Do celebrity endorsements actually work? The best answer is that it depends on the celebrity, their natural alignment and tie with the product, how their personality connects with consumers and the lasting impression the celebrity creates.
Companies fork over hundreds of millions of dollars every year for advertising campaigns featuring celebrities of various types. Hollywood stars, star athletes and hit singers and bands appear regularly on television, in magazines and other marketing venues. Here are a few that may actually be worth more than the millions they are getting paid. (For more, read When Celebrity Endorsements Don't Work.)
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The Oprah Effect
Oprah Winfrey is arguably the most powerful person on the planet when it comes to influencing consumers on a grand scale. With the number one daytime show for over two decades, her television platform was a marketing springboard for books, magazines, products and new television shows. According to PBS.org, most recently she founded the Oprah Winfrey Network (OWN) carried by 80 million homes nationwide.
The numbers for her daytime show were staggering. With a weekly audience of 48 million viewers, Oprah was a cultural force that permeated the entire landscape. Her book club had a total of 70 selections and 59 of those climbed onto the USA Today bestseller list. Her recommended books sold 55 million copies after they received mention on her show.
Oprah gave away countless products on her shows, which gave them instant national exposure, including 276 Pontiac G6 sedans in 2004. She also spawned the birth of several new shows by promoting and featuring guests who achieved their own fame. These include Dr. Phil, Rachael Ray, Dr. Mehmet Oz, Suze Orman and Nate Berkus.
While best known to older generations as the captain of the starship Enterprise, Shatner reinvented himself to younger generations as a cranky lawyer on "Boston Legal" and Priceline.com's chief pitchman. His connection to the online travel site dates back to 1998, a year prior to the company's IPO. He was first asked to do a few radio spots, which then evolved into a television commercial campaign. When Priceline told him what they could pay him, Shatner said it was nowhere near enough.
Instead, he decided to accept warrants for the company's stock as payment. It was a good decision as the dot-com boom took the stock to dizzying heights a year later, but then the boom went bust as the Internet stock bubble imploded. The New York Times reported that he sold half his stock before the crash, but his current holdings are not public information.
What isn't in doubt is the success the company has enjoyed over the past decade with Shatner as its front man. His ubiquitous spots as "The Negotiator" have resonated with travelers looking for bargains, and the company's revenue and profits have been consistently climbing. In the third quarter of 2011, revenues rose year-over-year by 45% to $1.45 billion. Pro forma net income rose year-over-year by 103% to $478 million. The stock is trading near its all time high in the $500 per share range on a split-adjusted basis. (To learn more about advertising, check out 8 Of The Most Successful Ad Campaigns Of All Time.)
Woods provides an interesting case study because of his rise and fall from grace after his marital infidelities were exposed. He and fellow golfer Phil Mickelson, according to Sports Illustrated in 2008 and 2009, are the top two athletes ranked by endorsement income. Both have consistently made far more money off the course than on it.
Data compiled by Golf Datatech LLC shows that both Nike and the sport of golf benefited from Nike's sponsorship of Woods over a 10-year period. It's estimated that the company's golf ball division reaped $60 million in additional profits by acquiring 4.5 million new customers that switched makers because of Woods. Further, when Woods left Titleist for Nike in 2000, sales of Titleist golf balls dropped by almost 8% during the following year.
After Woods' troubles surfaced, Nike lost 105,000 customers and took a $1.3 million profit hit. Nonetheless, Datatech still concluded that Nike's profit was $1.6 million more than it would have been without Woods. That validates the company's decision to stick with Woods rather than abandon him.
It's common for designers to seek out celebrities to wear their latest fashions at big events like the Oscars and Emmys. They often give them away or offer significant discounts to attract the top stars. The impact this has on their businesses can be huge.
Designer Johanna Johnson spent three months on a custom dress that she gave to "Mad Men" star Christina Hendricks, without knowing for sure that the dress would even be worn. After the actress appeared on the red carpet at the Emmys in the Johnson creation, visits to the designer's website quadrupled overnight. The wave of 210,000 hits crashed her online store, and her small staff couldn't keep up with the instant growth in demand.
While Hendricks is not generally considered an A-list star, this shows the power of celebrity when combined with an event that's all about glamor and who's wearing what to the latest Hollywood gala.
The Bottom Line
Who doesn't remember the Super Bowl ad where Pittsburgh Steeler "Mean Joe Greene" tossed his jersey to a young fan in exchange for his bottle of Coke? It was a magic moment in advertising history, but it's doubtful that Greene could have duplicated the impact of that spot's commercial success. There are also famous celebrities that were a figment of someone's imagination: Jolly Green Giant, Geico Gecko, Pillsbury Doughboy and Tony the Tiger are just a few of them.
Advertisers gamble even when they use normally bankable stars. Did people flock to T-Mobile because it was pushed by Catherine Zeta-Jones? Did anyone run to KFC for a chicken dinner when Jason Alexander started selling the brand? Consumers need to feel a genuine connection with the celebrity and a belief that he or she might actually be using the product. Sometimes that just doesn't happen. (For related reading, see Tiger's Investor Tip: Beware Celebrity-Driven Companies.)