Is sports spon­sor­ship worth it?

How much value is gen­er­ated from spon­sor­ing the World Cup? Or its su­per­stars, such as Lionel Messi or Cris­tiano Ron­aldo? Here are five met­rics that are cru­cial to find­ing out.

ArabAd - - CONTENTS - This ar­ti­cle is courtesy of Mck­in­sey & Com­pany www.mck­in­sey.com.

The Fédéra­tion In­ter­na­tionale de Foot­ball As­so­ci­a­tion stands to make $1.4 bil­lion from spon­sor­ship deals with 20 ma­jor com­pa­nies dur­ing the World Cup in Brazil (2014). That’s 10 per­cent more spon­sor­ship rev­enue than from the last World Cup, in South Africa. Al­though sig­nif­i­cant, that’s still far be­low US cor­po­rate spend­ing on sports spon­sor­ships, which grew to an es­ti­mated $20 bil­lion in 2013—equal to one-third of to­tal US tele­vi­sion ad­ver­tis­ing and one-half of dig­i­tal ad­ver­tis­ing.

Con­sid­er­ing the huge amounts in­volved, you would imag­ine spon­sors of ath­letes and events have clear an­swers when asked about their re­turn on in­vest­ment (ROI). You would be wrong. Industry re­search re­veals that about one-third to one-half of US com­pa­nies don’t have a sys­tem in place to mea­sure spon­sor­ship ROI com­pre­hen­sively. And that’s costly in an­other way: in our ex­pe­ri­ence, executives who im­ple­ment a com­pre­hen­sive ap­proach to gauge the im­pact of their spon­sor­ships can in­crease re­turns by as much as 30 per­cent.

To man­age spon­sor­ship spend­ing ef­fec­tively, ad­ver­tis­ers must first ar­tic­u­late a clear spon­sor­ship strat­egy— the over­all ob­jec­tive of their port­fo­lio, the tar­get de­mo­graphic, and which stages of the con­sumer de­ci­sion jour­ney (aware­ness, con­sid­er­a­tion, pur­chase, loy­alty) spon­sor­ships can sup­port. Com­pa­nies should then im­ple­ment a com­plete mar­ket­ing ROI pro­gram based on five met­rics to mea­sure the per­for­mance of spon­sor­ship spend­ing:

1. Cost per reach.

Mar­ket­ing executives should eval­u­ate cost per reach—the num­ber of peo­ple ex­posed to the spon­sor­ship in per­son as well as through media such as TV, ra­dio, and print— on a quar­terly ba­sis us­ing data from in­ter­nal sources or the spon­sor­ship

agency. Costs in­clude not only rights fees but also ac­ti­va­tion costs (for ex­am­ple, pro­mo­tional booths and mer­chan­dise) and ad­ver­tis­ing. Reach cal­cu­la­tions should fa­vor ex­po­sure to the tar­get de­mo­graphic over to­tal num­bers.

To mon­i­tor world­wide spon­sor­ships us­ing cost per reach, one re­tailer built a data­base us­ing cost and reach data from its agency, the spon­sors, and pub­licly avail­able sources. Anal­y­sis re­vealed that 15 per­cent of its prop­er­ties were twice the av­er­age cost per reach as oth­ers. Some spon­sor­ships (such as a premier sports team) had high costs while oth­ers (a music con­cert, for in­stance) de­liv­ered low reach. The data­base also iden­ti­fied the spon­sor­ships that did not reach the ad­ver­tiser’s tar­get de­mo­graphic. With these in­sights, the com­pany re­al­lo­cated its spon­sor­ship dol­lars to bet­ter ve­hi­cles that in­creased over­all reach by 20 per­cent at the same cost.

2. Unaided aware­ness per reach.

We find that com­pa­nies of­ten spend a lot of money ac­quir­ing spon­sor­ship rights but very lit­tle on ac­ti­va­tion—that is, mar­ket­ing ac­tiv­i­ties such as pro­mo­tional booths and mer­chan­dise to pro­mote the spon­sor­ship. Our ex­pe­ri­ence, as well as IEG re­search from 2011, shows wide vari­ance: for ev­ery $1 spent on spon­sor­ship rights, com­pa­nies de­vote any­where from $0.50 to $1.60 to ac­ti­va­tion. That means many cor­po­ra­tions skimp, miss­ing huge op­por­tu­ni­ties to mag­nify a spon­sor­ship’s im­pact on sales or aware­ness. One US con­sumer pack­aged-goods com­pany, for ex­am­ple, al­lo­cated 80 per­cent of its spon­sor­ship bud­get to rights fees and only 20 per­cent to ac­ti­va­tion. Af­ter an­a­lyz­ing its ef­forts, it found that in­creased ac­ti­va­tion re­sulted in greater unaided aware­ness and higher brand re­call. With this in­sight, the com­pany shifted re­sources from its low-per­form­ing prop­er­ties to in­crease ac­ti­va­tion for its stand­out spon­sor­ships, in­creas­ing unaided aware­ness of them by 15 per­cent.

3. Sales/mar­gin per dol­lar spent.

Link­ing sales di­rectly to spon­sor­ships is typ­i­cally chal­leng­ing, but two ap­proaches can help to quan­tify it. The first is a two-step ap­proach that ties spend­ing on spon­sor­ships to key qual­i­ta­tive mar­ket­ing mea­sures such as unaided aware­ness, propen­sity to buy, and will­ing­ness to con­sider. It then tracks the im­pact of each vari­able on short- and long-term sales. The sec­ond ap­proach, based on econo­met­rics, uses data on spend­ing and reach (among a host of other media vari­ables) over an ex­tended pe­riod to es­tab­lish links be­tween spon­sor­ships and sales, and then iso­late the im­pact of spon­sor­ships from other mar­ket­ing and sales ac­tiv­i­ties.

A hand­set man­u­fac­turer, for ex­am­ple, fol­lowed the first method, set­ting up a quar­terly con­sumer sur­vey to mea­sure the im­pact of spon­sor­ship on sales. By con­duct­ing ad­vanced anal­y­sis on the data set, the com­pany was able to iden­tify the spon­sor­ships that were truly driv­ing con­sumer will­ing­ness to con­sider the com­pany’s prod­ucts, which it then linked to sales. The anal­y­sis showed a ten­fold ROI dif­fer­ence be­tween the top-quar­tile and bot­tom-quar­tile spon­sor­ships. The com­pany now uses this method to help with ne­go­ti­a­tions dur­ing yearly re­views of its spon­sor­ships.

4. Long-term brand at­tributes.

Spon­sor­ships have the po­ten­tial to reach beyond short-term sales to build a brand’s iden­tity. Brand strength con­trib­utes 60 to 80 per­cent to over­all sales, mak­ing this ben­e­fit crit­i­cal for sus­tained, long-term sales growth. A qual­i­ta­tive as­sess­ment or sur­vey can help com­pa­nies iden­tify the brand at­tributes that each spon­sor­ship prop­erty sup­ports. Anal­y­sis of those re­sults helps mar­keters de­ter­mine which spon­sor­ships are re­in­forc­ing a com­mon brand theme. The hand­set man­u­fac­turer above used sur­veys to de­ter­mine that a num­ber of its spon­sor­ship prop­er­ties were mis­aligned with the brand at­tributes it wanted to con­vey—some ac­tu­ally had a nega­tive ROI. The ad­ver­tiser shed the poor-per­form­ing spon­sor­ships and de­vel­oped new mes­sag­ing and ac­ti­va­tion plans for the oth­ers.

5. In­di­rect ben­e­fits.

Spon­sor­ships may stim­u­late in­di­rect sales—for in­stance, when ad­ver­tis­ers host executives at spon­sored events or when they’re part of a bal­ance-of-trade com­mit­ment. There­fore, any anal­y­sis of spon­sor­ships must also ac­count for these in­di­rect ben­e­fits. Com­pa­nies of­ten ei­ther ne­glect or over­es­ti­mate these sources of rev­enue when cal­cu­lat­ing ROI. A fi­nan­cial in­sti­tu­tion, for ex­am­ple, used its spon­sor­ship of a golf tour­na­ment to host clients for its wealth-man­age­ment busi­ness. Anal­y­sis re­vealed that the im­pact of the tour­na­ment on in­di­rect sales cov­ered the spon­sor­ship costs, mak­ing it one of the most ef­fec­tive spon­sor­ships in its port­fo­lio.

Spon­sor­ships have be­come an in­te­gral com­po­nent of mar­ket­ing strat­egy. Yet many com­pa­nies still do not ef­fec­tively quan­tify the im­pact of these ex­pen­di­tures, even for events re­quir­ing sig­nif­i­cant spend­ing such as the World Cup. A sys­tem­atic com­mit­ment to a menu of an­a­lyt­ics ap­proaches al­lows executives to iden­tify spon­sor­ships that cre­ate value as well as those that don’t live up to their names.

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