The price of perception

How much is Tiger Woods worth to an advertiser? What about George Clooney? What is the value of Facebook or Bebo? The answers are all different, but they all come down to perception.

If you had asked how much Tiger Woods was worth a year ago, the answer would be vastly different from his market value today. The world’s highest-paid athlete for most of the past 10 years, Woods earns much of his annual fortune from his sponsorship deals. Selected as much for his squeaky-clean image as for his golf prowess, Woods’ star faded fast when news of his marital infidelities surfaced.

A recent study published by two economists at the University of California-Davis concluded that Woods’ personal digressions cost his main sponsors, Nike and Gatorade, between 5 and 12 billion dollars of their stock market capitalisation.

That’s because Woods’ advertisers used what is called indirect transfer of feelings. That basically means you have to like (or at least not dislike) the person representing the brand in order to like the brand itself.

Steven Sweldens

Celebrity endorsement, but its very nature, almost always involves the indirect transfer of feelings. “By repeatedly presenting the brand in the same context, in combination with the same endorser, this memory-link gets strengthened,” explains Assistant Professor of Marketing at INSEAD, Steven Sweldens, adding that, “in the future, the brand will trigger these recollections or these memories to the positive effect induced.”

In Tiger Woods’ case, those memory-links were bad news for his sponsors. Woods was so intertwined with Nike and Gatorade, that they suffered the consequences when he became unpopular.

Indirect transfer of feelings is risky, but as long as the celebrity endorser is in good public stead, this approach can work well. Take the case of George Clooney and his association with Nespresso coffee. The brand was looking for someone whose Hollywood persona blended with the image Nespresso wanted to project for its coffee. The sophisticated and popular Clooney fit that bill. So far, so good. “If you look at Nespresso, it will remind you of George Clooney”, says Sweldens, “and because you like George Clooney, you will like Nespresso more.”

Social media and the price of perception While placing values on celebrity endorsers is a risky business, the same holds true for companies whose values - like celebrities - rely heavily on perception. Take the case of Bebo, an acronym for blog early, blog often. In 2008, when Bebo was Britain’s leading social networking website - even more popular than Facebook and MySpace - it was snatched up by AOL for a whopping $850 million. AOL was hoping to use the acquisition to gain a better foothold in the global market. But less than two years later, the market had completely changed and Bebo had fallen far behind its competitors. AOL unloaded it for reportedly less than $10 million to little-known private investment firm, Criterion Capital Partners. It was an expensive lesson to learn in a market where, according to Annet Aris, Adjunct Professor of Strategy at INSEAD, it’s too soon to put price tags on the industry. “We all know there’s a lot of value in all the information, of all the loyalty of all these consumers on Facebook - these enormous growth rates. There is some thinking in the direction of where the revenue might come from, but it’s not very concrete yet.”

Another way of achieving a similar positive result is through direct transfer of feelings. This method does not rely on a celebrity endorser. Rather, it entails careful, visual construction so that positive feelings are evoked at precisely the same moment the viewer sees a brand. The positive feelings instantly ‘rub off’ on the product itself and are not inextricably linked to the person creating that good feeling. “In that sense, the brand itself would become more positively evaluated without a need for creating memory association with these celebrity endorsers,” says Sweldens.

According to Sweldens, no company does this better than Coca-Cola, the world’s largest drinks company and arguably the best-known brand on the planet. “They’ve been the masters of infusing their brand with positive feelings for decades,” he told INSEAD Knowledge. Coca-Cola effectively shows everyone from a jolly Santa Claus to cute polar bears happily guzzling their product, with strong bottom-line results.

This article was written by Cindy Babski based on interviews for INSEAD Knowledge.