Sponsorship: Strategies for Maximising the Return on Investment


July 2006

In his seminal book, Future Shock, futurologist Alvin Toffler described the dizzying disorientation wrought on a society that was asked to absorb too much change, too soon.

"The acceleration of change in our time is itself an elemental force that has personal, psychological, as well as sociological consequences," wrote Toffler in 1970.If the future was rudely intruding upon us then, how much more insistent has it become now - and how much more critical will our appreciation of it be in 25 years’ time? So rapid is the rate of change that forecasting has now become an intimate part of the marketing and sponsorship strategic planning process.In relative terms, changes in the sponsorship industry have happened slowly - or evolved - over the past 30 years. For example, some major sports rights holders are still selling sponsorship rights on the basis of free media exposure for the brand owner, served up on terrestrial, cable and satellite TV.

But in a world of ‘brandcasting’ where brand owners now generate and create content in order to engage with audiences directly at any time or anywhere, the advertising media equivalency of terrestrial, satellite and cable TV coverage becomes increasingly irrelevant. The real issue at stake for a brand owner looking at its sponsorship budget is whether such coverage will actually motivate consumer behaviour in a way that will influence the sale of its products and services to that audience - a wholly different consideration than simply one of brand awareness. And whereas the web was an emerging channel for brand communication in 1999, today brand owners are increasingly turning to mobile text messaging campaigns and providing content for PSP3 and Xbox 360 video games in order to reach the next generation of consumers.

But it would be incorrect to assume that all these changes are simply a matter of technology.Technology is an enabler rather than change itself and is only one of the four forces for change within the sponsorship industry.

The four forces for change

Throughout this report, reference is made to four forces for change that will impact on both brand owners and sports rights holders over the next 25 years - globalisation, behaviour, permission and technology. Although they already exist today, collectively these four catalysts will have a much greater impact on the fundamental development of sponsorship in the future. As a result, the brand owner as well as the rights holder must keep communication and marketing activities under constant review in order to take advantage of the forces for change.

Globalisation

Brand owners will move increasingly from supply to demand-side, driven by the imperative of satisfying the needs and requirements of its customers and consumers, and will compete in a ‘global village’. he global movement of people, goods and services, intellectual properties and capital will become less and less restricted over the course of the next 25 years. As a result it will generate intense competition between brand owners, both in their chosen market segments as well as in market segments that have yet to be identified. Over the past decade brand owners have grown successful by riding market waves, bought growth through mergers and acquisitions or cut costs via ‘efficiency and effectiveness’ measures.However, in the future, the vast majority of brand owners will become increasingly dependent on the creation of value to produce growth.

Organic growth can only be created or earned through a combination of factors that include consumer insights as well as the development of ideas and innovations that deliver genuine competitive advantage and differentiation. Competition in the future will not simply be about one brand versus another, but one business model versus another.There may even be periods of no competition while competitors attempt to catch up with the market leader. The ‘old’ market space is defined by industry boundaries and competitive rules where brand owners try to outperform each other by grabbing a larger share of existing demand. In this ‘old’ market space, established brand owners that enjoy dominance in a particular market niche will quickly lose competitive advantage in the face of lower production costs, higher levels of product quality and service coupled with the ability to meet customer demand in an ever-decreasing timescale.

Then there is a very different type of market space - one that the brand owner of the future inhabits. In this untapped market space, the boundaries are defined by demand creation rather than competitive rules.These untapped markets may fall well outside the boundaries of the ‘old’ market space or indeed could be created by expanding existing industry boundaries. In this context, the rules of the game have yet to be written.The brand owner will therefore find itself in a new world which is full not only of uncertainties but also commercial opportunities.

It therefore follows that brand building in the future will be very different from the way it was done even ten years ago. For example, language and culture will become more important, given the ease at which brand owners are able to communicate across diverse markets and customer segments. Achieving customer insight will be essential in order to exist in this new market space and this will underline the need for brand owners to get closer to customers through sponsorships and other collaborative marketing efforts.

Behaviour

At the same time as brands are becoming more global, customers are becoming better informed and much more demanding.Not only does this mean that the value of customer insights and understanding will be at a premium in the future, but a brand owner will also be under increasing pressure to create a total ‘brand experience’ if it wants to be successful in its marketing and communication efforts. In order to achieve this, it will be necessary to enter into dialogue, rather than delivering a monologue, with customers and consumers or, to put it another way,‘showing’ rather than ‘telling’.These changes go well beyond the ability of a brand owner simply to integrate its sponsorship and marketing activities.

Ultimately, the brand owner must seek to collaborate with its customers in the development of new products and services. Sports sponsorship will exert considerable influence over this process where it brings these two realms of understanding closer together.

Permission

The continuing explosion and fragmentation of media will lead to further fragmentation of audiences - requiring brand owners to seek permission (consent) to communicate with particular groups or ‘communities of interest’. At the same time, the ability of these audiences to screen-out messages will become more sophisticated than at present. In the future children and young people will be much more media and marketing savvy - and at an increasingly young age. Current laws and regulations that seek to protect this group from advertising and sponsorship activities will appear out of step as children and young people learn to be their own ‘internal censors’ more than at present. Therefore, the brand owner will need to earn the right or the permission to communicate rather than taking this right for granted. And, in order to gain such permission, the brand owner will need to demonstrate it can be trusted - placing an even higher premium on effective brand communication in this challenging competitive landscape. The net result is there are going to be more, rather than less, opportunities for nontraditional advertising, such as sports sponsorship, where this can engender a closer relationship between the brand owner and its customers and consumers.

Technology

Without doubt, globalisation, permission-based marketing and the fragmentation of media have been enabled by technology. Software tools currently have the power to unlock the identities, addresses, purchasing habits and intimate information of customers and reach them through emerging channels such as iPods, broadband, 3G mobile devices and games platforms.

Recent research indicates that brand owners are beginning to eschew the expensive 30-second TV commercial in favour of more targeted communication that offers a higher degree of accountability and direct response rate. However, in wanting to make increasing use of these ‘transmit’ channels, the brand owner must also have a ‘license to operate’. Such permission is only available where it has earned the trust and confidence of the audience. Sponsorship, as a collaborative marketing platform, can create such a climate of trust and confidence with the audience and so establish an environment where the sales of a sponsor’s products or services is more likely to take place than not. If it can achieve this, then sponsorship will have earned its place in modern brand communications and marketing by providing the brand owner with a return on its investment.


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About the author

Ardi Kolah
Chief Strategy Officer UK
PRISM
Further information

Buy the report at SportBusiness.com (external link)