Do TV commercials featuring diverse actors help increase sales? A Wharton School professor tests this idea.
Marketing to minority consumers has been around since the 1950s, when advertising agencies realized the untapped potential of Black consumers, who were the second-largest racial group at the time. Advertising has come a long way since then, and so has the emphasis on diversity, equity, and inclusion. The result is a wider variety of ads that feature minority actors, models and celebrities enticing minority consumers to buy. But does representation make a difference?
Research from Zhenling Jiang, a marketing professor at the Wharton School of the University of Pennsylvania in Philadelphia, determined that it does — in a big way. She co-authored a study that examined television commercials for mortgage refinancing and found that as minority representation depicted in the ads increased from 15% to 25%, the advertising elasticity went up 14%. Advertising elasticity measures a campaign’s effectiveness in generating new sales.
We tend to think we are sacrificing something to feature more diversity. We are making a trade-off. But it’s quite the contrary.
Perhaps most surprisingly, the study found that ads with diverse players didn’t just increase sales among minority borrowers. There was a positive effect among white borrowers, too.
Jiang says the study sends a strong signal to brands that their genuine efforts to attract minority customers can pay off in ways they may not expect.
“When we think about DEI, we tend to think we are sacrificing something to feature more diversity. We are making a trade-off,” she says. “But it’s quite the contrary. It’s actually a nice message that they can achieve both higher sales, as well as the societal goal of more inclusion and representation.”
The study, “TV Advertising Effectiveness with Racial Minority Representation: Evidence from the Mortgage Market,” was co-authored by Raphael Thomadsen, a marketing professor at Washington University in St. Louis, and Donggwan Kim, who earned his doctorate at Washington University in St. Louis and joins the marketing faculty at Boston College this fall.
Bridging the Racial Wealth Gap: The Power of Inclusive Marketing
Jiang, who focuses on consumer finance topics in her research, says she chose to study mortgage refinancing ads for a very specific reason: the racial wealth gap in the United States. With home equity as the largest contributor to household wealth, refinancing can be an important mechanism to help Black and Hispanic homeowners — two groups that haven’t always been courted by lenders.
“Mortgages are the most significant financial decision that consumers can make. If they don’t refinance when interest rates are lower, it can be very costly,” she says. “The long-standing racial disparity in the world of consumer finance makes this question more important.”
Firms don’t have to overhaul their marketing campaigns or spend a lot more money to reap the benefits.
For the study, the scholars collected loan origination data from 2018 to 2021 that included information on borrower’s race and census tract-level political affiliation. They merged that with TV mortgage advertising data obtained from Kantar Media for the same time period. That data included ad spending and video files. The scholars used a double machine learning model to control for a host of variables, including image and text embeddings, lender, location and time of year the ads ran.
To test their theory further, they conducted an experiment with participants who were randomly assigned commercials featuring minority or white families. Those who saw ads with minority families say they were more likely to apply for refinancing from that lender.
Why Diversity in Marketing Drives Results
Jiang and her co-authors think there are three reasons why minority representation works so well in marketing.
First
Minority consumers feel a sense of connection when they see themselves portrayed in commercials, although racial homophily doesn’t explain the uptake by white consumers.
Second
The depiction of minorities reflects the brand’s inclusive values, which could explain why uptake among white consumers was highest for those with liberal-leaning beliefs.
Third
It’s possible that ads with diversity stand out to viewers simply because they are less common.
“I don’t have proof for this, but I believe these three things work together to have an overall effect,” Jiang says.
She says the study shows that firms don’t have to overhaul their marketing campaigns or spend a lot more money to reap the benefits. Choosing minority actors instead of white actors costs similarly. Producing different versions of the same ad can also be cost-efficient.
“If you are keeping ad spending the same and shifting the minority share, you are getting a more effective ad,” she says. “From a practical perspective, that is the lever that companies can pull to increase the minority share in ads.” •
Republished with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania based in Philadelphia.
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