The benefits and risks of celebrity endorsement

2.1 Introduction:

This section aims at broadly reviewing the previously observed academic literatures in terms of the success and efficiency of advertisement and brands endorsed by celebrities. The mass attention has lately been focused on endorsements of identifiable people, more often referred to as celebrities [Daneshvary & Schwer (2000)]. McCracken’s (1989) definition clearly describes a celebrity endorser as an individual who ‘enjoys public recognition and who uses this recognition on behalf of a consumer good by appearing with it in an advertisement (p.310)’. He further defines celebrity endorsement as a “ubiquitous feature of modern marketing”.

The use of celebrities in marketing communications is not a recent phenomenon (Kaikati, 1987). The recognition enjoyed by the celebrities among a large section of population for factors such as their attractiveness, likeability and trustworthiness, makes them a quite popular choice for brands to connect with them. At present, use of celebrities as part of marketing communications strategy is fairly common practice for major firms in supporting corporate and brand imagery (Erdogan & Baker)

Friedman & Friedman (1979) describe a celebrity endorser as someone known to the public for their achievements in areas other than of the product class endorsed. Certainly, the celebrity endorser could reinforce a company’s marketing communications, positioning and represent its brand (Erdogan, 1999). Firms have always given a huge importance to connecting their brand with celebrity endorsers (e.g. athletes, actors) in the hope that celebrities may boost effectiveness of their marketing for at least a century. A good reference in such area is the one of Queen Victoria’s endorsement of Cadbury’s Cocoa (Sherman 1985)

2.2 Comparison of effect of a celebrity endorser against a non celebrity endorser:

When deciding on endroser of a brand/product, marketers can either go for a celebrity or create spokespersons (Tom et al, 1992). Celebrity endorsers are widely used because consumers identify with and associate the celebrities’ known characteristics with product attributes that coincide with the consumers’ own needs (Hawkins, Best and Coney, Hill 1998). The identification process of social influence has been used by researchers to explain the effectiveness of celebrity endorsers (Basil,1996; Friedman and Friedman, 1979). This theory suggests that a person is more likely to adopt an attitude or behavior of another person or a group if he/she identifies with the person (Kelman, 1961). Emotional reason is one of the main reason for costumers to opt materials endorsed by celebrity; to but into a lifestyle, to feel that they have ‘touched’ that celebrity etc. the rise of magazines that trade in celebrity lifestyle and gossip is a testament to the public’s demand for ‘celebrity’. (http://newyorkguide.blogs.com/psfk/files/)

Using non-celebrity endorsers also have few advantages for companies and one such is that they can develop these characters themselves and mould these characters to fit their brands and target audiences (Tom, et al.1992). Tom et al, (1992) showed that endorsers created by a company were more effective in creating a link to the product than celebrity endorsers and explained their results by the classical conditioning paradigm (Figure 1). Figure 1:

Source: Adapted from Erdogan (1999)

As per the diagram above, the connection is learned among an unconditional stimulus (e.g. the endorser) with a conditional stimulus (e.g. the product) through continuous exposure. This association is stronger and clearer with the non-celebrity spokespersons as they are unique to the company. In case of celebrities, the linkage is not as solid because they are often associated with other stimulus (Erdogan, 1999).

Although demographic information such as age, gender, and status is presented by unnamed or new faces, but these meanings are dull and loose. These features are reflected in an elite and developed form by the known or famous faces. Even though there is a possibility of employing anonymous models for a fraction of the price, celebrities hold special qualities (Mustafa, 2005). Celebrities own their meanings “because they have created them on the public stage by dint of intense and repeated performance” (McCracken 1989).

Gabor et al, (1987) have highlighted few more points on this and has used the example of Pepsi Co. to further explain the whole concept. Pepsi Co. uses young celebrities as endorsers even though Michael Jackson got alleged in child abuse, but Pepsi Co. managed to submit an 8% rise in sales in 1984, which was the first year of contract with Michael Jackson. This is an industry where 1% growth in sales is equal to millions of dollars in revenue. Another horrid experience encountered by Pepsi Co. was with Madonna whose album ‘Like a Prayer’ caused huge problems with Catholic Church, but this didn’t stop Pepsi Co. and they still got connected with well renowned faces like Janet Jackson and Mariah Carey. Celebrities actually assist the recognition of brand names as they are likely to create favourable attitudes and a “distinct personality for the endorsed brand” (Petty, Cacioppo and Schuman, 1983)

2.3 How brand benefit from Celebrity Endorsement

Brands are increasingly gaining by getting themselves associated with celebrities and this is evolving as a vital strategy of marketing and promotions which continue to bring vast numbers of advantages to the brands (Temperley & Tangen 2006). Hamish Pringle (2004) explains that there are few key macro factors working in market that make celebrity endorsements a call for the day: (a) expanding openings for communication and interaction between the brands and the consumers; (b) ‘era of consent’ where the consumer continues to increase its control on the message and the content they want to obtain for example they can have ad filters etc set up through digital televisions, on demand televiosions etc.; (c) media division and commercial communication clutter being increased every day.

So with all these pre requested conditions that are being set up the consumer of the day, it is becoming hard for brands to get connected to consumers and to bring their products in notice by consumers. So to have an immediate connect, celebrity endorsements are seen as an influential mechanism for entering into new markets and they also multiply the market share by instituting new positions for existing products. (Erdogen 1999)

Some of the most challenging aspects of global marketing to grasp are host countries’ cultural ‘roadblocks’ such as space, language, relationships, time, risk, power, masculinity, femininity and so on ( Mooij, 1994; Hofstede, 1984).Owing to these issues, celebrity endorsement is considered as an influential device to enter foreign markets; and celebrities with worldwide popularity can help companies break through many such road blocks ( Erdogen 1999).

The reason why celebrity endorsement is advantageous is because the advertisers’ believe that brand images built through celebrities, achieve a higher degree of attention and recall for consumers, which will eventually lead to higher sales. Although the potential benefits of using celebrity advertising to promote brand images and products are significant, so are the costs and risk (Ho, et al. 1997).On the other hand, there are also a few disadvantages and risks in utilizing celebrities as endorsers as a part of marketing communication strategy which have been discussed in detail later.

2.4 Celebrity Endorsements and their Economic Value:

In the commercial world, both celebrity endorsers and companies seem to have benefited from celebrity endorsement. In return for the large expenditures in celebrity endorsement, companies expect to reach their objectives by capturing the attention of consumers, increasing brand awareness, strengthening recall of the brand, reinforcing the image of the product, supporting marketing communications and increasing the likelihood of consumer purchase (Shimp, 2003).

According to Erdogan and Baker (1999) managers’ reasons for utilizing celebrity endorsers are: standing out or shorthand, awareness or attention getting, celebrity values define, and refresh the brand image, celebrity add new dimensions to the brand image, instant credibility or aspiration, PR coverage, desperate for ideas, convincing clients. There have been researches done on the economic worth of celebrity endorsements to witness whether they actually boost the marginal value of advertisement expenditures. The economies’ worth of celebrity endorsers justify the large costs they incur. The impact of celebrity contracts on firm profitability has been examined (Agrawal and Kamakura, 1995). Agrawal and Kamakura (1995) in their study, have suggested that using a celebrity to endorse the products in an advertising campaign can help generate better investment particularly in intangible assets for the sponsoring companies. It has also been studies that such investment will direct future sales revenues and profits in the long run.

Companies spend huge amounts of money annually on celebrity endorsement contracts, because they believe that celebrities are effective spokespeople for their products or brands. One of the very common examples is Michael Jordon and his range of endorsements (e.g., Nike, Coke, Wheaties, Mc Donald’s, WorldCom, Oakley, and Gatorade). Walsh (1999) stated that before retirement, Michael Jordan earned more than $45 million by endorsement, which includes sport products and non-sport products, and generated $10 billion in the world economy. Due to Michael Jordan’s retirement, the share price of Nike decreased 4 percent (Walsh, 1999). This case illustrates the power of celebrity endorsement and shows why companies use celebrity endorsers and offer huge payment for these endorsements.

The economic value of strategic marketing decisions is receiving lot of interest in the marketing literature. This has probably led a number of upcoming firms to invest in celebrity endorsement to actually enhance the value of advertising dollars. Capon, Farely and Hoening (1990) have investigated the effect of strategic marketing decisions such as “product innovation, research and development expenditures, advertisements expenditures, and product quality and consumer satisfaction on firm profitability”. It has no doubt shown to be expensive to draw on a celebrity to endorse company’s product, but on the other hand it has also been proved very effective