Celebrity Endorsement: The Economic Impact

golf ball

Nike stood by golfer Tiger Woods after scandal broke of his sordid affairs. While the decision sparked controversy, it literally paid off for the company.

But the industry suffered overall — with a net loss of $7.5 million in profit.

The saga served as the perfect case study for researchers at Carnegie Mellon University's Tepper School of Business, who used it to measure the economic impact of celebrity endorsement — in this case, in terms of golf ball sales.

"The industry-wide data that was made available and the unique circumstances involving a high-profile celebrity made this an excellent opportunity for us to study the real-economic impact of celebrity endorsement by focusing on a single product," said Timothy Derdenger, assistant professor of economics and strategy.

"The retail data shows clear movement in sales and brand market share at particular time points that coincide with Woods' endorsement of Nike products and during the period of negative publicity associated with his personal scandal, which began last year," he said.

In golf ball terms, Woods' endorsement of Nike products, which began in 2000, resulted in the acquisition of about 4.5 million customers and $60 million dollars in profit (in 1997 dollars) for the last 10 years.

In the six months following his highly publicized personal scandal, Nike lost about 105,000 customers — losses not gained by other brands.

"Although several major sponsors cut ties with Tiger Woods, Nike did not," said Derdenger. "So we examined the net effect on Nike's sales and market share. What we found is that by maintaining their relationship with Tiger Woods, Nike's overall profit in golf ball sales was $1.6 million greater than it would have been without him."

Doctoral candidate Kevin YC Chung adds a note of caution.

"Although we have found Woods' continued endorsement to be profitable for Nike, this may not translate into similar results with non-golf related consumer goods — where the celebrity is not inherently part of the enthusiasts community or where his financial success is not directly tied to the use of the endorsed product," Chung said.

The study, "Economic Value of Celebrity Endorsement: Tiger Woods' Impact on Sales of Nike Golf Balls," was completed in November 2010 and is awaiting publishing.

The research was conducted at the Tepper School of Business by Kannan Srinivasan, the Rohet Tolani Distinguished Professor in International Business and H.J. Heinz II Professor of Management, Marketing and Information Systems, in addition to Derdenger and Chung.

Golf Datatech LLC, a leading provider of retail marketing information for the golfing industry, extended a rich data set for analysis.

Related Links: Tepper School of Business

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