Tuesday, September 13, 2011

Advertising: The Value of Celebrity Endorsements

What's the value of a celebrity endorsement for your brand?  Harvard's Anita Elberse and and Barclay Capital's Jeroen Verleun examined this question recently.  They looked at how a firm's sales change as they sign a star athlete, as well as how revenue changes with major accomplishments by the athlete.  Elberse and Verleun found that a firm's sales do rise with the signing of a star athlete - on average by approximately 4%.  Moreover, revenue increases with each subsequent major accomplishment by the athlete.  In other words, winning helps drive the firm's sales.  However, they found decreasing returns to winning.  In other words, sales increases tend to diminish in size as the athlete racks up subsequent victories (the first Grand Slam victory by a tennis star yields a bigger jump in firm revenue than the fifth Grand Slam victory).  The researchers argue that firms need to keep these decreasing returns in mind as they contract with star athletes.  For instance, providing bonuses of equal size for each major victory would not necessarily make sense, since the associated economic benefit for the firm falls over time.  Moreover, the decreasing returns might suggest that long term deals should be negotiated with caution. 


Justin Dorval said...

I would agree that companies should approach with causion when signing a atheletes to lucrative long term deals. It would be interesting to look at the numbers and see if the diminishing return over the term of the deal is higher than the anticipated retrun would have been without the contract. In recent years it seems like the norm for companies to sign outragious contracts with players. Look at the relatively recent signing of Cam Newton by Under Armor in February 2011. The spcifics of the deal were not released but it is said to be over $1 million a year, all before he even takes a snap as a professional quarterback. Another star signed by Under armor ass Tom Brady who inked a deal that included shares of the company. In the words of CEO Kevin Plank "Equity was part of our deal." (http://boston.sbnation.com/new-england-patriots/2010/11/9/1804303/tom-brady-under-armour-deal-equity-stake) In these instances it is a calculated risk, but as long as companies feel the benefits out weigh the risks, they will continue to sign atheletes to endorse their products with enormous contracts.

Lisa79846 said...

Statistics on the latest survey show that only around 30% of the consumers would consider the purchase of a brand based on a popular face. A higher percentage would associate themselves to a brand, if the celebrity is actually linked to the brand message in some way or the other.

celebrity endorsements

ohio okhai said...

O.K if you permit me to jump in. What is the value break down of this industry by region/countries (U.S/U.K/China/Nigeria)/continent and type (player/actors etc)