As the second half of the year approaches, most American businesses have begun to assess how realistic their business projections for the current fiscal year are and plan for next fiscal year accordingly. The macroeconomic scenario remains uncertain, with many consumers finding themselves caught between the persistent effects of inflation and high interest rates on many aspects of their lives, including housing and other essential services.
In this complex environment, as brands face the challenge of achieving sales growth without relying primarily on price increases to keep up with inflation-warranted consumers, the same key question is likely on the minds of boards of directors, C-suite executives and financial analysts: Where can brands find new incremental growth?
The answer could come from diverse segments. According to the latest U.S. Census report, Hispanic, African American and Asian American consumers already account for 100% of U.S. population growth. Now, more than ever, they are driving a larger share of business growth in several categories.
To explore this topic further, I looked at aggregate spending data from the U.S. Bureau of Labor Statistics, comparing 14 categories and over 70 subcategories broken down by ethnicity. The results were surprising: the data shows that between 2017 and 2022, total annual spending per U.S. household will grow from $7.8 trillion to nearly $9.8 trillion, a 25% increase.
However, looking at the results by ethnic group, we see that the diverse segment overall saw a 42% increase, more than double the rate of the non-Hispanic white segment, which grew by just 19% over the same period.
In terms of household purchasing power, Hispanics increased 46% to $1.3 trillion, African American consumers increased 35% to $1.0 trillion, and Asian Americans increased 47% to $0.7 trillion.
According to the data, the three different segments combined accounted for 26% of US household purchases in 2017, and that figure is expected to reach 30% by 2022.
The U.S. Bureau of Labor Statistics survey covers 14 categories: food, alcoholic beverages, housing, clothing and services, transportation, health care, recreation, personal care products and services, reading, education, tobacco products and smoking accessories, miscellaneous, cash contributions, and personal insurance and pensions.
The percentage contribution of diversified segments to the total category spend from 2017 to 2022 was higher across all categories. One of the most interesting aspects of this analysis is the share of growth among the three diversified segments.
In all categories except one (education), diversity share growth outpaced the equitable share index, or the percentage of diverse households in America, which stood at 33% in 2022, according to the same database.
Below is a breakdown of the share of growth coming from diversified segments: Note that if the number is greater than 100%, it means there was no growth outside of the diversified segments between 2017 and 2022.
- Food + 52%
- Alcoholic drinks + 106%
- Housing + 40%
- Apparel + 115%
- Transportation cost + 50%
- Healthcare + 36%
- Entertainment + 41%
- Personal Care + 62%
- Reading + 84%
- Personal Insurance + 41%
Looking at these numbers, it may seem like CMOs are eager to capitalize on demographic trends and invest heavily to grab the biggest share of this boom. Investors would be disappointed to hear that most American CMOs still view diverse segments as an extension of what was once called the “general market.”
Until now, these marketers have relied on a single idea and execution, aiming to reach all consumers based on the most efficient plan. However, reaching diverse consumers does not mean connecting with them. Despite efficient plans, marketers may not be able to maximize the effectiveness of their marketing budget.
But how should marketers approach this market? First, they need to assume that the new consumer market paradigm will be less homogenous and complement it with a balanced mix of inclusive programs and messages that cater to a broader demographic, incorporate elements from more diverse consumer segments, and offer deeper connections based on cultural nuances.
This mix can be based on alternating calendar windows – for example, selecting a few windows where specific messaging may generate greater ROI compared to generic messaging – and using your channel mix wisely to amplify culturally relevant messaging, leveraging influencers, social media, brand acts and digital channels.
Ignoring the fact that diverse consumers, primarily new generations (Gen Z and Gen Alpha), want brands to recognise them for their overall identity, which includes a strong sense of ethnic pride and belonging, is a significant business risk.
What’s more, alarmingly few brands understand that diverse segments across music, fashion, food, sports, language, entertainment and more have a profound impact on shaping American culture.
Now is the time for marketers (and their bosses) to put their money where their mouths are; in this case, to make marketing investments in areas that are likely to grow, and will grow for years to come. Appropriate growth can only be achieved with a thorough understanding of and investment in diverse consumer segments. Ignoring this could determine the difference between an emerging market leader and a loser. Which side will you choose?
