Developing a business case for sponsorship is hard, especially if sponsorship is not currently a part of your marketing mix. How to create sufficient internal confidence to justify the shift? And the larger the proposed investment, the higher the risk….
The sales proposition for most sponsorships is premised on three things: media exposure, hospitality and … sales potential. And many of our clients struggle to convert this into any sense of business value. How on earth do you scope … potential?
So many client commissions, especially since in the last 18 months, have revolved around opportunity assessment and business case development. The good news is that no-one any longer questions the principle of presenting a business case; and mercifully the days of using the AVE / Purchase price ratio do appear to be on the decline, allowing more sophisticated techniques to take its place. The biggest challenge is defining the scope of sponsorship impact ahead of time.
Most models are based on this simple overview – to determine the value the sponsorship can bring to the business.
This model was produced by McKinsey on behalf of LOCOG for a potential partner.
The challenge as always is in the detail and the logic underpinning the assumptions of modelling.
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One way that we approach this, depending on the needs of the client, is to take a layered approach – beginning with basic questions of fit and price, but extending into financial and creative modeling. This article represents a simple overview on how we approach financial modeling for primarily B2C brands.
At no point is brand mentioned in this article, a deliberate omission. Brand is important, the fit between sponsorship and brand proposition is a primary critical success factor, but for the business case we’re tracking through brand to revenue, and revenue is the reason you spend the money. So brand impact is effectively incorporated into the modeling process.
Typically we’ll segment sponsorship audiences for the business case in much the same way we do for campaign planning: by proximity to the sponsorship, channels used, key messaging. Each of those segments has a distinct value for the brand, based on the number of current / potential customers, and the potential revenue they represent – not all customers are created equal.
By way of example, as a sponsor of Chelsea you’d look to know how many season ticket holders there are, who they are, how much potential revenue they represent on an annual basis, and how much of that revenue you currently hold. The difference between total and current revenue is the size of the prize – the maximum amount of money you can ever realistically earn from this segment as a result of the sponsorship. If you need to win business from every living supporter of the club in order to break even, it probably isn’t a good bet.
When you hold that information on each segment we can start scenario modeling based on historic sponsorship data – using the most comparable results held by the brand, or from Redmandarin’s knowledge of comparable evaluation projects. For a B2C sponsorship, based on the level of investment in activation and media support we would then model three scenarios (best / mid / worst), and then the expected impact through to long and short term sales, and customer retention / repeat purchase by product. (Long-term sales modeling would need to be incorporated with the broader marketing effectiveness work as it’ll require a longitudinal macro-analysis study.)
Crucially the impact needs to be measured over the lifetime of the revenue and not the lifetime of the sponsorship deal, particularly for brands which build subscriber relationships (telecoms, financial services, utilities etc.). If you can create a billing relationship it shouldn’t end with the sponsorship!