Tuesday, September 21, 2021

Untapped African-American Group Is A Billion Dollar Business Opportunity

No, featuring black Americans in business commercials is not enough to instill community engagement.


Highlights

  • African-American community is the largest minority group in the country making upto more than 12% of the population.
  • Black consumers are underserved in many sectors including housing, food, banking, broadband, etc. 
  • $300 billion market still waiting to be served by fulfilling the needs of African-American community.

Racism has been deep-rooted in the U.S. so much that it has made its way to businesses- from product designing to marketing. For centuries, the needs of the quintessential African-American have been left out of the park, leaving behind a huge gap in the consumer culture of the U.S. As consumers, it is disappointing and frustrating to turn a blind eye to the needs of more than 44 million people.

As a business, it is a huge loss of competitive edge that brands have only started recognizing now.

Despite the Black community- specifically, the African Americans- being the largest minority group in the country, they are rarely the direct target of companies when it comes to customer acquisition. This has been the trend for decades with little change in the approach to wooing this lucrative consumers segment directly.

It is argued that Black consumers are often not considered an integral part of serious marketing conversations and planning in sectors like food, housing, healthcare, broadband, and banking.

According to a survey by the Center for Talent Innovation, while Black Americans constitute 12% of the U.S population, the community only makes up for 3.2% of senior leadership roles in large U.S. tech firms. Only 0.8% of the Fortune 500 companies are headed by African-American CEOs. The numbers explain a lot about why the needs of black American consumers don’t make it to the primary strategizing level.

Black American community- Population and Economy

The rationale behind this attitude of companies is believed to be varied and complicated. Some firms are ostensibly concerned about making a mistake and not offending their consumers. Others may think it’s more efficient to simply cast Black actors in their general-market campaigns and believe they are doing their bit in appealing to the customer segment.

That is a reflection of the current notion that we’ve become a “post-racial” society where acknowledging or addressing issues of race are seemingly signs of progressiveness. Even as the post-racial ideal could seem to be noble, it can actually appear insensitive as it disregards the importance of Black identity.

This article examines the opportunity that companies are possibly missing out in not explicitly serving the Black American consumer and consequently their inability to benefit from the significant financial value of dealing directly with this consumer segment.

Current Trend of Black consumers’ Habits and Spending 

It is widely accepted that consumption by the African-American community has not been at the same level as the White American community. Even though there has been a growth in the metric in recent years, it also needs to be stressed that the growth has been on the back of low levels.

The income disparity is also reflected in the relatively higher distress faced to the Black community due to the steady rise in costs of housing, healthcare, and higher education, all of which are fundamental needs to lead a dignified and quality life. These costs arguably strain the Black households with data suggesting that the average expenditure in the above three categories by Black households as a proportion of their total household income increased from 38% in 1948 to about 45% in 2019 (1).

Data from Census Bureau’s Consumer Expenditure Survey reveals that a smaller proportion of household income is spent by Black-Americans compared to White-Americans when the income is similar, even though more money from Black households goes towards fulfilling the basic needs.

However, this has not helped the Blacks to save more as many such households spend to financially support their extended family, spending for student debts, and paying for higher rates of consumer loans(1).

At the same time, considerable contributions to the overall market are being made by Black consumers which in some cases exceed 50% of the overall spending in key product categories. For example, more than half of the total spending ($941 million) by consumers in the U.S. on dry grains and vegetables in 2017 came from consumers other than Whites. The Black Americans in this case spent $147 million of the total expenditure in this category(2).

Black African American Community spending and economic opportunities

Therefore the substantial buying power and influence that this consumer community can exert on the market is clear.

The Underserved Black Consumers

Black communities have been neglected with a shortage of retail options and key services which can transform into recurring inconveniences like spending more time on traveling for errands. There can also be some serious consequences like poor nutrition, dearth of affordable housing, fewer healthcare providers, and less reliable broadband.

In the food segment, Black-American households often find it harder to find healthy, affordable food because of the so-called “food desert” that they often find themselves in. Data shows one of every five Black households lives in a “food desert” with a lesser number of grocery stores, restaurants, and farmers markets(1).   

According to the Department of Housing and Urban Development, housing is a “cost-burden” for which American households spend over 30% of their gross income. 43% of Black households found housing to be a cost burden in 2019 compared to 25% of White households (1). This becomes acute for low-income Black households and the COVID-19 pandemic has apparently compounded the problem.

Black African-American community business opportunities

Data also shows that it is likely that Black Americans have limited healthcare service access compared to White households because of where they live(1). That in turn further stresses the household income as it raises healthcare costs.

Further, it is 50% more likely that Black Americans live in an area with limited broadband services compared to Whites. And lastly, “banking deserts’ have been created by the closure of bank branches in recent years with a higher probability of Black households finding themselves residing in such a place.

Catering To Black Consumers More Closely

Serving consumers, particularly the Black-American consumers, who reside in the underserved areas, is both a moral obligation as well as a huge economic opportunity. But the trend is that most companies expand into such neighborhoods and locations that match with the currently successful stores and many retailers perceive low-access locations to be risky and/or unprofitable as a business proposition.

Further, it can be argued that many firms and brands are unable to offer Black consumers what they actually want. Data shows Black consumers are more agreeable to switching brands as well as products and means of purchasing compared to other consumer groups(3) and less likely to be satisfied with the current offering. Therefore, it can be concluded that Black consumers are looking for products that are better suited to meet their needs.

Conclusion

While value for money is one of the major considerations for all American consumers, it is more likely that Black consumers would feel unsatisfied about it compared to Whites, particularly in personal-care products and services, banking and financial services, healthcare, and food. It is imperative, therefore, that companies conduct more research into the aspect of what African-American consumers actually want.

At the same time, marketing campaigns and advertisements with which this consumer group can easily relate needs to be developed and implemented. It is estimated that about 30% of black aggregate spending ($260 billion) could be spent by them in favor of brands that offer what they need. And even spend up to 1.2 times on average for products and services that are catered or customized to meet their specific needs and preferences. That could translate into an additional $25 billion to $40 billion in business opportunities.

That requires companies to alter the way they have done business and bring in fresh thinking and strategies to appeal directly to this huge market opportunity.

Debdutta Ghosh
Debdutta Ghosh is a Journalist who has been associated with leading media firms of India like Asian Age, Indian Express and Hindustan Times as well as television channels such as Zee News/Business and ABP News as a reporter for more than 20 years. With a Post-Graduation Diploma in Mass Communication & a Bachelor Degree in Science, his expertise as content expert lies in the areas of Business News Analysis, PR, and Marketing Communication.

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