Opinion
Assertions
7/27/09: Conventional sponsorship wisdom says that one of the
best things a property can do to
sell/renew deals in a disastrous economic climate is to show the prospect/sponsor that the relationship can result directly in product sales. There is
no better ROI measurement or justification for a sponsorship expenditure than proving the connection between the partnership and revenue for the sponsor that goes to its bottom line, so the thinking goes. Seems to make perfect sense.
There may be a
flaw in this logic, however. This thought was spurred by the
Roush Fenway Racing press release that just arrived announcing that
DeWalt tools
will not renew its 10-year-old sponsorship of the team’s No. 17 NASCAR Sprint Cup Series entry driven by Matt Kenseth. This news called to mind an IEG SR story of a few years ago, in which DeWalt’s then event marketing manager told us the company
generated enough profit (not just revenue) from the sponsorship–through securing new trade partners and generating incremental sales at existing accounts–to
recoup its annual rights fee, which we estimated then to be about $14 million.
It is extremely rare when a sponsor 1) shares that type of ROI information publically and 2) is able to give
full credit to a sponsorship, minus other factors, for generating sales. Those are two of the reasons why we have consistently pointed to the DeWalt/Roush partnership as an
example anytime someone questions whether
sponsorship really pays off. And they are also the reasons why the Roush announcement–more than any other news of recently dropped deals–got us to thinking about
what is necessary to prove worth and keep sponsorships alive in today’s economy.
Now of course in this case there could have been any one of dozens of reasons why DeWalt chose to leave. But stepping away from this particular deal, let’s envision a similar longtime sponsorship that
routinely generates profitable sales for the sponsor. Everything is going along nicely and then the
economy tanks. Some of the sponsors’ customers go out of business, end-user consumers drastically curtail spending and sales drop dramatically across the board. In that depleted environment, it is
impossible for the sponsorship to generate the sales numbers it previously achieved; through no fault of the property the market has simply evaporated.
In this scenario, if the property’s and sponsor’s
sole ROI measurement is sales, the deal is in trouble. A calculation that the profit, or even revenue, generated is less than the sponsor’s investment puts the sponsorship
squarely on the chopping block. And that would be a
mistake. A relationship that clearly has demonstrated its ability to motivate the target to buy product is almost certainly
accomplishing many other things, from enhancing brand image to standing out from competitors, etc. These perhaps
secondary objectives are nevertheless important to
sustaining the brand through tough times and
positioning it for success when the market does come back.
The
main criticism leveled at most attempts at ROI measurement, and rightly so, is that they
fail to measure what really matters. Sales matter, and in a flourishing marketplace it may be possible to start and end a sponsorship evaluation there. But in the current environment,
other outcomes must be considered in order to obtain a fair and complete evaluation of ROI.
Jim Andrews