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Keywords Ethnic groups, Market segmentation, Marketing strategy, Cost effectiveness, Target marketing
Abstract As the population and purchasing power of ethnic minority consumers in the USA continue to grow, more marketers are using subcultural segmentation and targeted marketing to reach these consumers. Meanwhile, some marketers have grown increasingly concerned with the cost-effectiveness of ethnic segmentation and differentiated marketing. This research reviews various methods for segmenting the ethnic markets and suggests the nested approach and cost-benefit optimization for analyzing the cost-effectiveness of ethnic segmentation and marketing. Furthermore, this research proposes four alternative strategies for marketing in a multicultural environment. Directions for future research and managerial implications are explored.
Rationale and objectives
The growing population and increasing purchasing power of minority consumers in the USA represent significant market opportunities. Ethnic minorities today comprise nearly 25 percent of the US population and are predicted to reach 47.2 percent around 2,050 (Patterson, 2001). The combined purchasing power of African Americans, Hispanic Americans, and Asian Americans has already reached $1 trillion (Adweek, 2001). Together, they have been referred to as America's "emerging markets." Many firms today treat ethnic minorities as distinctive market segments apart from the overall population. It is estimated that over half of Fortune 500 companies have some forms of ethnic marketing programs (McDermott, 1994). These companies have attempted to reach these consumers with differentiated marketing strategies, including new product lines, tailored advertising, and customized promotion programs.
Growing concern
While ethnic marketing programs have become immensely popular, some marketers have shown a growing concern with the impact of ethnic segmentation and differentiated marketing on organizational efficiency (Faura, 1999). Several major consumer goods manufacturers created much controversy by modifying their ethnic marketing strategies. Coca-Cola dismantled its ethnic marketing division and integrated it into its various brand divisions. Despite criticism from ethnic marketing experts and minority advertising agencies, Coca-Cola believed that this new integrated approach would improve operational efficiency (Rousch, 1997). Miller Brewing Co., after years of heavy spending on ethnic marketing, has adopted cross-cultural advertising to appeal to a wider market (Melcher, 1997). Pepsi Cola also de-emphasized ethnic marketing and stressed that its products should be appealing to all consumers regardless of their background (Prince, 1993). To rationalize their ethnic marketing efforts, more companies have switched to transcultural...