3 Things You Should Know About Hiring Jay-Z (Or Any Other Celebrity)

Marketers increasingly rely on stars from the worlds of entertainment, media and sports to endorse their products. By some estimates, 10% to 20% of all ads that aired in the United States in recent years featured celebrities endorsing products and brands; the percentage is twice as high in some Asian countries. With such fierce competition for their services, the most sought-after endorsers are richly compensated – they can earn millions of dollars for what amounts to less than a day of work.

Do these investments make any sense for marketers? And what's the best approach? Here are three things that I think everyone in the business world should know about the strategy of relying on celebrity endorsers.

1. The strategy works. It really does.

First, few promotional strategies can impact the bottom line as much as -- and as quickly as -- forming an alliance with a celebrity. The strategy often works tremendously well.

In a study in which my co-author Jeroen Verleun and I analyzed hundreds of athlete endorsements, we found that sales for brands in a variety of consumer-product categories jumped an average of four percent in the six months following the start of an endorsement deal, even after controlling for advertising expenditures and other factors that could be expected to drive up sales. Such an increase can add up to tens of millions of dollars for even a moderately successful consumer brand.

Not every pairing of consumer and celebrity brands works, of course, but several brands we studied saw sales rise with more than 20% after teaming up with an endorser. And because spillover effects on other brands in the category were limited, it seems the strategy can really help brands to gain an edge over their competitors.

2. Celebrity endorsers can solve a multitude of problems

The sheer magnitude of the effects of celebrity endorsements may be impressive, but that’s only part of the story. If we think about why and how partnerships with celebrities achieve those returns, it becomes clear that such alliances can help marketers solve a number of different problems.

The most obvious observation is that celebrities help marketers generate “free” publicity and raise awareness for their products. We live in a culture in which many consumers love to keep close tabs on what their favorite celebrities are up to. With so many people voluntarily paying attention to stars’ every move, they are great advertising vehicles. If a celebrity’s fan base is very different from the endorsed brand’s customer base, the strategy can even open up entirely new markets.

Second, when done right, endorsements can help marketers make a strong statement about the performance of their products. Seeing a celebrity attach his or her name to a product can alleviate uncertainty among consumers: consciously or unconsciously, they might trust, say, Roger Federer to endorse Nike’s sports apparel line only if its products truly are of premium quality. After all, Federer would be at risk of damaging his reputation if his outfit was somehow preventing him from playing his best (or cramping his style in other ways).

Third, aligning themselves with a celebrity can help marketers convey important information about what differentiates their brand from their competitors’ brands. In a case study I conducted on Sharapova, I learned that Canon's reason for turning to Maria Sharapova was her reputation as someone who plays aggressively but with precision, and who has a sense of style -- exactly the kinds of attributes it hoped to emphasize in marketing its line of PowerShot cameras.

3. The most sought-after endorsers are increasingly focused on their own problems

For all the benefits that they provide, the most in-demand endorsers – the true superstars in the entertainment economy – seem increasingly interested in solving their own problems, too. With that I mean that, in my research, I come across more and more examples of powerful stars structuring their alliances in such a way that they put their business objectives first.

A good example is Jay-Z’s partnership with Microsoft a few years ago. Far from a traditional endorsement, it was designed primarily to help Jay-Z sell his memoir, Decoded. In return for an affiliation with Jay-Z, Microsoft made its search and maps technology available to help the star stage one of the most innovative releases the publishing industry had ever seen, and a $2 million payment from the technology giant ensured that Jay-Z nor his publisher had to shoulder any of the cost.

More recently, his wife Beyoncé’s $50-million partnership with Pepsi looks a bit more like a traditional endorsement agreement, but it too has some unusual elements. It covers support for the singer’s chosen “creative projects,” for instance. Don’t be surprised if many of those will coincide with the launch her much-anticipated new album; she will know that a big marketing push from Pepsi could really drive sales for the album. And with all the pressures on revenues in the music industry, Beyoncé and her record label will sign up all the help they can get.

There’s the rub for companies hiring endorsers – increasingly, they will have to find ways to marry their business objectives with those of their star endorsers. Not an easy task at all, but one that might be needed to continue to win the services of the most powerful entertainers.

I'll be discussing more examples from the world of entertainment in future posts, so feel free to follow if you'd like to read more. And I welcome your thoughts.

Anita Elberse is the Lincoln Filene Professor of Business Administration at the Harvard Business School. In October, she will release her first book, “Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment.”