Celebrity endorsement: what are the risks?

Even if celebrity endorsement can be an excellent means of marketing a product, companies have to consider potential risks before starting such a strategy.

How do companies decide how much a celebrity is worth? For measuring the incremental impact of endorsement, there are two different paths forward: the first one, called conversion path analytics, is a method used by retailers or manufacturers with direct-to-consumer sales channel. The retailer in this case has asked the celebrity to promote a particular product with a link to their e-commerce website. The second one, called Social reach analytics, is used by brands or retailers which do mass media promotion without a direct link to purchase actions.

But can every company invest their equity in endorsement? Offering equity is a common suggestion on how to attract celebrity endorsers but companies should be mindful of how they distribute their equity (especially start-ups since they have a limited amount to distribute), as a celebrity endorsement does not always work well for companies. That’s one of the reasons why it is also important to weigh the pros and cons of having such a high profile person publicly support your product.

Companies, indeed, have to be ready to manage some potential risks: first, endorsers are people and people can make mistakes and unfortunately, the mistakes of endorsers are played out in front of the public. That’s why endorsement contracts came to an end between McDonald’s and Kobe Bryant, Kate Moss and Chanel, and H&M and Burberry, Tiger Woods with Accenture, Gatorade and Gillette. It’s difficult to identify what exactly a brand should do when it’s mixed up in a celebrity scandal. It could support the celebrity, end the partnership, or simply do nothing. An analysis of 60 real cases of endorsement scandals confirmed one thing: the consequences for companies can be huge and if a firm wants to minimize the negative impact of a scandal on its market value, its reaction should be to abstain from issuing a press release or a statement to the media.

Second, celebrities could become less popular or they could simply change their image and this could result in a contradicting image of the endorsed brand.
Third, consumers may be skeptical since they don’t really know if a celebrity uses the product that he/she endorses.
Fourth, as we said before, the cost of paying a celebrity to endorse a product can be astronomical and for this reason companies have to be sure to afford this.

Fifth, the fact that someone is famous doesn’t mean he/she is a fit with any brand and that consumers will feel a connection with the celebrity. In marketing, all your efforts need to precisely target your ideal clients, which is key to remember while picking a celebrity to endorse a product.

Finally companies have to remember that, even if celebrity endorsements are used as a tool to build awareness and increase sales, they won’t save your company if you don’t already have a good product or service. This is just one part of your strategy for growing your company. Your focus still needs to be creating a fantastic product and building a marketing strategy to grow your sales.
“If your product isn’t amazing having a celebrity endorsement isn’t going to make it so,” VC Mark Suster remarks about endorsement deals. “It’s going to get you some press buzz – sure. For 5 minutes. But customers will come to your website, realize your product isn’t amazing and will leave.” Endorsements aren’t magic, and if you’re looking for a celebrity to perform a miracle, you won’t be satisfied.

To learn more:
3 Mistakes Startups Make When Working With Celebrities
How to react after a celebrity endorsement scandal
The Price of Fame: Advantages & Risks When Using Celebrity Endorsements
The Benefits and Disadvantages of Equity for Endorsements: Part 2

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