Sponsorships and endorsement deals can be hugely expensive. They greatly increase the cot of running the business and so are often the last thing on the minds of key decision-makers of startups.
The goal of this article isn’t to convince you that reducing costs to increase profits is a bad idea (I’m afraid the ideas presented today aren’t going to shatter basic arithmetic). Rather, we hope to give you an idea of what sponsorships and endorsements are, and how startups can and should capitalise on them when they are financially able to do so.
What Exactly Is A Sponsorship?
A sponsorship is an investment in an activity, which is done in return for access to the exploitable commercial potential that is associated with that activity. (Don’t worry, we’ll unpack that in a bit.) Endorsements, on the other hand, usually refer to the event, entity, or individual being sponsored. In short, a company sponsors an entity and an entity endorses a company’s product.
Companies seeking to sponsor entities or events will sometimes offer cash. Other times, they will offer an investment “in kind”, i.e. services or goods. For example, a sportswear apparel company like ASICS might sponsor a marathon organiser with 100 pairs of running shoes for the first 100 individuals to complete the marathon. Electric Dreamz, an event management company, might sponsor the marathon organiser with event organisation services.
Exploitable commercial potential refers to anything positive that the sponsoring company might be able to derive from providing their goods or services. This could come in the form of increased brand visibility, image augmentation and sales promotion through association with the endorser, etc. All of these are incredibly important to any company, especially a startup that is just emerging and trying to get its brand recognised.
In this regard, startups are akin to the young aspiring graphics designer that offers free services in the hopes of getting exposure (or the billionaire’s kid that gets to throw a ton of money at a bank to become an investment banker there).
Why Is Brand Visibility Important?
Why is brand visibility, specifically to your startup’s target market, important? Well, simply put, if people don’t know about your product, they can’t buy it.
As mentioned in our SWOT Analysis article, the product or service you offer cannot exist in a bubble; your company is constantly competing with others to grab consumers’ dollars. By sponsoring events/entities, companies can leverage on the increased outreach to widen their brand’s exposure.
Naturally, if you’re trying to access a specific market, you’ll want to sponsor events related to that market. For instance, if your startup is trying to market a new waterproof wearable tech product to active individuals, you’ll want to sponsor a fitness-related event like a triathlon, and not a tree-planting event. This is so you can reach as much of your target market as possible.
Furthermore, many sponsorships entail exclusivity. That is, other companies in similar product categories are not allowed to sponsor the entity. In this way, the emerging startup is able to kill two birds with one stone — increasing its own brand awareness while stifling others’.
Enhancing Your Image And Associations
So how is an enhanced image and association with certain entities useful for startups?
Well, did you know that it costs Nike an average of USD30-50 to manufacture, distribute and sell a pair of shoes — and Nike Jordan’s sell for an average of USD150-200? While a celebrity endorsement can increase the perceived value of a product (and thereby, its retail price), associating the company with a premium entity can also instantly propel a startup from relative obscurity to a premium brand despite its relative youth. Think Steph Curry and Vivo Mobile.
Why did Burger King enlist the help of David Beckham in promoting their fruit smoothies? Because it works.
People want to be like their favourite celebrities and idols; they want to eat, dress, and live like them. Moreover, celebrities being public figures make them highly familiar to many people. This increases the chances consumers purchasing the product because they see a familiar face promoting it.
Startups should consider this when comparing the returns on investment they can acquire from more traditional promotional methods like advertising, versus more targeted public relations efforts, such as through celebrity endorsements. Of course, celebrity endorsements do not come cheap. But the rise of social media has been accompanied by the rise of influencers; startups might want to consider micro-influencer marketing.
But let’s move away from sponsoring specific individuals. A study found that fans’ loyalty towards a sports team had a significant, positive correlation with their attitudes towards the sponsors. In fact, more than changing brand perceptions, if a company sponsors a sports team, there’s a good chance their fans will purchase from the brand sponsoring the team, increasing the number of sales made.
And don’t think that only sport product companies can sponsor sport entities. Betway, an online betting company, sponsored West Ham United Football Club, and that was after Alpari Group, a financial brokerage services provider, was forced to drop their sponsorship after filing for insolvency.
It’s also common to see non-sport luxury brands like Rolex and Tag Heuer sponsoring sport events like golfing or auto racing events. The bottom line is: you can be creative with the entities you seek to sponsor if you know what they can offer.
Evidently, sponsorships are powerful tools that your startup can utilise to establish a strong brand presence and leapfrog over other organisations. However, the real issue is: how do you pick a sponsor and capitalise on these sponsorship opportunities? You can’t expect to automatically acquire an increased market share and enhanced brand image just by acquiring the sponsorship licence/agreement with the entity and providing free stuff.
The other obvious issue is how do you know it’s working? A celebrity isn’t a cashier that logs your end-of-day sales for you and even then, you wouldn’t know how many people purchased the product because he/she is standing there to promote it.
All these questions and more will be addressed in part 2!