” while someone who opened the email but did not take action was considered “interested.” Based upon the action taken by the individual, the participant received specifically targeted information. This technique resulted in three to four times the response rate of participants who were not targeted.

However, some witnesses advised that there is a general concern regarding the use of targeted communications because complex data collection may provide gender or ethnic identification. Thus, there is concern over whether specific segments identified based upon race or gender could raise discrimination or deferential treatment issues. The Council heard testimony from Donna MacFarland of Lincoln Financial and Thomas Ryan of Fidelity that the use of particularly sensitive demographic information causes concern among plan sponsors. There are also practical concerns about housing information technology. Nevertheless, the overwhelming opinion received during testimony was that targeted communications work.

Branding helps targeting through the use of communications that include a unique positive image that is the group can relate to.

Here are some best practices of participant-centric communication methods:

  • Best Practice 1 – The Power of Example: Trustees of the Elevator Constructors 401(k) Plan used materials featuring the story of three employees who made different savings decisions during their careers. The narrative of the three employees was used throughout one-on-one sessions with printed materials to demonstrate how a 401(k) contribution would benefit participants in a variety of circumstances including temporary layoffs, hardships and early retirement. As a result, plan participation rates increased from 26.56 percent to 29.82 percent in 2011. The plan also experienced an 85 percent increase in plan activity from meeting attendees.
  • Best Practice 2 – Employer/Employee-Centric Content: M.A. Mortenson Company, an international construction firm, employed construction-related themes in its financial education to engage participants and foster pride in the company. Financial education was made mandatory and workshops were divided by career stage, age, and gender. The plan sponsor focused on participants’ preferences by surveying them after the workshop and making recommendations based on their feedback to yield desired results.
  • Best Practice 3 – Bilingual: Consolidated Citrus Limited Partners wanted to 1) increase attendance at plan educational meetings, 2) increase plan participation, 3) increase deferral rates and 4 encourage participants to maximize their match. Ninety percent of the workers spoke only Spanish, and the majority of their day was spent in the orange groves. An in-language campaign was initiated. The company’s Spanish speaking leaders met with small groups in the orange groves. Straightforward collateral in both Spanish and English Collateral were available on site, including announcement posters. By bringing the meetings to the employees, 95 percent of the targeted group attended the meetings. Plan participation increased from 40 percent to 75 percent and deferrals expanded from 4 percent to 8 percent.
  • Best Practice 4 – Branding: The Animation Guild 401(k) Plan was implemented for artists working at Southern California animation studios. The sponsors worked with the Guild’s representatives to obtain insights and develop a branded communication urging participants to remember to enroll. The response rate increased over eight percent from the previous year, with 135 new enrollees. Another employer cited in the research increased participation by 30 percent by keeping the message fun, simple and “cool” to target younger workers.
  • Best Practice 5 – Multicultural: The Four Seasons 401(k) Plan needed to convey an important plan change to an employer profit sharing employer matching contribution. The sponsor obtained feedback from bilingual meeting presenters in designing the campaign, and provided materials tailored to Hispanics and presentations also were created in Spanish designed to be culturally and linguistically accurate. As a result, the average deferral rate of the targeted group rose from 2.9 percent to 5 percent, and significantly increased beneficiary designations.

2. One-on-One or Small Group Meetings 

OneonOneAfter a study by Lincoln Financial found that 66% of participants prefer one-on-one guidance, Lincoln made it a component of its financial education model. They found that the need for individualized information is particularly acute for groups with low participation rates, including women and minorities.  Various studies have shown good enrollment and contribution results when employees request in-person group workshops facilitated by financial experts.

  • Best Practice for One-on-One Meetings:In 2012, MassMutual representatives spoke with 150,000 employees in face-to-face meetings. Forty-six percent of these individuals took action to improve their retirement readiness and, in one-on-one meetings, 75 percent of employees took action.
  • Best Practice for Small Group Meetings: Costs and timing may prevent plan sponsors from providing one-on-one meetings, but small group meetings and audience segmentation have also been successful. The FINRA funded Nurses Investor Education Project had small group meetings for well-educated nurses interested in taking action toward their retirement. They found that generally, the nurses’ lack of basic knowledge, or their perception that they did not know enough to attend these sessions, prevented them from attending their plan sponsor’s meetings. As a result of using small group meetings as a forum, the nurses perceptions changed and attendance at their employer’s retirement plan sessions improved.

3. Immediate “on the spot” Communication 

onthespotThe ability for participants to take action at the time they are thinking about retirement savings is more effective in increasing enrollment. For example, having computers in the room at the time employees are learning about the plan would allow them to sign up and take immediate action.

  • Best Practice: A US Army mandatory financial management course found that providing the enrollment forms for the Thrift Savings Plan during the financial management course resulted in a sizeable increase in participation, with soldiers signing up for the Plan before leaving the classroom.

4. Short, Simple, Focused Communication 

focusedBehavioral studies show that the most effective communications use simple, straightforward language specific to a participant’s personal situation.

  • Best Practice: Time constraints mean that any impediments to action should be identified and mitigated. For example, on a website, any extra step, such as the need to retrieve a PIN, may prevent employees from taking action. Solutions include sending the PIN directly to their email account or a mobile number, or mailing a postcard with the website’s uniform resource locator (URL).

5. Multiple Touches With Various Creative Formats 

profileConsistent, continuous and on-going meaningful communication can be achieved by repeatedly sending out simplified mailings. Social media can help alleviate the cost of additional touch points, and yet, few companies use social media channels for retirement information.

  • Best Practice: The Council’s Professor Madrian cites a company in which the third mailing of a simplified reply form requiring the checking of a box to enroll doubled enrollment from 22 percent to 45 percent of non-participating employees.

6. Cost Effective Technology 

advancement-of-technologyEvery demographic group is now using the Internet as a preferred source of information, via home computer or mobile devices. In addition, electronic media provides the ability to track responses, which is unavailable when the communication is sent through printed materials and regular mail. Another cost effective technological advance is Dynamic Page Publishing,  reviewed at the conclusion of this article.

A Deloitte study in 2012 that found:

  • 93 percent of Americans place Internet access as the most valued household subscription;
  • 54 percent of Americans own smartphones, and the rate is increasing 29 percent annually.
  • One of three Americans over age 50 has downloaded an application to a smartphone, and 28 percent access their bank accounts via smartphone.

Engaging Millennials: Electronic media is the most effective method of communication to engage younger generations in retirement planning, including Generation X (born between 1965 and 1979).  In order to combat inertia caused by competing financial priorities, such as student loan debt, it is important for this group to be engaged through “YouTube” videos, Facebook forums, Twitter, email and mobile delivery, including providing “one click” transactions and incorporating elements of “gamification.”   Millennials also demand simple, personalized, and action-oriented communications, and prefer human contact for complex tasks.

  • Best Practice – Email: Thomas Ryan of Fidelity Investments testified to the Council that Fidelity makes all channels of communication accessible, and finds that email communications have generated higher response rates than direct mail.
  • Best Practices for Engaging Millennials – Fidelity: Fidelity has studied the preferences of Generation Y, or “Millennials”  for using electronic communication, and found that this group tends to rely heavily on the Internet to interact with representatives from Fidelity, although they appear to be the least engaged when it comes to the frequency of contact. Millennials serviced by Fidelity have the lowest 401(k) participation rate, at 58 percent, compared to 67 percent for all other populations. Design changes made to simplify online interaction with Millennials resulted in a 40 percent increase in web utilization by this group.
  • Best Practices for Engaging Millennials – Putnam: Lori Lucas of Callan Associates discussed Putnam’s roll out of a plan primarily for Millennials that encouraged participants to bring their tablets to an nteractive meeting to log on to the benefits website. As a result, 40 percent of attendees increased their deferrals within 90 days after attending the meeting.
  • Best Practices for Engaging Millennials – MassMutual:: Offering enrollment and savings increases using iPod Touch devices in group meetings resulted in action rates of 85 – 90 percent among those attending. The use of targeted and tested mail and email campaigns resulted in $150 million in new deposits over three years and a 3.9 percent increase in action rates.

7. Behavioral Economics and “Social Norming” 

choiceThe way certain information is presented can have a resounding impact, including the way choices are presented to the participant, a method referred to as “anchoring”

Presenting options in a different order or with a higher default percentage has increased deferral rates. While communications traditionally list contribution percentages in ascending order from one to five percent, studies have shown that reversing this order so that the first option shown is five percent markedly increases enrollment in the five percent option. This method is referred to as “placement.”

 “Social Norming” reflects the fact that people tend to benchmark themselves against their peers. Statistics from the Bureau of Labor Statistics show that participants tacitly compete against peers in similar socioeconomic conditions.

8. Incentives and “Gamification” 

carrotThe use of games (gamification) is an effective tool in reaching  individuals who may not be easily engaged in retirement decisions (“non-savers”). Gamification can be used to reward people if they engage in the correct behaviors. Plan sponsors may also use incentives to provide rewards to participants with who exceed a certain benchmark contribution amount. Other techniques include raffles.

  • Best Practice 1: The NFL’s “Play 60” campaign  incorporates the use of the NFL brand to incentivize children to play a game for at least 60 minutes a day.
  • Best Practice 2: A rug manufacturer in northern Georgia had a series of meetings for people working multiple shifts, giving away lottery tickets to encourage attendance, and experienced standing room only for the meetings.

9. Six Marketing Principles Improve Communications

Communications that are uninspiring and difficult to undmarketing-300x200erstand leave employees confused, bored and unmotivated. The communicator’s “curse of knowledge” is a bias in which the communicator’s knowledgeability makes it difficult to demonstrate it from the perspective of lesser-informed people. The Council highlighted six principles of communication that plan sponsors should consider when drafting documents or presenting to their participants that will inspire action:

1. Show Empathy

empathyTo  determine the relevance of a message to an audience, it is necessary to engage them and ask questions that the content of the presentation or the communication should then be tailored to answer. For example, an energy company developed a program to help consumers understand and lower their energy bills, using this computerized question:

Can I help you with your bill?

  1. Yes, help me understand my bill.
  2. Help me save money.
  3. Both of the Above.
  4. I’m Here for Something Else.

By showing empathy to what the consumer cared about and giving information and tips to help them feel more in control, these questions presented helped raise consumer satisfaction.

2. Use Metaphors and Analogies

analogCommunications also reference a metaphor or visual picture to help the recipient relate to the message. For example, when Ridley Scott presented the screenplay for Alien to his producers he used the popular movie Jaws as a reference, and the metaphor “it’s like Jaws in space,” to frame a concept that the producers easily understood

3. Use Storytelling

icon-storytellingPeople tend to forget facts that are presented but usually remember a story. Stories are easy to absorb when people are overwhelmed with information. They also eliminate extraneous facts to capture the recipient’s interest and relate to him on an emotional level.

4. Use a Conversational Voice

conversationalUsing overly technical information, compliance or legal jargon can loose an audience. For example, it is difficult to convey the benefit of voluntary life insurance individual and spouse buy-up options in which election of coverage for a spouse can equal up to half an individual’s buy-up,  depending on the desired level of coverage. An effective way of communicating this is as follows:

“The company is going to buy life insurance for you. If you want, you can buy extra life insurance. Whatever extra life insurance you buy for yourself, you can also buy up to half that amount for your spouse. Now, depending on how much additional insurance you’d like, one or both of you may need to answer some questions about your health to see if you qualify for it.”

5. Surprise the Recipient

boxing-glove-surpriseUnexpected methods of engaging the recipient get the individual’s attention when a subject is ordinarily challenging and abstract. The use of humor, as shown below, can be considered an example.

6. Use Humor

humorUsing a little humor in the message will keep the audience engaged and make the message easier for audiences to relate to.

 

Plan Design Considerationsicon-design

Automatic Enrollment

A study by Brigitte Madrian and Dennis Shea shows that automatic enrollment increases average participation rates from 65 percent to 85 percent. It is particularly helpful for low-income workers with annual wages under $20,000, where participation increased from 27 percent to 82 percent. Average participation for employees under age 30 doubled from 41 percent to 82 percent, and the best improvements have been among the segments that had the lowest participation rates.  This was corroborated in as presented in the testimony of Lori Lucas.

Mandatory Contributions and Automatic Escalation

Defaults that are too low can  impact workers who would otherwise have contributed more. Since studies have shown higher default contribution rates have not increased opt-out rates, employers should consider recommending higher default contribution rates.

One solution is a stretch match (increasing the maximum amount of pay that can be matched and decreasing the percent matched, to keep the employer’s costs flat.

Another way to increase savings is automatic escalation in which sponsors automatically increase a worker’s contribution rate by one to two percent  of salary at each pay anniversary until a cap, such as 12 percent of pay.

Best Practice – TIAA-CREF: David Richardson of TIAA-CREF found that 403(b) plans typically have much higher contribution rates, ranging from 10 percent to 15 percent of pay compared to 5 percent to 7percent for all 401(k) plans, due to mandatory contributions from both employers and employees as a requirement of employment.  The 403(b) plans TIAA-CREF administers experience much higher annuitization rates — 40 percent compared to 4 percent for all 401(k) plans.

 Conclusions and Implications

red pencilThe Council found that continuous, simplified, personalized communication using multiple channels, connected with humor and empathy, are effective ways to communicate with plan participants to encourage participant engagement.

Benefit Program Marketers seeking to increase employee plan participation need to be more flexible, customizable and responsive than ever to introduce, present, promote and clarify the particular offerings and choices the employer has agreed to sponsor. Dynamic Publishing platforms are becoming a key tool in executing this strategy DPP is a way of designing publications in which layout templates are created which can contain different content in different publications. In cases where the same content is being used in multiple layouts, the same layout is being used for several different sets of content, or both, dynamic page publishing can offer significant advantages of efficiency over a traditional system of page-by-page design. Future articles will explore Dynamic Publishing in greater depth.

Related Blog Article:

“When Cultures Collide”

Thanks to Rod Rothwell – an Aussie doing business in Korea – for bringing this to our attention.

According to  “When Cultures Collide“ by British linguist Richard D. Lewis,who has mapped out leadership styles and cultural identities, cultures have different approaches to communication in business negotiations.

Lewis speaks ten languages, so he realistically warns of the danger of cultural comparisons and generalizations. However, he finds that there are also “national norms:”

By focusing on the cultural roots of national behavior, both in society and business, we can foresee and calculate with a surprising degree of accuracy how others will react to our plans for them, and we can make certain assumptions as to how they will approach us. A working knowledge of the basic traits of other cultures (as well as our own) will minimize unpleasant surprises (culture shock), give us insights in advance, and enable us to interact successfully with nationalities with whom we previously had difficulty.

Lewis’ communication diagrams follow these conventions:

  • Wider shapes show greater conversational range
  • Obstacles are marked in gray
  • Cultural traits are also noted.

Vive la Différence!

How do the different nationalities compare? Here’s how they tend to communicate:

  • Americans tend to launch straight into negotiations, respond to discord confrontationally, and resolve with one or both sides making concessions.
  • Canadians, while similarly direct, can be more low-key, and inclined to seek harmony.
  • English may avoid confrontation in an understated, mannered, and humorous style
  • French often engage vigorously in a logical debate.
  • Germans rely on logic, while amassing more evidence and laboring their points more than the British or French.
  • Spanish and Italians “regard their languages as instruments of eloquence and they will go up and down the scale at will, pulling out every stop if need be to achieve greater expressiveness.”
  • Scandinavians can have entrenched but often reasonable opinions formulated “in the long dark nights.”
  • Swiss tend to be straightforward and unaggressive negotiators, obtaining concessions by expressing confidence in the quality and value of their goods and services.
  • Hungarians value eloquence over logic and are unafraid to talk over each other.
  • Bulgarians may take a circuitous approach to negotiations before seeking a mutually beneficial resolution, which will often be screwed up by bureaucracy.
  • Poles often have a communication style that is “enigmatic, ranging from a matter-of-fact pragmatic style to a wordy, sentimental, romantic approach to any given subject.”
  • Dutch are focused on facts and figures but “are also great talkers and rarely make final decisions without a long ‘Dutch’ debate, sometimes approaching the danger zone of overanalysis.”
  • Chinese tend to be more direct than the Japanese and some other East Asians; however, meetings are principally for information gathering, with the real decisions made elsewhere.
  • Hong Kongers negotiate much more briskly to achieve quick results.
  • Indians speak English in a way that “excels in ambiguity, and such things as truth and appearances are often subject to negotiation.”
  • Australians tend to have a loose and frank conversational style.
  • Singaporeans generally take time to build a relationship, after which they can be shrewd negotiators.
  • Koreans tend to be energetic conversationalists who seek to close deals quickly, occasionally stretching the truth.
  • Indonesians tend to be very deferential conversationalists, sometimes to the point of ambiguity.
  • Israelis tend to proceed logically on most issues but emotionally on some.

 

communication styles

 

 

 

Hirono

Crying Over Spilled Milk

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Women Gone Missing

There was style. Governor Romney is generally judged to have won on performance. President Obama was said to not really showed up. But it was substance that in fact took the night off.  Among the innumerable topics either glossed over, grossly distorted or outright ignored were, for instance, the vital economic issues that affect American women.  Bryce Covert of the Nation writes that Women Went Missing in Last Night’s Presidential Debate:

Twice as many women over the age of 65 live in poverty as compared to men. Social Security is basically the only source of income for about a third of women over the age of 65, compared to less than a quarter of men. Without it, half of female beneficiaries would live in poverty. Same story with Medicare: the majority of beneficiaries are women.

Romney talked up his plan to overturn the Affordable Care Act as fast as he can. That includes the mandate that insurance cover contraception as a preventative care service without a co-pay, a provision that Ryan has said his team would undo on “day one.” That means women will go back to shelling out nearly $12,000 over their lifetimes for hormonal birth control. But the ACA also undoes gender rating, saving women $1 billion a year in paying more for the same services. Obama could have easily brought up either to demonstrate how anti-woman the pledge to repeal the ACA really is. He could have also mentioned the first bill he signed into law, the Lilly Ledbetter Act, which Romney has struggled with.

Immigration Reform

As I wrote in my article, Immigration Reform Would Create Millions of Jobs and Revitalize the Economy, the US needs the labor and purchasing power of productive immigrants. They are a leading driver of entrepreneurship and a major job creator. In a debate that was supposedly about domestic economics, how did this not come up?

Healthcare Reform

There was no substantive discussion of what’s really at stake in reversing the ACA, and debunking the myths about the ACA including which economic interests are behind the agenda to repeal it. There was no detailed analysis of the drivers of healthcare costs and how either candidate would begin to address those cost drivers.

Housing Issues

Jed Kolko, chief economist for the real estate analysis firm Trulia, expressed surprise that the housing crisis wasn’t mentioned considering about 31% of Americans with a home loan owe more on their mortgage than their home is worth. He concludes that housing isn’t a winning issue for either candidate:

For Obama to score points on housing, he would have to point to clear policy victories, which is a challenge for him. Romney would have to point to fresh ideas, which is also a challenge.

The List Goes On and On

Social programs, deficit deduction, tax policies, energy policy – you name it – no substantive discussion, if any at all was heard, just empty, and falsifiable rhetoric. Regarding tax policy, beyond what Factcheck.org called Romney’s “impossible tax promise,” no realistic alternatives or substantive measures were outlined, discussed and scrutinized.

Where’s the Beef?

If you noticed that through all the zingers and distortions, few real facts ever got mentioned, and what was passed off as fact was in fact vapid political rhetoric, you’re not alone. There’s a growing body of commentary beginning to point this out. Of course, you won’t get it from either the mainstream corporate media or the partisan media enterprises. You have to rely on outlyers to get a whiff of the lack of will to really democratize economics. As I wrote here, sadly, it took the perspective of someone as far outside the mainstream as you can get, socialist Marc Luzietti to call this out:

‎”Tonight a pair of actors will recite rehearsed talking points to prearranged questions. They will be judged on the quality of their ability to remember scripted answers and act appropriately.

Sadly, some people think this is important.”

China Has a 5-Year Plan

China has released its 12th Five-Year Plan for National Strategic Emerging Industries. Yet, a polarized U.S. political system can’t even get its two political parties to get past vapid rhetorical zingers, misrepresentations and spin and agree on some way to put their heads together and come up with a working plan to put the U.S. economy on a competitive footing.

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Advertising Slogans Lost in Translation

from American Demographics

Here’s why it’s not about translation, but trans-adaption.

Braniff slogan: “Fly in leather.”
Spanish translation: “Fly nude.”

Purdue slogan: “It takes a tough man to make a tender chicken.”
Spanish: “It takes a horny guy to make a chicken hot.”

Pepsi’s slogan: “Pepsi Brings You Back to Life.”
Chinese: “Pepsi Brings Your Ancestors Back from the Grave.”

Coca-Cola: the name Coca-Cola
Chinese characters: “Bite the wax tadpole.”
(later changed to characters that mean “Happiness in the mouth.”)

Clairol: “Mist Stick” curling iron
German: Shit stick (mist is slang for manure.)

Snap! Principle of Multicultural Marketing:

It’s not about translation. It’s about trans-adaption.

Acculturation Model

The U.S. Hispanic Market

Tony Malaghan, CEO of Arial International in University Place, Washington (info@arialinternational.com)  points out the importance of the U.S. Hispanic market:

Huge: Hispanic population is projected to nearly triple, from 46.7 million to 132.8 million from 2008 to 2050. In other words:

  • The U.S. Hispanic population share will double, from 15% to 30%.
  • Thus, nearly one in three U.S. residents would be Hispanic.

Diverse: U.S. Hispanics come from more than 22 different countries and, although there are cultural similarities between the sub-groups, there are also differences in attitudes and behaviors that marketers  need to acknowledge to best serve the interests of these consumers.

Language Use Differences: The use of Spanish is of course an obvious difference between the U.S. Hispanic market and the mass market. However, the use of Spanish vs. English varies within the Hispanic markets. Some Hispanics  only speak Spanish; others choose to speak Spanish over English; others prefer English; and others almost exclusively speak English.

Cultural Differences: An important element often overlooked with respect to the U.S. Hispanic market is the differences that exist between the sub-groups that comprise this segment of the market. These differences include country of origin, differences in Spanish use and dialect spoken, differences in food, music, holidays celebrated, etc.

Acculturation Differences: The process of acculturation has a major impace on these market segments.

A Multidimensional Process

Malaghan cites a 2004 dissertation by Cecilia Alvarez from Florida International University titled The Acculturation of Middle Income Hispanic Households  in which she notes that acculturation is a multidimensional process. Individuals change along various dimensions of social functioning. Alvarez defines consumer acculturation as:

A dynamic selective process generated by the contact of a consumer with a different consumer cultural orientation via acculturation agents or facilitators, through which the consumer adapts to the new culture. This adaptation is expected to be reflected in the consumers’ behavior, affect and values.

Acculturation generates changes in three levels of functioning:

  • Behavioral – includes behaviors like language use, customs, food consumption.
  • Affective – includes emotions that have cultural connections; for example, the individuals’ feelings towards their country of origin or towards the U.S.
  • Cognitive – includes individuals’ belief systems and fundamental values

So, how does acculturation affect consumer behavior and the approach to targeting and servicing this segment of the market? Let’s look at the 3 levels of acculturation.

Why Acculturation Matters

  • Past generations of immigrants had their children leave old world customs behind for the process of assimilation.
  • Acculturation is the process of incorporating or acquire a new culture without foregoing another one.
  • Hispanics do not “assimilate”, they “acculturate” without letting go of customs and/or language

3 Levels of Acculturation

Hispanic Market Segmentation

The three segments by Acculturation Levels are:

  • Non-Acculturated: Persons that only navigate within the Latino culture. Most of them have recently immigrated to the U.S. and prefer to speak Spanish
  • Acculturated: Persons born in the U.S. of Hispanic descent. They prefer to speak English and can navigate into the Latino culture
  • Semi-Acculturated: People that can navigate in both cultures.

How fast will the market acculturate?

The speed at which this will take place depends on these three major factors:

  • Time: the longer they live in the US, the longer they are exposed to a new culture and are able to incorporate it into their everyday lives.
  • Education: the higher their education level, the easier the understanding of another culture will be.
  • Socio economic status in country of origin: the higher the socio economic status they enjoyed in their country of origin, the higher the likelihood that they have been exposed to other cultures, thus enabling a faster and smoother transition

A Rapidly Evolving Market

Hispanic Market Segments Size

Situational Acculturation: It is important to bear in mind that acculturation can also be “situational.” Companies truly interested in segmenting the Hispanic market can further defining the situational acculturation levels of their consumers. Some people can be considered unnaculturated/bilingual/acculturated 100% of the time while others can go through these different states throughout the day.

For instance, a person can be fully acculturated at work where he or she behaves and consumes products very much in line with the general population, but at home speak Spanish. Yet he may watch both Hispanic and English-speaking television and consume non Hispanic products.

Suburban Hispanics: A Consumer Dynamics study from Acxiom Corporation shows that the Hispanic segments are changing rapidly. For one thing, the rapid expansion of Hispanics into American suburbs presents opportunities for marketers who can better understand the rich cultural diversity and purchasing attitudes of this segment.  The study reveals:

  • Hispanic suburban expansion is projected to continue.
  • The Hispanic market encompasses four distinct Hispburbanite groups.
  • Marketers have above average growth opportunities in areas with high concentrations of Hispanics.
  • Marketers should segment this culturally diverse group for maximum marketing impact.

Generational Factors: Hispanic Millennials bring a new set of characteristics to the mix. Since Latinos will account for more than 80% of the growth in the population of 18- to 29-year-olds over the next few years, they are now a key demographic for marketers, who will need to take into account the rapid changes under way in the composition and characterstics of the population of the Hispanic youth.

  • English Language TV Preference: Since they are for the most part are now the children, grandchildren or even great-grandchildren and beyond of Latino immigrants, 73% of 18- to 29-year-old Latinos watched English-only television or a combination of English and Spanish language television in the past seven days, and only 4% watched Spanish-language television alone.
  • Highly Connected: Hispanic millennials are nearly 66% more likely to connect via mobile than non-Hispanic Caucasians, and nearly twice as likely to own a tablet such as an iPad. They are just as likely as other millennials to be heavy Facebook users but almost twice as likely to use YouTube.
  • English Language Reading and Online Preference: When Millennial Latinos read magazines or visit websites, English predominates. They are more likely to read English-language magazines alone then they are to look into a combination of English and Spanish magazines (28% vs. 21%). Online, 18- to 29-year-old Latinos are even more likely to choose to visit English-language websites alone rather than both English- and Spanish-language sites (38% vs. 25%).
  • Close Cultural Ties: Still, Hispanic millennials maintain close ties with their cultural heritage. The Pew Hispanic found that among the U.S.-born children of Hispanic immigrants, country of origin is still important. Hispanic millennials are also more likely to still be living in their parents’ home due to the economy and delayed marriage and children trends, as well as the fact that Latinos in general are the most likely to live in multi-generation homes.

Marketers targeting Hispanics therefore need to develop complex and sophisticate marketing strategies to reach this very complex market.

Marketing and Service Implications

Essentially, the more exposed Hispanics are to behavior and beliefs of the host country, the more similar they become in consumption patterns of the mass market. However, Alvarez reminds us that acculturation can be bilinear, which means that a segment of the market may choose to be Hispanic with respect to certain behaviors and beliefs and in sync with the U.S. mass market in others. This presents marketers and customer service managers with challenges and opportunities to serve their unique needs.

Marketing

Generational Segmentation: One way to segment the U.S. Hispanic market is by generation: there are new immigrants, first-generation U.S. , second-generation, etc. This approach assumes that the longer a person has been in the U.S. , the more their lifestyle choices, and response to marketing stimuli, and purchasing decisions should reflect those of the mass market consumer.

Multidimensional Segmentation: This fails to factor in the bilinear multidimensional aspect, resulting in the 3 levels of acculturation: low, high, and bicultural. Developing more in-depth segmentation categories allowing for the bilinear multidimensional influences, coupled with research, will provide marketers an added advantage over companies that segment solely by the generational approach.

Customer Service

Trans-adaption Capabilities: Once the Marketing Department has advised Customer Service where a consumer falls anywhere on a continuum from new immigrant (unacculturated) to bicultural/multicultural (acculturated), they may choose to speak Spanish, English, or switch between the two on service calls.

Bilingual Capabilities: To effectively serve the segment, companies need to deveop a bilingual customer service infrastructure. Best practices, cited by Malaghan, provide the following:

  • Testing language skills to recruit competent and fully bilingual staff
  • Bilingual training and certification for appropriate “Business Spanish”
  • Certification of bilingual call center operations to benchmark and delivering services to best practice standards

Case Study: Banks Face Acculturation Challenges

Latino banks spend more than a year teaching their underserved Hispanic customers how to use the ATM machines because most of their customers have never used one. The bank needs to play a role in acculturating them into American society.

The following chart shows some key differences in the bank services that different Hispanic customers would be inclined to use, by acculturation level.

Hispanic Market Segment Characteristics

Snap! principle of Hispanic Market Segmentation:

In targeting and retaining U.S. Hispanic customers, companies must be willing to 1) invest in the market intelligence required for successful segmentation and 2) provide the servicing infrastructure to gain a competitive advantage in these segments.

Quinceañera parties are major celebrations to mark a Latin girl’s 15th birthday – and they can sometimes be as elaborate and expensive as some wedding celebrations.

Fabian Yépez of Rumbo Cultural Marketing helps financial institutions build relationships with Hispanic consumers. In an article provocatively titled: Marketing Financial Services To Hispanics Takes More Than Spanish Lip Service, Fabian is interviewed by The Financial Brand.

He discusses the importance and challenges of reaching out to this diverse segment, as well as one of the campaign successes of their client Grow Financial, a firm that Rumbo is currently agency of record for in Tampa, Florida. Grow Financial  teaches young girls about saving money for their own Quinceañera Party.

Q1: What is the business case for marketing banking services to Hispanic consumers?

  • A: By 2050, 1 of 3 Americans will be of Hispanic origin.
Financial institutions cannot afford to ignore the growing Hispanic market. By 2020, 1 in 5 Americans are expected to be of Hispanic origin, and by 2050, it will be approximately 1 out of 3. It needs to be understood that this is not a passing fad, and that a long-term investment will pay off. The current U.S. landscape has evolved and will continue to do so in the next few years. Especially when financial institutions focus on younger audiences, it’s necessary to pay attention to the ethnic breakdown.

Q2. What’s the biggest mistake you see financial marketers make when targeting a Hispanics?

  • A. The most common mistake is assuming all Hispanics are the same, and that they can be addressed as one big homogenous group. 

 I can’t tell you how many times we hear someone say, “We tried reaching out to the Hispanic market. We translated all our materials and it just didn’t work.” Or another example, “We were thinking of hiring a mariachi band because Latinos like mariachi bands.” The Hispanic market is complex, and there are numerous variables that need to be considered, as there will often be with any niche market.

Additional mistakes I have seen? Some financial institutions think they only need to address the language barrier. Others believe that because something worked in one market it will work in another. Many are just simply unprepared internally to deal with a Hispanic market, even if they have the language component covered.

We have been hearing these kinds of examples for years, and unfortunately they are still happening.

Q3: Why is marketing financial services to Hispanics so tricky?

  • A. It takes time to build trust.

 While conducting research a few years ago, I spoke with some tellers who mentioned that it was too much work when Hispanics wanted to open a new account, particularly Spanish speakers. They said that when non-Hispanics wanted to open an account, the customer would usually just ask where to sign and get on with their day. But with Hispanics, opening an account meant an initial visit to gather information, a second visit with additional questions, and possibly a third visit to finally agree to open the account. And each time, they came accompanied by a friend or relative.

What the tellers didn’t understand was that for many Hispanics, this could be their first account in the U.S. — maybe ever — and may feel distrust, intimidation, or simply don’t fully understand how financial institutions in the U.S. work. An important aspect about this market is that they need to feel comfortable with whom they are dealing with, and need to build and establish a relationship first. This could take three or more visits. When Latino customers get to the point where they’ll ask tellers where they might find a trustworthy babysitter, or recommend a good mechanic, then the financial institution can be certain that a solid relationship has been established.

And remember the friends or relatives that came with them in the beginning as the relationship got underway? Many of them are also likely to become customers. Word-of-mouth referrals play a huge role with this market, so the extra time and patience invested in the one initial Hispanic customer can lead to many more flooding in, just from that first contact.

Once Hispanic consumers feel that your organization understands them you will start to see results, and move on to develop enduring relationships that will last long into the future.

Q4. What have you done right to target Hispanics?

  • A. Upfront Market Segment Research is Vital

When Grow Financial FCU came to Rumbo Cultural Marketing looking for a full on Hispanic Marketing program, we started with an in-depth research phase, prior to even saying “Hola” to any Hispanic members. The Tampa Bay Hispanic market is unique, with a very diverse breakdown unlike other parts of the country. Even though there are many cultural and traditional differences among the Mexican, Puerto Rican and South American population, we were looking for something that was shared by a majority.

The result? Quinceañera parties. When a Latin girl turns 15, a significant celebration takes place to mark the transition from childhood to young adulthood. These parties are sometimes as elaborate as a wedding. Many families acquire large debt in order to throw these events, so we wanted to help make this celebration possible. Project Quince was developed as an account that allows to start saving at an early age, requiring minimum monthly deposits, and with additional benefits over a traditional savings account. It has been very well received in the local market.

Also, if financial marketers are looking for ideas to connect with Hispanics, they should take a look at BofA. I like what BofA has been doing for this market, especially when targeting Spanish-speaking Hispanics.

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