How to navigate the treacherous world of celebrity endorsements Featured

8:01pm EDT July 31, 2012
How to navigate the treacherous world of celebrity endorsements

It’s become so difficult to create mindshare for a product or service that companies are increasingly counting on celebrities to do the heavy lifting. Celebrities now appear in about 15 percent of U.S. advertisements, and AdAge estimates that companies invest $50 billion each year on corporate sponsorships and endorsements.

But do the rewards of celebrity endorsements justify the cost or the risk? There’s no doubt that some campaigns have been very successful, but the jury is still out on the overall effectiveness of celebrity advertisements. Some experts estimate that Tiger Woods’ debacle cost shareholders of the companies he endorsed up to $12 billion.

“We have a celebrity-driven culture so the ads make a lot of sense in a cluttered marketplace,” says Jagdish Agrawal, Ph.D., interim dean and professor of marketing for the College of Business and Economics at California State University, East Bay. “But executives need to proceed with caution because hitching your brand to a celebrity is expensive and can be fraught with danger.”

Smart Business spoke with Agrawal about the dos and don’ts of celebrity endorsements.

How do celebrity endorsements work and are they really effective?

While celebrities are capable of creating brand awareness or projecting a certain image, studies show that they have a limited impact on sales. Consequently, executives must set realistic goals and select the right endorser to ensure a campaign’s effectiveness. For example, hiring an attractive actress to promote a beauty and cosmetics line is a good idea since customers automatically assume that the endorser is credible. Or, using a rugged, professional athlete to tout a line of jeans is a viable strategy as long as his or her persona supports the product’s brand and desired image. In fact, studies show that a company’s stock price rises when a new endorsement deal is announced as shareholders anticipate a boost in sales. But the stock price typically retreats within a few weeks as the deal’s luster starts to fade.

However, a celebrity is capable of driving sales if he or she is a recognized expert in his or her field, and if the celebrity takes an active role in the product’s development and promotion. Tiger Woods successfully designed and marketed a line of golf clubs, and several celebrity chefs have used their expertise to design and promote gourmet cookware and accessories.

When should companies consider celebrity endorsements?

Celebrity endorsers are particularly effective when it is hard to distinguish one product from another or when a company needs instant credibility to penetrate a new market. Studies show that people pay attention when they see a celebrity and tend to remember a product or service that a celebrity pitches. For instance, using a glamorous actress to promote a luxury resort or expensive jewelry line is a good idea since customers use feelings or emotions to make those types of purchases. But when customers base buying decisions on research and facts companies are better off using a noted expert instead of a diva. A tennis aficionado may listen to Maria Sharapova’s recommendations about a racquet’s tension and flexibility but will scoff at that advice if it comes from Kim Kardashian.

What are the keys to selecting the right spokesperson?

The celebrity must resonate with your audience and be viewed as someone who would use your product or service. Therefore, consider a spokesperson’s age, image and strategic brand alignment when making your selection. For example, soft drink and snack companies often engage up-and-coming recording artists to attract youthful customers or they may try to evade the advertising doldrums by taking a tongue-in-cheek approach and hiring someone like Betty White. On the other hand, financial services companies need to garner prospective customers’ trust so they tend to hire veteran actors or former news anchors who exude wisdom and integrity. After all, you probably wouldn’t buy securities from Justin Bieber but you might listen to Sam Waterston or Tom Brokaw. Aside from the strategic match, do your homework because you don’t want to hire a celebrity who may be involved in a scandal down the road.

How can companies avoid the fallout from celebrity missteps or scandals?

Hiring multiple endorsers helps companies avoid the fallout from a scandal since customers won’t associate their brand with a single promoter. For instance, Nike wasn’t fazed by Tiger Woods’ marital problems because it was able to run other ads, but his unforeseen issues blindsided Accenture and decimated its entire campaign. Hiring a celebrity for his or her expertise rather than image or personality is another way to avoid the fallout from a scandal, since professional reputations built on experience and success can generally withstand the impact from a personal miscue.

What else should executives know before shelling out funds for a celebrity spokesperson?

Sometimes a CEO or CFO knows a celebrity and tries to sway the decision. Instead, let the ad agency do its job since it understands the complex nature of endorsements and knows which celebrity has the image and personality to resonate with your customers. Also, don’t overestimate the return or effectiveness of a celebrity advertising campaign. It’s not a magic cure-all for lagging sales or a bad product; it’s just another way for a good company with a quality product or service to stand out in a crowd.

Jagdish Agrawal, Ph.D., is the interim dean and professor of marketing for the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3291 or jagdish.agrawal@csueastbay.edu.

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