Do Celebrity Endorsers Actually Drive Profits?

celebrity endorsersFinancial services companies have long used celebrity endorsers to increase brand awareness and boost sales, but they’ve seemingly taken things to another level in recent years.  Not only have we seen the likes of Alec Baldwin and Jimmy Fallon hawk Capital One products on TV commercials, with Tommy Lee Jones and Pat Boone expounding on investments and reverse mortgages through the same medium, but a steady stream of icons also signed on as prepaid card endorsers.  With varying levels of involvement, Suze Orman, George Lopez, Magic Johnson, and Justin Bieber have all entered the prepaid space, both indicating the money to be had in this emerging market and raising a couple of very important questions.

First of all, just how valuable are celebrity endorsers? And to what extent do public perception and controversy impact their image and ultimate marketability?

To answer these questions, we turned to experts on the subjects of marketing, entertainment, racial perception, and the economics of sports.  Here’s what they had to say:

What is the value of a celebrity endorser?

Chris Kowal – Assistant Professor & Director of the Center for Professional Selling at Purdue University

On a celebrity endorser’s value proposition:

“Spokespeople are masterful salespeople. The best salespeople understand that the job is not to push products but rather solve problems. If you want to entice me demonstrate that you care about me and are truly working to solve my problems, in this case to help me fulfill my personal financial goals.”

Dr. David Bell, the Xinmei Zhang and Yongge Dai Professor of Marketing at the Wharton School of the University of Pennsylvania

On a celebrity endorser’s value proposition:

“[Celebrity endorsers] help with three things: (1) awareness, (2) positive effect … I like Shaq, Shaq endorses Buick (and even though I don’t think Shaq drives a Buick, on some level I feel better about Buick because of the association), and (3) engaged and motivated fans who will ‘follow.’ I think the value is highest when the endorser is ‘brand or product consistent’ (Tiger Woods and golf clubs, Michael Jordan and athletic gear, Robert De Niro and AMEX).”

Dr. David Allan, professor of marketing at St. Joseph’s University

On the surprising relationship between Justin Bieber and prepaid card issuer BillMyParents:

“It does help upgrade his image to a little bit older focus, from soda to credit cards, so it has the potential of gaining both the card and the artist publicity, which is obviously the key.  Whether it drives corporate profit and all that kind of stuff, I would guess it won’t.  But I think that the artist and the company in this point are really looking for the publicity of it more than they’re looking for it to drive unbelievable amounts of sales.”

On the value of hiring niche celebrities as endorsers:

“From the artist’s standpoint it makes perfect sense because with the traditional music industry being the way it is, they add in all that promotion, they [recoup] all that money that they’re losing from illegal downloads. … From the company’s standpoint, maybe it gets them the cool factor with those fans.  If you pick an artist with a song that starts off as a niche and then it goes mass appeal, then it looks like you discovered them and you get some extra points from the consumer and their fans, like you were there with them at the beginning.”

Darren Walters, assistant teaching professor at Drexel University’s Westphal College of Media Arts & Design and co-owner of the independent record label Jade Tree

On Bieber and the overall value of celebrity endorsers:

“Celebrity endorsements are no doubt valuable, but not necessarily in terms of immediate income. The value reward is typically increased visibility over time, which in turn increases the amount of attention given to a product and which may generate additional profits over time. … In this age, it makes perfect sense for Bieber to sign on as a prepaid card endorser.  While I would not purchase a product specifically due to a celebrity endorser, I could certainly envision my fourteen-year-old daughter asking me to help her get a pre-paid card for purchases because she is aware that Justin Bieber is raising awareness of the card. Partnerships between musicians, sports teams and other entertainment entities and credit cards companies are not new and have proven to be attractive over the long term.”

Justin Sinkovich, assistant professor of media management and self-management for artists at Columbia College Chicago

On the value of endorsement deals such as that between Bieber and BillMyParents:

I think it makes sense, absolutely.  One major endorser of prepaid cards is Russell Simmons who is legendary in the urban music lifestyle community.   He’s been an extremely successful business man in that area, so he seems like an ideal spokesperson to target the demographic of urban music followers and lifestyle.   Justin Bieber is well respected as an artist and also extremely financially successful at a young age, and young people without credit are a perfect target for prepaid cards.  The selection seems natural. … Endorsements such as these are extremely valuable; fans are extremely interested in celebrity lifestyles and life decisions and often envy the celebrity, so if a celebrity tells them about a product they listen.  Also celebrities, particularly in music are quite dependent on endorsement revenue. Selling copies of recorded music is not the business it was twenty years ago due to piracy, free streaming, etc., so you see musicians strategically pursuing endorsements more and more.

On selecting a celebrity endorser:

I think it varies widely depending on the brand and what the company does with the endorsement.  A prepaid card we can argue the aforementioned rationale of Bieber and Simmons being entrepreneurs targeting the right demographic, thus worth investing someone heavily in endorsements.  However, many other industries are much more directly reliant because the celebrities directly use the product to be successful.  Nike and Gatorade and the athletes who use these products to succeed is one example.  Musical equipment endorsed by Bieber would have far more of a direct correlation and impact.   The more a brand can integrate the lifestyle of the product into the celebrity the higher impact.

A company will want to select a celebrity or several who target a particular segment of the market you are targeting for a reason. Again, Bieber targets young people who may need a prepaid card due to lack of credit in their young life.  Or the target may be very broad and you want someone who proves success related to the product like a celebrity with great skin for skincare, or overall someone successful or trusted for a broad target.

Takeaways

Overall, the experts seem to agree that celebrity endorsements tend to be beneficial for both the corporate entity cutting the checks and the public figures cashing them.  Statistics back this notion up as well.  On average, signing a big-name endorser increases a company’s sales by $10 million annually and spurs a 0.25% increase in stock returns, according to a July 2011 study by Harvard Business School professor Anita Elberse and Barclays Capital analyst Jeroen Verleuni.  A significant accomplishment by the endorser in question also inflates the benefit even more.  Obviously, companies have to be discerning about which celebrities they sign and their ultimate compensation, but when you consider the benefits in terms of sales, company value, and overall brand awareness, it’s clear that the celebrity endorsement marketing model is a successful one.  Perhaps that’s why it seems like it’s becoming more prevalent.

Does race impact celebrity endorsements?

In answering this question, we examined a current events case study of sorts related to Washington Redskins QB Robert Griffin III (Card Hub is based in D.C., after all), who was deemed the most profitable rookie in the history of the NFL before even stepping on the field of play, thanks to endorsement deals with Adidas, Subway, Gatorade, EA Sports, Nissan, Castrol Motor Oil, and body armor company EvoShield.

On a Dec. 13, 2012 iteration of First Take, now-suspended ESPN personality Rob Parker examined RG3’s “blackness” by posing the question of whether the QB is a “brother” or a “cornball brother,” sparking widespread controversy and debate.  Nevermind that no one seems to know what a “cornball brother” is, Parker’s comments raise important questions about the perception of contemporary African-American celebrities.  The way in which this perception affects endorsement opportunities is particularly germane to the discussion in light of the fact that Griffin is regarded by many to be the next transcendent mega-star in the vein of Michael Jordan and pre-scandal Tiger Woods.

Here’s what the experts had to say on the matter:

Dr. David Allan, professor of marketing at St. Joseph’s University

On the Parker-RG3 situation and the intersection of race and pop culture: 

“That’s someone on ESPN trying to get their own publicity and not a terribly credible person on ESPN.  It’s certainly not going to hurt RG3.  You can look back to the McNabb days when they questioned his ‘blackness;’ it didn’t hurt him.  But that does depend on how RG3 handles this.  If he gives it no attention or very little attention, then that’s the way to go.  If he tries to make something big out of it, then maybe a corporate sponsor will be a little bit more wary of him.  But all indications are that he’s a very mature individual and/or has good people around him. … Race usually doesn’t come into effect with pop culture as much as it does in other parts of life, so music, and sports, and movie stars, society tends to treat that differently than it would someone in politics or someone that has gained a reputation outside of pop culture.  So I don’t really think there’s anything to be learned there.  I think it’s just kind of an isolated incident that’s really not going to matter after today.”

Dr. Mia Moody-Ramirez, assistant professor of journalism and media arts at Griffin’s alma mater Baylor University

On the Parker-RG3 situation: 

“I think that people might question [Griffin’s] ‘blackness’ because he’s engaged to an Anglo woman and also some of his interests, and I think that that’s a shame because I don’t think people should be labeled because of their interests or who they affiliate themselves with.  … What is a ‘real black person’?  Does a black person have to fit in a certain category, or should they be able to behave and hang out and talk with whomever?  ‘Blackness’ is the skin that they’re in.  Wherever they go, they’re going to take that ‘blackness’ with them, so I think it’s kind of unfair for [Parker] to say that about [Griffin].  And I’d also have to ask what is ‘the cause’?  You know, ‘he’s not really down with the cause,’ what is ‘the cause’?  I wish [Parker] could define that; what is the cause for a ‘real black person’?”

On the effect endorsers like Griffin can have on race relations:

“I think that can be positive for race relations.  I think that if people see that not all black people are a certain way or behave a certain way, then that can help smooth things over.  He is a great role model. I have two sons myself, and I think he is a great role model because unfortunately for many African-Americans, it’s not really cool to be considered smart, and RG3 is very smart.  I think it is important for people to see that you can be smart and you can also be an athlete at the same time.  Not only was he dealing with the stereotype of African-Americans not being smart, but also the stereotype of athletes not being smart, so I think that will help not only African-Americans, but also athletes.  He can help boost that image and help take away that negative perception.”

Dr. David L. Andrews, professor of Sport Commerce & Culture at the University of Maryland

On the intersection of race & contemporary marketing (from Andrews’ book “Sport– Commerce– Culture: Essays on Sport in Late Capitalist America”):

“He also signed a 5-year $40 million sponsorship deal with Nike, which expected that Woods’s racial difference and prodigious talent would ‘revolutionize’ the public’s relation to golf.  Nike anticipated that Woods, as a multi-market endorser, would resuscitate its stagnant golf division and, in doing so, significantly bolster the company’s overall profits.  The success of America’s latest revolution, orchestrated around Woods’s body and style, would be measured in terms of the diversification and expansion of the market for golf-related products and services both in the US and abroad.  … The popular spectacle that Tiger Woods has become was evident enough for Nike which, in September 2000, signed him to a new 5-year endorsement contract worth $100 million.  Nike paid this exorbitant sum in order to augment its brand identity through a continued association with the ambiguously exotic, yet suitably benign, multicultural face of America’s future citizenry that is Tiger Woods.”

Takeaways

Ultimately, it seems that race is a non-factor when it comes to contemporary marketing potential, and that makes a lot of sense when you consider the demographics of the United States.  We are gradually becoming a racially ambiguous society, and it’s only natural for people to gravitate toward endorsers who look like them.  It also shows just how far we’ve come that comments such as Parker’s are regarded as being the inappropriate musings of a single individual, rather than the prevailing perception of the general public.  Still, at the end of the day, a celebrity’s endorsement potential ultimately depends on their continued success.  Irrespective of race, if you aren’t successful and you cease to be relevant in popular culture, legitimate companies aren’t going to want you as an endorser.

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