Assessing the Financial Impact of Sponsorship Investment

Assessing the Financial Impact ofSponsorship InvestmentAnastasia A. KourovskaiaMillward Brown Optimor

Tony MeenaghanUniversity College Dublin

ABSTRACT

This paper outlines an effective approach to the problem of assessing the financial impact ofsponsorship investment, which has a track record of successful implementation in the sponsorshipindustry. Based on a number of interrelated proprietary models the approach provides the tools tomeasure the brand financial uplift created by a sponsorship programme and the shareholder valuethus created. The core thrust of the paper is around the use of the MBO model, i.e., the MillwardBrown Optimor model, which has proved successful in capturing the effectiveness of sponsorshipsand in forecasting financial performance of the brand and thus allowing for the quantification of thevalue created for the brand by the sponsorship investment. The implementation of the MBOapproach is outlined as a five-step process involving comprehensive segmentation, benchmarking toderive a brand discount rate, modeling of financial performance, determining the role of the brand inultimately driving usage choice, and ultimately providing the techniques to calculate BrandContribution in financial terms. The paper concludes that the complex tasks involved in assessingthe financial impact of sponsorship investment and the impact on shareholder value can berigorously addressed through the application of these tools and sponsorship managers can therebymake improved decisions which are underpinned by market and financial analysis. C 2013 WileyPeriodicals, Inc.

Sponsorship has seen significant growth in recentdecades, becoming an important marketing tool anda substantial investment focus for many brands. As abrand investment option it is imperative that sponsor-ship be measured and held accountable for the valueit creates for the companys shareholders. Widely usedmethods of sponsorship evaluation such as media expo-sure valuation, econometric modeling and the trackingof specific brand metrics, provide useful measures ofsponsorship impact, but they do not however providea comprehensive assessment of the actual value thatsponsorship creates for the brand and ultimately forshareholders.

The model for measuring sponsorship impact out-lined in this paper, the Millward Brown Optimor model(herein after referred to as the MBOmodel) is based onmeasuring the brand financial uplift created by a spon-sorship programme. In this model brand performanceis assessed across different market segments and thosesegments where sponsorship has been implemented areisolated in order to identify the financial value uplift foreach individual segment. A fundamental of the modelis that if the sponsorship has a positive effect, thenthose consumers exposed to and interested in sponsor-

ship should generate a higher brand loyalty and cre-ate greater value for the company than consumers whohave not been exposed to the sponsorship or who lackspecific interest in it.

SPONSORSHIP AND BRAND VALUE

The sponsorship journey starts with an analysis of thecompetitive environment, market trends, and brandimage. This analysis enables brand owners to under-stand how and where value is created, where the op-portunities for growth are and what levers can be usedto effect that growth, particularly which brand imagecharacteristics need to be changed and how this changemight be achieved. When sponsorship is being consid-ered, this understanding needs to be matched with theprofiles of sponsorship properties in order to assessstrategic fit and model the impact of the proposed spon-sorship programme on the brand, on the business as awhole and ultimately on shareholder value. This pro-cess is illustrated in Figure 1 below.

Psychology and Marketing, Vol. 30(5): 417430 (May 2013)View this article online at wileyonlinelibrary.com/journal/marC 2013 Wiley Periodicals, Inc. DOI: 10.1002/mar.20616

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Figure 1. Sponsorship and brand value generationtheprocess.

THE BRAND AS FINANCIAL ASSET

For any corporation, brand is one of the most valu-able financial assets. Companies with strong brandsachieve greater sales and profits and create lastingbusiness value, a key finding of the PIMS researchstudies (Buzzell & Gale, 1987; Buzzell, Gale, & Sul-tan, 1975). Indeed Millward Brown Optimor analysisindicates that the book value of a company in 2012 ac-counted for only 47% of an average companys marketcapitalization. The rest of its capitalization consisted ofintangible assets, and about half of that figure, some31% of total market capitalization, was related to thebrand (Stengel, 2011).

A strong brand therefore is an asset that needs to becarefully crafted and developed and then continuallynurtured. Axiomatically, the brand as an asset has todeliver value in excess of the cost of its maintenance ormarketing investment.When a brand is encountered bythe consumer, it evokes a set of associations, including arange of rational and emotional dimensions of response.Effective marketing helps builds strong brands by com-municating and evoking what the brand stands for ina clear, consistent, and compelling manner across alltouchpoints. A list of brand definitions as used in thispaper is included in Appendix A.

PLANNING AND CHOOSING THESPONSORSHIP PROGRAMME

Corporate investment in sponsorship has experiencedsignificant annual growth for several decades, thoughsome deceleration of rate has characterized the recentfinancial crisis. Sponsorship is regarded as differentfrom othermarketing activities in terms of its enhanced

ability to emotionally engage with and build strongbrand associations among consumers. The unique ca-pacities of sponsorship can be deployed toward gen-erating brand awareness, fostering brand perceptions,and driving brand engagement, but the achievement ofthese outcomes demands a rigorous sponsorship man-agement process.

Decisions made at key stages of the sponsorshipmanagement process have a significant bearing onthe subsequent effectiveness of the sponsorship invest-ment. The following steps are critical to effective andsuccessful management of a sponsorship programme:

(a) Specifying sponsorship objectives.(b) Selecting the sponsorship programme.(c) Implementing a comprehensive sponsorship ac-

tivation programme.(d) Measuring sponsorship effectiveness.

Each of these decision stages is briefly outlined, withparticular elaboration where specific decisions feed intounderstating the use of the MBO model to determinethe financial value of sponsorship investment, which isthe core issue discussed in this paper.

Specifying Sponsorship Objectives

The objectives of sponsorship vary and can be targetedat both internal and external audiences: Such objec-tives include

Building Brand/Corporate awareness: Sponsor ex-posure creates consumer brand awareness.

Enhancing Brand/Corporate image: Sponsorshipenables a brand to create a unique personalityand style, which distinguishes one product fromanother in the marketplace.

Building Customer Relations: Sponsorship canfoster dialogue between corporations, portrayingthe sponsor as both global player and suitablepartner for potential business interaction. It cansimultaneously provide suitable hospitality vehi-cles for client engagement.

Improving Employee Relations: Focused inter-nally, sponsorship can foster company pride andloyalty and assist in attracting and retaining staff.

Strengthening Community Relations: Sponsor-ship can display a companys commitment to itscommunity and its concern for citizens.

In an effective sponsorship programme, tight spec-ification of these kinds of objectives must always besought. The objectives, wherever possible, must be ex-pressed in terms of precise outcomes with a clear in-dication of the metrics, which will be used to evaluatewhether or not the objective has been achieved. Theconcern of this paper would suggest that, even at a pre-liminary stage of selection, it is valuable to identify thekind of objectives that are being sought both in termsof the cost of seeking them through various marketingcommunications platforms and the projected monetary

418 KOUROVSKAIA AND MEENAGHANPsychology and Marketing DOI: 10.1002/mar

Figure 2. The impact of appropriateness of the sponsorship on brand image.Source: Millward Brown Optimor.

and financial value which brand uplift created by thatsponsorship can deliver.

Selecting the Sponsorship Programme

Potential sponsorship options should be evaluatedagainst designated criteria to determine the capacityof each option to satisfy desired objectives and to de-liver, within the cost parameters, the desired financialbenefit to the brand. While inevitably some element ofjudgment will always be involved in such situations,the evolution of sponsorship has seen the developmentof a range of tools to provide a more scientific basis tounderpin selection decisions. Two such tools are nowbriefly discussed. They provide approaches to optimizesponsorship appropriateness and sponsorship/brandmatching in the ultimate pursuit of generating branduplift and financial impact.

The issue of the determination of "sponsorship ap-propriateness" is increasingly the subject of formalresearch. Figure 2 depicts the results of a MillwardBrown study of the impact of perceived sponsorship fit(Appropriateness of Sponsorship) on brand image (Bet-ter Impression of Brand). As can be seen there is clearlya strong correlation between perceived appropriate-ness and better impression of the brand. Researchat the early stages of sponsorship programme develop-ment can indicate market perceptions of fit betweenbrand and sponsorship property and thus guide the se-lection to maximize the impact and eventual financialreturns.

A precondition for successful sponsorship is that thesponsored property must simultaneously be of inter-est to and have the potential to engage the brandstarget market. Where brands seek to reposition, pre-viously appropriate properties may recede in terms of

relevance. For example, InBev in 2008 decided, after29 years involvement, not to renew the Stella Artoissponsorship of the (pre-Wimbledon) Queens Club ten-nis tournament because its target market had changed(Sandison, 2008).

Where there is a perceived fit between the sponsor-ship and the brand, improved results can be observed.According to Speed and Thompson (2000) the level offit is positively related to sponsorship responses, in-cluding willingness to consider the sponsors product.Overall, partnerships that offer the most appropriateassociation tend to bemore effective in improving brandperception and ultimately drive the commercial successof the brand.

Implicit in the discussion regarding perceived fit arethe concepts of personality and image values, which areapplicable to both brand and sponsored activity. Theconcept of personality in sponsored properties has longbeen recognized. In 1984, Meenaghan suggested thatIndividual activities or events are possessed of partic-ular personality attributes in the publicmind andmuchsponsorship activity is directed towards garnering arub-off effect to the company or its products throughassociation with a particular sponsorship event or ac-tivity (Meenaghan, 1983, p. 29).

In a brand/sponsorship relationship there is a trans-fer of sponsored property values to the sponsoringbrand. This process is illustrated in Figure 3 below.

In terms of image, Gwinner and Eaton (1999) dif-ferentiated between function-based and image-basedfit. Function-based fit exists or can be created whenthe brands products are actually used in connectionwith the sponsorship, e.g., sports apparel and a sportsevent. Image-based fit is achieved when the sponsorsimage is congruent with the image of the event, e.g.,Coca-Cola and its music sponsorship programme. Formost brands it is often easier to achieve image-based fit

ASSESSING THE FINANCIAL IMPACT OF SPONSORSHIP INVESTMENT 419Psychology and Marketing DOI: 10.1002/mar

Figure 3. Sponsorshipimage transfer by association.Source: Meenaghan (2003).

compared to function-based fit, this is particu-larly true for nonsports brands sponsoring sportingevents.

The CEBRA matching matrix model is the secondtool that can be used to optimize sponsorship selec-tion. The model defines the image profiles of brandsand those of various potential properties and assessesthe fit between brands and potential properties, basedon calculating a distance score between the imageprofiles. From this analysis, the top matches arehighlighted. The matching matrix also helps to iden-tify properties that will either compliment the currentbrand profile or alter that profile as required. Brandstrategy, driven by consumer and market understand-ing, outlines the required brand profile. An analysis ofCEBRA results can determine whether the associationwill help to stretch the brand in a desired direction,allow the brand to confirm its current image or poten-tially detract value by stretching the brand image in anundesired direction.

By way of illustration, Figure 4 shows the matchbetween a luxury Hotel Brand and a Yacht Regattasponsorship. Clearly this match illustrates consider-able overlap in brand values, but also shows the po-tential addition of values such as passion and funand the opportunity tomove the hotel brand into amoredynamic territory.

Figure 4. Sponsorship equity fit: Regatta versus LuxuryHotel Brand.

Source: Millward Brown Cebra (2012).

The marketing strategy adopted combines two fun-damental elements of brand, i.e., awareness and theappropriateness of the associations. To this end, mar-keters must first build awareness among the targetmarket and concurrently or subsequently build theright associations that will ensure differentiation andbuild strong relationships with customers.

Sponsorship Activation

Activation is a fundamental element in ensuring a suc-cessful sponsorship strategy. Activation includes theuse of promotions, competitions, television advertisingduring breaks, corporate hospitality, etc., to promoteand exploit the sponsorship investment. At the simplestlevel, if customers are unaware that the brand is spon-soring an event, there will be no brand benefit. In thewords of Joe Tripodi, Chief Marketing Officer of Coca-Cola In sponsorship its not what you have, its whatyou do with it. Its all about activation (Economist,2008). Adequate activation budgets that may exceedproperty rights fees are vital to the success of the spon-sorship programme. In 2011, the average ratio of acti-vation spending to the costs of acquiring sponsorshiprights was $1.60 (on leveraging) to $1 (on rights fees).According to research from IEG (2011), the high watermark for activation spending to rights fees was $1.90$1 in 2007.

Measuring Sponsorship Effectiveness

Global spending on sponsorship in 2012 is expected toreach 10% of total marketing budget (IEG/PerformanceResearch, 2012), which is four times higher than the2.5% recorded in 1987 Otker and Hayes, (1987). Giventhe scale of expenditure involved, the accurate mea-surement of sponsorship effectiveness is vital. Suchmeasurement will establish sponsorships contribu-tion in achieving brand ambition as well as provid-ing valuable input to enable planners to maximizethe returns to be gained through the sponsorshipprogramme.

As with marketing inputs generally, the measure-ment of sponsorship impact is not straightforward,with a number of factors rendering the process moredifficult:

Sponsorship is rarely the sole marketing activ-ity. Typically, a combination of several marketingtools is used to support the brand, thus makingoutcomes achieved the results of several market-ing activities. These individual contributors maynot be easily separated from each other.

Results can be impacted by a variety of externalfactors such as the adverse economic conditions,technological breakthroughs, or competitive activ-ities that may not be easily isolated in attributingresults to particular inputs;


Unsurprisingly, many companies are hesitant to al-locate additional budget spend to measuring the ef-fects of a marketing input when they have fundamen-tal doubts as to how well such impact can be measured.Even when budget is allocated to measuring sponsor-ship impact, many organizations concentrate on mea-suring awareness and tracking brand image or attemptto quantify the direct sales impact of the sponsorshipactivity.

APPROACHES TO MEASURINGSPONSORSHIP EFFECTIVENESS

Widely used approaches to measuring sponsorship ef-fectiveness can be categorized under a number ofheadings including determining media equivalence,econometric modelling, and brand impact measure-ment.

Determining Media Equivalent Value

Assessing and valuing media coverage delivered by thesponsorship is a widely used approach to quantify spon-sorship impact. This revolves around eyeball count-ing, i.e., measuring media equivalent ratings, grossrating points, time on screen, etc. Valuing media ex-posure is an easy to measure, relatively cheap, wellunderstood, and a process familiar to managers thatgenerates numerical outcomes for consideration andcomparison.

Determiningmedia equivalence involves calculatingthe value of exposing a brand name or logo to consumersin traditional media, primarily television and press.Current research methodologies allow brand owners tovery precisely track the duration of brand name or logoexposure on screen, such as in the case of shirt spon-sorship or perimeter board exposure during a sportsevent. The calculated time on screen or in press is con-verted into a financial value by applying advertisingrate card rates to the time or space. In the case of tele-vision exposure, the numerical value generated is typi-cally heavily discounted as this type of media exposureis regarded as not delivering the same quality mediaconnection as a television commercial because viewersare primarily viewing a match rather than focusing onperimeter boards or team shirts. Additionally, a 30 sec-ond television execution carrying a direct brand mes-sage has greater impact when compared to a 30 sec-ond perimeter board exposure involving brand name orlogo. The level of discount is difficult to quantify, butmay be as high as 90% according to industry sources.Once discounted, the estimated value of exposure canbe related to the cost of the sponsorship investment tocalculate ROI on sponsorship and further to determinethe relative effectiveness of sponsorship compared to al-ternative expenditures such as a television advertisingcampaign. Visibility monitoring is also useful in termsof benchmarking the brand against competitors. It is

however important to recognize that visibility is onlyone element of marketing and cannot be considered inisolation. Overall, determining media equivalence pro-vides a quick, measurable assessment, but should notbe employed in isolation to evaluate the effectivenessof a sponsorship programme.

Sponsorship and Econometric Modeling

The second method, applying econometric modeling, isusually more accurate in terms of quantifying short-term marketing impact and attributing that impact todifferent marketing or promotional activities. The ef-fectiveness of the sponsorship however depends largelyon the scale and quality of activation undertaken bysponsors. Good econometric models allow a sponsorshipmanager to capture and explain short-term movementin key metrics, e.g., revenue or sales volumes. This isespecially true for consumer-facing companies. ManyB2C companies in fact have a long history of sponsor-ship, advertising, and other marketing programmes,which allows them to have, by way of reference, a set ofrevenue uplift benchmarks based on past programmeswith similar budgets and activation levels. Such bench-marks provide a basis for comparison of effectiveness.

Sponsorship and Brand ImpactMeasurement

The third approach relies on measuring the impactof sponsorship in terms of improvements in brandimage and enhanced emotional engagement with thebrand and even purchasing intent. For example, fol-lowing its sponsorship of the Beijing Olympics, Coca-Cola achieved a 25% increase in awareness in China,with 50% of consumers confirming that they thoughtmore positively about the brand and 37% claiming theywould be more likely to buy Coca-Cola in the future(Mediaedge:cia, 2008). This illustrates a very tangiblelong-term effect that is typically not captured by econo-metric models, as the full effect of a marketing cam-paign can only be seen over an extended period of time.

THE MBO MODELKEY PRINCIPLES

The widely used sponsorship measurement approachesoutlined above focus on different stages of theconsumer purchase/relationship continuum up to andincluding purchase intent and even declarations of ac-tual purchase. Such methods (because of claimed na-ture of research responses) do not necessarily in them-selves identify the actual financial consequences of thesponsorship investment. The MBO approach to spon-sorship effectiveness measurement however comparesthe total cost of the sponsorship programme with thevalue created by it in order to identify the actual finan-cial impact of the sponsorship investment.


KEY PRINCIPLES UNDERPINNINGEFFECTIVENESS MEASUREMENT

Prior to discussing the MBO approach to the task of de-termining sponsorship effectiveness there are a numberof fundamental guiding principles, which underpin theMBO model, broadly falling into two groups related tomarketing evaluation issues andmore specifically spon-sorship evaluation issues.

Marketing Evaluation UnderlyingPrinciples

Both academia and business practice have long rec-ognized that marketing investments have both short-and long-term effects. Many marketing activities suchas advertising can produce an immediate result (e.g.,direct response), but where advertising intent is brandequity related, the results of such investment in termsof enhanced brand image, brand engagement actualsales, and brand loyalty will of necessity be evaluatedin the longer term. A properly constructed effectivenessmeasurement system must examine investment effectsboth short and long term.

Brand, in terms of its market equity is increasinglyrecognized as an important corporate asset though ofcourse positive consumer sentiment toward a brand isvaluable only if it can translate into shareholder valuethat can ultimately be quantified. Loyalty to the brandand consequent repurchasing of the brand translatesinto revenues that are realized through changes in pur-chase volume, price, and frequency. But revenue is notthe same as value and what must be taken into ac-count in the calculation of value are the costs incurredin producing product and creating andmaintaining con-sumer demand including brand development andmain-tenance costs.

In addition to its demand generating capacity, itshould also be recognized that a well-managed brandhas a positive impact across all functions of the com-pany from Sales to Human Resources. The supply sidebenefits of strong brands allow businesses to reduceoverall business risks and optimize their operations.Such benefits include the ability to negotiate betterterms with suppliers, to attract, and retain the bestemployees, to facilitate expansion into new productsand markets, and to reduce tax rate through brandlicensing.

Globally the importance of brand is growing steadilybut there is a significant level of variation in termsof brand equity value between geographies, industries(compare Personal Care to Fuel), markets, and evenindividual companies.

Past performance can aid the prediction of futurebehavior but it is the brands ability to deliver en-hanced future revenues that really matters and accu-rately quantifying the net value of such revenues is acrucial issue in the evaluation process. TheMBOmodeldiscussed in this paper combines and deploys a range

Figure 5. The BrandDynamics C Pyramid.Source: Millward Brown (2012).

of techniques to forecast financial performance of thebranded business in order to calculate such future earn-ings. Future brand earnings cannot of course be guar-anteed in an environment where risk is inherent but itis acknowledged that the greater the brands strength,the more future earnings are reliable and the lesserthe risk. Future brand earnings must of course be dis-counted to the present value to take into account therisk associated with the brand.

How can future consumer sentiment toward a brandbe predicted and how can its translation into share-holder value be modeled? The MBO model relies on aproprietary approach known as BrandDynamics, whichis a framework that maps consumer relationships withbrands and measure brand strength in consumersminds. The BrandDynamics C Pyramid is shown inFigure 5.

The five levels of the pyramid indicate the stagesof the consumer/brand relationship. The basic level ofthe relationship is that of Presenceknowing some-thing about the brand. Brands like Lenovo, followingits acquisition of IBMs personal computing business,had a crucial need to build familiarity. If consumers donot know about the brand, then even if they buy itsproducts, the decision is driven by reasons other thanbrand, it could be price, availability, but not brand. Thenext level, Relevance, is all about meeting needs. Assuch the brand and what it stands for has to be rel-evant to consumers, otherwise it will not be consid-ered. Once the brand is perceived as offering some-thing relevant, the product or service needs to meetconsumer expectations for a brand in this categoryand deliver against the brand promise, i.e., brand Per-formance. The top two levels of the pyramid describestrong feelings toward brands. Those consumers at theAdvantage level perceive the brand as offering some-thing better than its competitors, while at the Bondinglevel, the brand uniquely owns some important cate-gory characteristicsnothing else beats it in the con-sumers mind. In effect the higher the consumer is onthe pyramid, the higher will be the brands share of theconsumers wallet and of the expenditure dedicated tothat product or service category.

Bonding, the highest level of the Pyramid indicatesthe proportion of the consumer base which is bonded


Figure 6. The relationship between market shareand bonding.

Source: Millward Brown Optimor.

to the brand reflecting the proportion of customerswho would buy only that brand or have it as theirfirst choice. As the most loyal consumers, the bondeddeliver the highest proportion of spend to the brand.Figure 6 shows the results of research indicating thevery strong relationship between a brands bondingscore and its market share, which in turn is centralto delivering financial results.

The better the brand performs at the top levels of theBrandDynamics C Pyramid, in particular at the level ofBonding, the greater the share of product categoryspend will come to the brand. BrandDynamics C Pyra-mid serves as a basis for Brand Contribution calcula-tion in the MBO model.

Sponsorship EvaluationUnderlyingPrinciples

Sponsorship is generally implemented as part of amedia mix and is rarely the only marketing input.However, while the sponsorship team may operate inrelative separation, if not isolation, from the adver-tising and marketing teams, the reality is that con-sumers are generally unable to attribute their recalland memories to specific marketing inputs. For exam-ple consumers are unable to satisfactorily specify forresearchers whether sponsorship, TV advertising, ra-dio advertising, or Internet has been the source of thebrand message. Although it is possible to ask respon-dents whether they have seen or heard somethingthat they call sponsorship, the answers are likely tolack reliability and precision. This reality must be ac-knowledged in constructing any sponsorship evaluationmethodology.

A further consideration in designing an appropri-ate research methodology is the prior knowledge of po-tential respondents. A particular sponsorship is oftenchosen because of the overlap between the target audi-ence and the sponsored activity audience. Thus, evenbefore the sponsored activity commences, some of thoselikely to be later exposed to the activity (existing brand

Figure 7. Customer groups based on exposure and interestin sponsorship.


users) will already be more favorably disposed to thebrand. This predisposition must be taken into accountin any analysis of effectiveness. Research, prior to thesponsored activity, is necessary to establish the bench-marks against which success can be subsequently de-termined. Additionally, consumers who feel closer to abrand will be more likely to notice that brands spon-sorship of an event. So comparing attitudes toward thebrand among those aware of the sponsorship versusthose not aware of the sponsorship is likely to resultin misleadingly high differences in response scores.

Finally, in framing research, it is not productive tostart with the event and ask respondents who theythink the sponsors are. There is a substantial researchevidence to indicate that well-known brands and thosethat have historically sponsored events will dominaterespondent answering (Cornwell, Weeks, & Roy, 2005,2006; Johar & Pham, 1999, 2006; Lardinoit & Derbaix,2001; Wakefield, Becker-Olsen, & Cornwell, 2007).

These problems cannot be overcome by merely ex-amining and comparing brand users and nonusers; thesponsorship effect is more subtle than that. In orderto quantify the impact it is necessary to isolate thesponsorship effect by identifying those exposed to thesponsorship compared to those (of a similar profile) whohave not had the opportunity to experience the spon-sorship activity, i.e., those who are unexposed (Walshe,2002). Figure 7 illustrates this process in relation tointerest in the Olympics mapped against sponsorshipexposed/not exposed.

The customer base in Figure 7 is split into foursegments along two dimensions: (1) Level of interestin Olympics and (2) exposure to the sponsorship. Asshown, some 49% of the consumers are interestedin the Olympics and 20% are exposed to the spon-sorship, with 12% both interested in the Olympicsand exposed to sponsorship. This leaves 37% of thecustomer base interested in the Olympics but notexposed to sponsorship. Comparing and analyzingconsumer brand responses across the four segmentsin Figure 7 provides valuable insights for sponsorshipstrategy and facilitates sponsorship evaluation. Theprocess of comparing similarly profiled sponsorshipexposed versus not sponsorship exposed segments


serves to identify and isolate those segments wheresponsorship is impacting, thereby rendering availablefor deeper analysis of effects. This particular analysisis an essential of the MBO model and is discoveredmore fully later in this paper.

In considering the measurement of sponsorship ef-fectiveness it is important to realize that consumersare buying brands and not necessarily looking out forsponsorships. This is why sponsorship does not gen-erally triggers significant short-term direct responses(although such effects may be observed in sponsorship-related benefits such as pouring rights). However, spon-sorship activities tend to have a more lingering impacton brand perceptions. Any analysis of sponsorship ef-fects must consider both the short-term (influencing in-store decisions) and long-term impact of related invest-ments.

THE MBO MODELUNDERSTANDINGTHE PROCESS

Key principles underpinning marketing effectivenessgenerally and sponsorship effectiveness in particularhave been outlined above. Against the backdrop ofthese principles and the increased demand for market-ing accountability, the challenges posed by the needfor effectiveness measurement are significant. Theseinclude disaggregating the effects of multiple inputs,accommodating the short- and long-term perspectivesand of course the complexities implicit in human con-sumption behavior. The requirement of determininga specific financial value arising from such marketinginvestments adds a further layer of complexity to thetask of forecasting.

The MBOmodel can be utilized to determine the im-pact of a range of marketing inputs and to produce astatement of financial return arising from such invest-ments. This paper will now build upon the perspectivesdiscussed in previous sections to detail the methodol-ogy used in theMBOmodel in determining the financialvalue derived from sponsorship investment. The modelrelies upon a number of specific steps to isolate the ef-fects arising from the sponsorship programme and toderive a financial impact statement for same. This pro-cess involves the following:

Step 1 Isolating the brand earnings and segment-ing the branded business.

Step 2 Benchmarking the brand to derive branddiscount rate.

Step 3 Modeling financial performance of thebranded business.

Step 4 Determining the role of brand and buildinga brand driver model.

Step 5 Calculating the sponsorship impact.

Figure 8. Segmenting the branded business of a telecomoperator.

Step 1. Isolating Brand Earning andSegmentation

A brand only deserves credit for the monetary flowscreated under its banner. Not all of the Coca-Cola cor-porate earnings come from the Coca-Cola brand, as thecompany owns a portfolio of brands that bring in a sig-nificant proportion of its earnings. Coca-Cola currentlyhas over 800 low- and no-calorie beverages in its portfo-lio and this is just 25% of available options (Coca-Cola,2012). Thus, the first step is to separate the earningsgenerated under the banner of the particular brand un-der investigation.

In order to truly understand how and where valueis created, the branded business is segmented (see Ap-pendix A for brand-related definitions). Depending onthe nature of the business, the branded business couldbe segmented by regions, customer segment, channels,product lines, etc. Figure 8 illustrates the example ofhow such segmentation could be implemented for aTelecom client.

For the purposes of isolating the branded earnings(those attributable to the particular branded business)the business of the telecoms operator, e.g., can be seg-mented as follows

By Geography. The basis for consumer brand choicecan differ substantially betweenmarkets and the choiceof marketing strategies will vary to reflect this reality.Thus, the telecoms clients branded business could besegmented by different country markets that likely willfeature different degrees of competition, wireless pen-etration, stage of economic development, and marketgrowth rate.

By Line of Business. As the clients operations ex-pand beyond wireless to other lines of business (includ-ing other telecom services, other telecom devices, andfinancial services, see Figure 8), other segments of thebranded business will emerge. Different lines of busi-ness bring differential value and the brand is likely to


be perceived differently across them. Sony would havedifferent levels of customer loyalty and brand percep-tions in televisions versus mobile phones. In order tomake an accurate assessment of specific brand value itis also important to analyze the business and the brandacross this dimension.

By Customer Segment. Various customer segmentshave different value profiles and from a marketing per-spective this is the most important variable. Thus, thebusiness can be divided into three B2B segmentsCorporate, SME and Micro-businessand twoB2C segmentsMass-market and Top-end.

Overall, in the example in Figure 8, 180 individualsegments are available for analysis, such as FinancialServices in Spain in the Top-end B2C market segmentor Wireless in Greece in B2B Corporate market seg-ment.

Step 2. Brand Benchmarking to DeriveBrand Discount Rate

The second step in the process is to provide a real-istic assessment of future brand earning potential ineach segment and so future earnings must be convertedinto current values using an appropriate discount rate.The discount rate is essentially a measure of risk, i.e.,the likelihood of achieving projected earnings (Jeffery,2010).

The discount rate used by the MBO model in thisprocess is based on the cost of capital of the companythat owns the brand, which is modified to reflect thespecific risks associated with the category and brand. Ifthe brand has a good track record of producing profitsand the future projections appear realistic, then thebrand would merit a low discount rate. Conversely,a much higher discount rate would apply where thebrand is deemed less credit worthy. Strong brandsin stable categories should attract lower discount ratesand weak brands in volatile categories should attracthigher rates. The assessment of brand risk should in-volve parameters such as stability, leadership position,growth trend, and level of marketing support, aimedat identifying competitive benchmarking and provid-ing a structured evaluation of the brands position inthe market.

Step 3. Modeling Financial Performance ofthe Branded Business

The value of a brand is evidenced in terms of its abilityto generate future profit. Hence, theMBOmodel identi-fies the financial performance of the branded businessto calculate the net present value of future brandedearnings. To deal with the complexity of brand valuecreation, it is necessary to build a financial model fore-casting earnings (net of costs) for each segment as in-dicated in Step 1 (e.g., Financial Services in Spain in

the Top-end B2C market segment), which aggregate tothe financial performance of the branded business asa whole (see Telecoms Operator example in Figure 8).Using financial analysis techniques employed by eq-uity analysts, smart models of financial performance,which contain not just numbers, but also relationships,are constructed.

Throughout this process of forecasting earnings, it isvital that both the projected costs and the projected rev-enue generated by the branded business are identifiedand linked. As stated it is also important that consid-eration is given to the short-term and longer term per-spectives. Figure 9 illustrates how the MBO methodol-ogy combines these two time horizons:

Short-term sales effects: Linking marketing spenddirectly to sales (this is usually a small effect formost marketing activities and for sponsorship inparticular).

Longer term brand equity effects: Linking market-ing spend to changes in brand perceptions, andthen to sales (this is usually a critical effect forsponsorship activities).

The MBO model enables the total financial im-pact to be captured by measuring the overall upliftin Brand Value attributable to the sponsorship invest-ment. Financial forecasts are derived from the corpo-rate/strategic plans benchmarked to historical financialdata as well as an analysis of industry trends and thecompetitive landscape, current and future.

The typical time horizon used is a five-year terminalvalue. Once the brands future earnings are modeled,they are discounted to a net present value using BrandDiscount Rate obtained in Step 2 (see Jeffery, 2010 fordiscussion of discounting and net present value).

Step 4. Determining the Role of Brand andBuilding Brand Driver Model

Finally, it is necessary to quantify the role that brandplays in creating shareholder value and Brand Dynam-ics market research poses two key questions to informthe analysis:

(1) What are the drivers of the customer purchasedecision? and

(2) What role does brand play in that decision?

Statistical analysis enables the identification ofthe key drivers of the customers decision to choosethe brand and can further identify how strongly thebrand is associated with each one of these drivers. Theprocess of identification commences with the creationof a Brand Dynamics Pyramid map of the customerrelationship (as in Figure 5) with a brand in eachsegment (e.g., Wireless in Greece in B2B Corporatemarket segment).

Further analysis can then determine the relative im-portance of each driver to consumer decision making.Figure 10 indicates the various drivers of the customers


Figure 9. Measuring the returns on sponsorship activities.Source: Millward Brown Optimor (2012).

Figure 10. Drivers of customer choice (example of financialservices brand).


purchase decision to choose a brand in the FinancialServices category. These include the extent to which thebrand in question delivers empowerment, safety andsecurity, convenience, and other important drivers ofcustomer choice.

The left side of the chart in Figure 10 portraysthe various drivers of the customers purchase decisionranked in order of importance. Each bar represents howmuch each driver contributes to that choice. The sumof the bars is 100%, representing the total choice de-cision. The right-hand side of the chart in Figure 10represents how brand performs on each choice driver.This latter analysis is overlaid for both exposed andunexposed groups, thus moving toward a detailed mea-sure of the impact of sponsorship. The two questionsposed by the Brand Dynamics (drivers of purchase androle of brand) thus directly relate response to the brandwith the purchase decision and the consequent revenueimpacts.

It is thus possible to evaluate how well the proposedsponsorship programme fits with the brand (how it in-fluences individual drivers and how they in turn impacton usage choice). Ultimately the approach provides aframework, which explains why a particular sponsor-ship works or does not work.

The output of this analysis is a measure of the ex-tent to which the consumers decision to purchase abranded product or service is driven by brand. This, inturn, allows the sponsorship manager to quantify thebrands effectiveness in driving business earnings, i.e.,the Brand Contribution. Brand Contribution is then ex-pressed as the percentage of branded earnings that canbe attributed to the impact of brand, as opposed to oper-ational elements of the branded business (e.g., productfunctionality, price, distribution, and so forth).

Step 5. Calculating the Sponsorship Impact

At this stage of the process two key sets of numbersare identified for each segment of the branded busi-ness (see the Telecoms operator segments example inStep 1)

The Brand Contribution, which quantifies the por-tion of those future earnings that can be reason-ably attributed to the brand.

The Branded Business Value of each segment, cal-culated as present value of future branded earn-ings of that segment, discounted to the presenttime based on the brand risk rate as previouslydescribed.

By multiplying the Brand Contribution of the seg-ment by the Branded Business Value of the segment, aBrand Value of each segment is generated (BC BBV= BV of each segment).

Total Brand Value is generated by summing upthe Brand Value of all segments. By summing up theBrand Value of all sponsorship exposed segments,the Brand Value created within the segments exposedto sponsorship is clearly identified (i.e., the BrandValue of exposed segments). Similarly, it is possibleto determine the Brand Value of unexposed segmentsas the sum of brand values of all the segments notexposed to sponsorship.

An example will serve to illustrate. Consider thecase of Brand X in the UK market, which for simplic-ity is assumed to have two subsegments: sponsorshipexposed and sponsorship unexposed and that theBranded Business Value and Brand Contribution foreach segment are as specified in Figure 11.


Figure 11. Illustrative example of brand X, UK marketsSponsorship Present.Source: Meenaghan (2003).

Figure 12. Illustrative example of brand X, UK marketsSponsorship not Present.

Figure 13. Isolating the brand value created bysponsorship.

Thus brand creates value to the amount of 29.40million in the exposed segment and 9.30 million inthe unexposed segment. In the scenario of there beingno sponsorship present, then the Brand Contributionof the exposed segment would have been the same asBrand Contribution of unexposed segment. Now, thetable summarizing results would look as depicted inFigure 12:

In this scenario, the exposed segment creates only21.70 million in Brand Value as opposed to 29.40million in the scenario where sponsorship takes place.It is thus possible to conclude that that the sponsorshipinvestment created value of 38.70 million less 31.00million equals to 7.70 million.

To generalize, if the higher level of Brand Contribu-tion in the exposed segment is reset to the level of BrandContribution observed in the unexposed segment, thenthe total Brand Value created by the sponsorship pro-gramme can be derived.

This methodology as illustrated in Figure 13 enablesthe impact of a sponsorship, beyond the immediatesales uplift impact, to be captured, as it quantifies theincremental Brand Value created by involvement withthe sponsored event as communicated through optimalsponsorship activation. Finally, by relating the result-

ing Brand Value uplift with the cost of the programmeit is possible to calculate the return arising from thesponsorship investment.

Finally, Appendix B of the paper provides two de-tailed case studies (2008 Beijing Olympics and UEFACup) to illustrate both the process and the workingthrough of the model.

SUMMARY

Widely used approaches to sponsorship evaluation tendto focus on various stages of the consumer/brand inter-action, rather than determining the financial benefitsof that interaction as influenced by sponsorship. Thispaper sought to outline the application of the MBO ap-proach to assessing the financial impact of sponsorshipinvestment. The underlying principles, which informthe MBO approachprinciples relating to marketingevaluation and principles relating to sponsorship eval-uation were explored by way of background.

Relying on a number of proprietary tools, the fivekey steps of the model were examined to indicate boththe thinking and process underpinning the model. Caseinstances outlining the application of the MBO modelare indicated in the main paper and two unidentifiedcase study examples from practice are contained in theappendices. To illustrate how the approach is helpful indetermining the ROI from sponsorship and its capacityand thus improved decision making.

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Appendix A

DEFINING THE BRAND CONCEPTS

In discussing the concept of brand, the impact of spon-sorship and the resultant economic value and how theyrelate to each other, a clarification of brand-related ter-minology is useful.

Brand: A set of associations in the mind of con-sumer, linked to a name, mark, or symbol re-lated to a product or service offering. This set ofassociations has the capacity to predispose con-sumers to choose a brand over others, buy moreof it, or pay more for it now and in the future.

Branded Business: The entire business trading un-der the banner of the brand (e.g., Coca-Cola),including the associated goodwill and all othertangible and intangible assets employed by thebusiness.

Branded Earnings: The portion of corporate earn-ings attributable to a particular brand withina corporations portfolio of brands; the same asthe earnings of the Branded Business.

Branded Business Value: This is the sum of all thebranded earnings expected to be generated inthe future, discounted to a present-day value toreflect risk and time value of money, based oncurrent use of the brand.

Brand Contribution: A measure of brand effec-tiveness in driving business earnings, derivedfrom Millward Brown Brand Z research and ex-pressed as a percentage of branded earnings.

Brand Value: The financial value created by brandand brand alone, calculated as a multipleof Brand Contribution and Branded BusinessValue.

ROI Return on Investment is a performancemeasure evaluating how efficiently an invest-ment performs by considering profits generatedby the investment in relation to invested capital:Return on Investment = (gain from investment- cost of investment) / cost of investment.

Appendix B

Two case studies based on real, but unidentifiedclient experiences with the MBO model, further ex-plain the models capacity as assist sponsorship deci-sion making.

Case Study 1

A sponsor of the 2008 Beijing Olympics wanted to as-sess the ROI on its global sponsorship programme.


Figure B1. Total sponsorship ROI by country.Source: Millward Brown Optimor.

The analysis began by designing market research ineach of the countries where the sponsorship would beactivated. The research was conducted pre, during,and post the activation campaign. Statistical analy-sis of the research data was then undertaken to iden-tify how exposure to the Olympic campaign impactedpurchase choice through changes in brand perceptionsas well as through direct effects (e.g., short-term on-sites/promotional sales). These inputs were then linkedto a financial model to provide a comprehensive view ofthe value created by the sponsorship, a process outlinedin the main body of the paper.

The analysis provided a sponsorship ROI by coun-try and identified opportunities for spend optimizationacross countries where the sponsorship was activated.See Figure B1 below. Similar analysis and subsequentrecommendations were used to design the sponsorshipactivation programme for this sponsors investment inthe 2012 London Olympics.

Figure B3. Incremental brand value by source.Source: Millward Brown Optimor.

Figure B4. Incremental brand value by country.Source: Millward Brown Optimor.

Case Study 2

In this case a framework for linking the sponsorshipmarketing efforts to brand and shareholder value wasbuilt for a client selling to sponsor to sponsor UEFA

Figure B2. The framework linking sponsorship efforts to brand and shareholder value.Source: Millward Brown Optimor.


Cup. In this case 11 cuts (similar to the telecoms ex-ample in Figure 8) were made by geography and threeaudience segments: channel partners, end users, andretailers. The relationships between these segmentswere quantified and linked to create a valuation modelas indicated in Figure B2 below. This valuation modelincorporated factors such as new customer acquisi-tion, increased sales volume, and enhanced customerloyalty.

This approach to determining ROI is unique in iden-tifying the true financial returns for the business at aProfit & Loss level. It goes beyond the provision of fi-

nancial numbers to identify where sponsorship createsvalue and to improve sponsorship returns in the future.

Through linking sponsorship impact on brand mea-sures, e.g., loyalty, purchase intent, to financial out-comes, the model was able to identify additional brandvalue generated as a result of the sponsorship by sourceof value creation (see Figure B3 below). The sourceof the Brand Value could include attendance at theevent (UEFA cup attendance) where particular rev-enues flows such as on-site sales occur. Figure B4 belowindicates the incremental brand value created in differ-ent countries as a result of the sponsorship.


Assessing the Financial Impact of Sponsorship Investment

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