McKinsey & Company Asks the Question: "Is Sports Sponsorship Worth It?" - Measuring Sponsorship ROI

By Paul Birdwell (paul@roaringforkagency.com)

If there is an issue that comes up time-and-time again when pitching sponsorships to companies it is the ROI (return-on-investment) that a particular sponsorship could generate and thus figuring out ways to measure the direct impact of sponsorships will be more and more important going forward for both companies and agencies pitching sponsorship opportunities.

McKinsey & Company put out their latest thinking this past summer on best practices with ways to measure ROI on sports sponsorships which is a must read for anyone working in the sponsorship business which we post here with our commentary below:

Is sports sponsorship worth it?, Jeff Jacobs, McKinsey & Company

“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. That’s 10 percent more sponsorship revenue than from the last World Cup, in South Africa.1 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.

Scoring sponsorships
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.2 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,3 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.”

A key metric that the Roaring Fork Agency has been working on relative to its current sponsorships is Cost Per Reach with a focus on the targeted demographic within the overall group of people that are exposed to the sponsorship which is vital in determining if a sponsor is getting the Bang for their Sponsorship Buck.

It’s not always easy to get an accurate measurement of Cost Per Reach for sponsorships, but it’s worth the effort to try to within an overall goal of figuring out the ROI for each and every sponsorship investment because that will allow companies to both better decide on whether to continue with their current and potential future sponsorship plans.

Another great study by McKinsey & Company on reaching consumers in the marketplace was their look at….

The Consumer Decision Journey, David Court, McKinsey & Company

….from 2009 which opens with some interesting insights into how important it is to reach consumers at critical times when they are making their buying decisions which will often lead companies to considering sponsorship which falls outside of mainstream marketing that is increasingly ignored by a distracted public that can be reached by unique sponsorship strategies that reach consumers directly.

“If marketing has one goal, it’s to reach consumers at the moments that most influence their decisions. That’s why consumer electronics companies make sure not only that customers see their televisions in stores but also that those televisions display vivid high-definition pictures. It’s why Amazon.com, a decade ago, began offering targeted product recommendations to consumers already logged in and ready to buy. And it explains P&G’s decision, long ago, to produce radio and then TV programs to reach the audiences most likely to buy its products—hence, the term “soap opera.”

Marketing has always sought those moments, or touch points, when consumers are open to influence. For years, touch points have been understood through the metaphor of a “funnel”—consumers start with a number of potential brands in mind (the wide end of the funnel), marketing is then directed at them as they methodically reduce that number and move through the funnel, and at the end they emerge with the one brand they chose to purchase (Exhibit 1). But today, the funnel concept fails to capture all the touch points and key buying factors resulting from the explosion of product choices and digital channels, coupled with the emergence of an increasingly discerning, well-informed consumer. A more sophisticated approach is required to help marketers navigate this environment, which is less linear and more complicated than the funnel suggests. We call this approach the consumer decision journey. Our thinking is applicable to any geographic market that has different kinds of media, Internet access, and wide product choice, including big cities in emerging markets such as China and India.”

Amen to that McKinsey & Company.

Is sports sponsorship worth it?, Jeff Jacobs, McKinsey & Company

The Consumer Decision Journey, David Court, McKinsey & Company

McKinsey & Company – www.mckinsey.com

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