Issues Related to Sponsorship Evaluation
In the previous article, we have already read about why corporations want to ensure that the money that they allocate towards sponsorship has been spent diligently. This is because corporations all over the world realize that if they cannot measure the outcome, they cannot manage it!
We now also know that there are various objectives that corporations have behind entering into sponsorship agreements and that the evaluation method for each of these mechanisms is slightly different compared to the others.
However, it is important to note that measuring the effectiveness of sponsorship evaluation is still in its nascent stages. As a result, the results derived from the methods used are often imperfect.
There are several issues related to sponsorship evaluation that any potential sponsor must be aware of. In this article, we will look at some of the common issues which impact the sponsorship evaluation process.
- Agency Bias: Often times the objectives behind sponsorship relate to intangible things that cannot be measured. For instance, awareness and brand recall are factors that are present in the mind of the prospective user. Hence, it is not possible to measure them using traditional methods. As a result, agencies have to develop surveys and come up with questionnaires. Also, they need to derive a sample that accurately represents the entire population. The entire process is very subjective. Hence, the survey is only as valid and useful as the agency performing it.
There are specialized agencies that exist for the sole purpose of performing such market research surveys. However, it is possible for the agency to be biased. The agency may already have business interests with one of the parties and may therefore be inclined towards giving out results that favor one party!
Both the sponsors and corporate entities try to legally maintain an arm’s length distance from the agency. However, there is always room for doubt about the capability as well as the intention of the agency.
- Lack of Credible Data: Since the subject of commercial sponsorships is quite nascent, there is a lack of credible historical data available. In the absence of empirical data, it becomes difficult to critically analyze the results of sponsorship. This is because the experience of one company in one location can be different.
However, when hundreds of unrelated companies sponsor hundreds of unrelated events across the globe, their data can be used as empirical evidence. Patterns can be drawn from this data in order to understand the possible as well as the likely outcomes of the sponsorship exercise.
At the present moment, such empirical data does not exist. Hence, the data collected from primary sources is considered to be the final truth and is not subject to secondary validation.
- Arbitrary Factor Bias: There are some methods of sponsorship evaluation that require the company to make assumptions about certain factors.
For example, in the case of advertising value equivalence, the company needs to assume a multiplier in order to come up with the monetary value of the sponsorship. This multiplier is an arbitrary number that is picked based on certain assumptions.
It is important to note that this multiplier has a huge impact on the final value derived using the advertising value equivalence formula. Since this number is arbitrary, it can be argued that the entire exercise and the end result can also be considered to be arbitrary.
There are many such assumptions that need to be made while deriving the monetary value of the sponsorship using different methods. As a result, many critics believe that these values are not credible and can easily be tampered with.
- No Other Factors Taken into Account: One of the biggest assumptions made while evaluating sponsorship results is that all the changes in sales, brand recall, brand awareness, or any other factor can be attributed to the sponsorship alone.
In most cases, this assumption is not true. The business variables are impacted by many other factors. However, since we do not have the mechanism to correctly determine the change attributable to the sponsorship, this assumption is made. Needless to say, the accuracy of these results is impacted by this underlying assumption.
- Long-Term Impact: Last but not least, the sponsorship evaluation results only test the change in the business variables for a short period of time following the sponsorship.
It is important to note that it is possible for the sales, brand awareness or brand recall to be temporarily elevated. However, that does not benefit the business in the long run. Generally, the objective of sponsorship is to permanently raise these variables so that they remain in favor of the company.
Ideally, annual reinforcements in the form of annual sponsorship to the sports league should lead to a permanent change in the behavior of consumers. However, the models that have been created in order to determine the effectiveness of sponsorship evaluations do not take into account the long-term effects. Hence, it can be said that they provide a distorted view of the state of affairs.
The bottom line is that most of the benefits being sought by sponsors when they invest in sponsoring a sports league are intangible in nature. As a result, there are a lot of issues that need to be considered and mitigated while evaluating the economic benefits of a sponsorship agreement.
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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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