Archives June 2024

The Impact of Diversity in Marketing

Since the 1950s, advertising agencies have recognized the value of marketing to minority groups, particularly Black consumers, who were a significant demographic at the time. Over the years, marketing strategies and the focus on diversity, equity, and inclusion (DEI) have evolved considerably. This evolution has led to a wider range of advertisements featuring minority actors, models, and celebrities aimed at appealing to minority audiences. But does this representation truly matter in marketing?

Research indicates that it does — significantly. A study examining television commercials for mortgage refinancing found that as minority representation in ads increased from 15% to 25%, advertising effectiveness, measured by advertising elasticity, rose by 14%. Advertising elasticity measures a campaign’s success in driving new sales.

Interestingly, the study found that ads featuring diverse casts didn’t just boost sales among minority borrowers but also positively affected white borrowers.

This research sends a powerful message to marketers: genuine efforts to attract minority customers can yield unexpected benefits.

“When considering DEI in marketing, we often think we are sacrificing something to feature more diversity. We see it as a trade-off,” the study noted. “But in reality, it’s quite the opposite. It’s a positive message that companies can achieve both higher sales and the societal goal of increased inclusion and representation.”

Representation and the Racial Wealth Gap in Marketing

Focusing on consumer finance, the study examined mortgage refinancing ads due to the racial wealth gap in the U.S. With home equity being the largest contributor to household wealth, refinancing can be a crucial tool for Black and Hispanic homeowners — two groups historically underserved by lenders.

“Mortgages are the most significant financial decision consumers can make. If they don’t refinance when interest rates are lower, it can be very costly,” the research highlighted. “The long-standing racial disparity in consumer finance makes this issue even more critical.”

The researchers collected loan origination data from 2018 to 2021, including information on borrowers’ race and political affiliation at the census tract level. This data was merged with TV mortgage advertising data from the same period, which included ad spending and video files. A double machine learning model was used to control for various factors, including image and text embeddings, lender, location, and the time of year the ads were aired.

To further test their theory, an experiment was conducted where participants were randomly shown commercials featuring either minority or white families. Those who saw ads with minority families reported being more likely to apply for refinancing from that lender.

“The long-standing disparity in consumer finance makes this issue even more critical,” the study emphasized.

Three Reasons Why Minority Representation Matters in Marketing

The study suggests three main reasons why minority representation is so effective in marketing. First, minority consumers feel connected when they see themselves represented in commercials, though racial homophily doesn’t explain the increase among white consumers. Second, the portrayal of minorities reflects the brand’s inclusive values, which might explain why the increase among white consumers was highest among those with liberal-leaning beliefs. Third, ads featuring diversity may stand out to viewers simply because they are less common.

“While definitive proof is lacking, these three factors likely work together to create an overall effect,” the research indicated.

The study demonstrates that companies don’t need to completely overhaul their marketing campaigns or spend significantly more money to see benefits. Choosing minority actors instead of white actors costs similarly. Producing different versions of the same ad can also be cost-effective.

“Maintaining the same ad spending while increasing minority representation results in a more effective ad,” the study concluded. “From a practical marketing standpoint, this is a lever that companies can use to enhance minority representation in ads.”

Additional Insights

Research from McKinsey highlights that companies with diverse boards are 27% more likely to have superior financial performance. Similarly, another study found that inclusive ads affect consumer behavior positively, with 69% of Black consumers more likely to purchase from brands that reflect their race/ethnicity in advertising​ (McKinsey & Company)​​ (Think with Google)​.

For further reading on this topic, you can explore detailed studies and reports on the impact of diversity in marketing from McKinsey and Think with Google.