Marketing agencies generally believe that celebrity endorsements enhance product recall—that is, consumers take notice of products and brands endorsed by celebrities, and remember those products and brand names later—but that this product recall does not translate directly into increased sales. Working with colleagues at Carnegie Mellon University, I developed a new method of quantifying the economic impact of celebrity endorsements. In the test case I examined—the impact of Tiger Woods’ endorsement on sales of Nike golf balls—I found that a celebrity endorsement did, in fact, act to increase sales.
As a way to approach this question, I speculated that sales of certain brands of golf balls might rise and fall along with their celebrity endorsers’ status in the rankings during the time that the endorser was endorsing and using the product. The fact that professional golf has a single, unified ranking system made testing this hypothesis a relatively straightforward task, and I did indeed find that sales of golf-ball brands waxed and waned as their endorsers did, respectively, better or worse. With this insight, I built a model that captures both consumer demand and firm supply of golf balls. With this model, I was able to run different “scenarios” of the golf-ball industry. For example, I was able to generate a scenario in which Tiger Woods stayed with his previously endorsed brand, Titleist, from 2000 to 2010 instead of endorsing Nike. When I quantified the additional revenue Nike earned by having Tiger Woods endorse its golf balls, I found that through additional sales generated when Woods topped the rankings, Nike recovered 57 percent of the $200 million the company paid Woods between 2000 and 2010.
These numbers only include U.S. golf-ball sales, and we can expect a similar effect on other Nike products Woods endorsed (clothing, shoes, clubs). Adding in sales outside the United States, we can assume Nike recovered even more of its investment when taking international sales into account. What’s more, my analysis excludes the advertising effect that occurs when a consumer sees an ad featuring a celebrity and that ad motivates the consumer to buy the product. My analysis hinges on the impact of the celebrity’s reputation; if we factor in the concrete effect that occurs when seeing an ad directly prompts a purchase, we would expect the value of a celebrity endorsement to be even higher.
When Tiger Woods signed his original endorsement deal with Nike back in 2000, plenty of people said Nike would never get its money’s worth. Based on my analysis, it looks like in fact, Nike got a good deal. (One important note: this overall positive effect stands despite the 2009 scandal in Woods’ personal life—and in 2010, when the endorsement deal expired, Nike re-upped with Woods for an undisclosed amount, indicating that the company, too, thought Woods’ endorsement was a sound investment.)
In the case of golf balls, we identified three mechanisms by which these endorsements produced additional profit: golfers switch brands to buy the one endorsed by the player currently leading the rankings; excitement over the leading player generates new sales that would not have otherwise occurred; and the company endorsed by the top player is able to command a price premium, leading competitors to cut prices. These analytical methods can be extended to quantify the impact of celebrity endorsements on other products—an important endeavor given the increasing importance of these endorsements in firms’ promotional strategies.