Are celebrity endorsements worth it?

Reuters

THE TIGER EFFECT: Tiger Woods' endorsement of Nike golf balls had a positive effect on sales.

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OPINION: Every night we see them on television. Famous people, more often than not sports stars, hucking some product or service. Some are painful, some entertaining - but is it smart marketing or a waste of precious promotional dollars?

If there was a world championship of celebrity endorsers, the likely winner was in New Zealand last week for the Winter Games in Queenstown. Twenty-two year-old American Shaun White dominated the snowboarding competition at the Winter Games, days after cleaning up at the Burton New Zealand Open. The "flying tomato", as the flame-haired White is sometimes called, is also a pro skateboarder with a growing reputation.

In a niche sport that pays meagre prize money, White is earning a solid income. At about $13 million in 2008 according to Forbes magazine, he out-earns most of New Zealand's richest sportspeople.

It was reported earlier this year that Sir Russell Coutts was our top earner on $15m, trailed by the likes of Ryan Nelson ($9m), Brad Butterworth ($8m), Scott Dixon ($6m) and Michael Campbell ($4m).

Endorsements have been the key to White's financial success, bettered only in the action sports world by skateboarder Tony Hawke. White is backed by companies such as Burton Snowboards, Oakley Sunglasses, Target retail chain and Hewlett- Packard.

White has succeeded through the smart use of his personal brand. He hasn't tried to grab as many advertisers as possible, or do outrageous things to court controversy. In fact, White reportedly turns down a lot more offers than he accepts and could be earning more in the short term if he was less fussy.

There is a virtuous cycle to his approach. The brands he chooses to endorse influence people's perception of him, affecting his brand and therefore his future value.

He understands the need to align himself with products that reflect well on his own "brand". And the stronger people's perception of him, the more likely his endorsers are to get increased sales.

Being from a minor sport, White is a long way behind the world's superstar sports celebrities. Tiger Woods earned $180m in the year to June 2008, footballer David Beckham $85m, golfer Phil Mickelson $70m and Formula 1 driver Kimi Raikkonen $65m.

That a significant amount of this money is made up of company endorsements would suggest it is seen as an effective strategy. However, a recent academic study questions this.

A Massey University study published in January examined the effect of endorsement announcements in the United States on a company's stock price. They showed a slightly negative effect on stock prices of those studied, suggesting there is ambivalence about their effectiveness.

One issue is that although a company can back a famous sportsperson for their talent, it has to take all other aspects of their behaviour with it. Celebrity endorsement is basically a transfer of value from Brand A (the celebrity) to Brand B (the advertiser). An advertiser hopes the positives of Brand A will transfer in the customer's mind to its Brand B and motivate purchases.

Which means the clean-cut persona of a star such as Dan Carter reinforces his sporting talent and enhances the value for his sponsors, but negative behaviour has the opposite effect. There is the famous example of cricketer Shane Warne who, having endorsed a smoking cessation product for $200,000, was caught on film puffing away after a match. Or the Australian national rugby league, which chose Brett Stewart and Greg Inglis as two stars to promote the league, only to suspend both this year for drinking and violent incidents.

It can work back the other way too. Sir Colin Meads' reputation as a legendary All Black was tarnished by his endorsement of the failed Provincial Finance. Many Kiwis lost money in the company that Sir Colin told us was "solid as". Although he was in no way to blame for Provincial's incompetence, some of that negative feeling must rub off.

It is not just bad behaviour that can reduce the value of endorsement though. Marketing expert Jack Trout says the more aligned the public's perception of the star and the product being promoted, the more likely it is to sell. He points to Tiger Woods' endorsement of Nike golf balls which had a positive effect on sales, while a similar promotional role didn't deliver the same result for the Buick car brand. Consumers saw it as credible that Woods was using Nike balls, but perceived Buick as a promotional gig for a rich guy who could afford far more prestigious wheels.

Using well-known people to increase awareness of your brand can be a sound strategy, but it has to be handled carefully. They must appeal strongly to your target market, their image must align with your company's messages, and you need to be confident they will act with integrity.

This delicate balance can be achieved and produce results. After winning the Winter Olympics gold media in 2006, Shaun White was besieged by commercial offers, but resisted the temptation to appear in "cheesy" advertisements that would have been lucrative but done long term-damage to people's perception of him.

* Owen Scott is from marketing company Concentrate, concentrate.co.nz. He has no endorsements.

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