Gut

There are two types of gut: the good and the bad.

Good "gut" is Anselmo’s and Gastón’s ad agency. Bad "gut" is the one used to justify the unjustifiable decision.

A few weeks ago, the Chief Marketing Officer of one of the largest companies in the world confessed in an interview that he signed a sponsorship deal worth hundreds of millions of dollars because "his company values were aligned with those of the sponsored event." He said he used his gut to approve the investment.

Yes, he signed a check of hundreds of millions of dollars because his gut said it was worth it.

Almost everything in business, especially in multinationals, is analyzed in the smallest details. Advertising agencies are scrutinized by purchasing departments to justify every penny of their costs, media companies need big data to demonstrate the value of their packages and research agencies increasingly need to provide discounts based on the volume of work hey get. Not to mention how hard it has become for the strategy consultants selling their projects.

But for some reason, when it comes to sponsorship, the criteria are much more relaxed.

This is because sport exerts on executives the same fascination of toys with little children. Being able to be part of something like the FIFA World Cup, sponsoring your childhood team or preferred sport, makes reasonably rational people loose it. When it comes to celebrities or athletes, then craziness peaks.

To the despair of sports marketers, this behavior is common from small to school weekend fairs to major events such as the Olympic Games or the UEFA Champions League.

I am not suggesting that we should ignore our intuition, but rather that we should not rely exclusively on it.

Most ROI models will clearly show whether or not an investment makes some sense. In the rare cases where the decision is not very clear, it will be worth appealing to the "gut". "Gut" alone, on this cases does not decide, only tiebreaks.

Want to know how to identify a gut-based decision maker?

He or she often justifies sponsorships by talking about building “long-term brand value” (because he/she can't explain what will happen in the short term). The problem is that any long-term benefits are difficult to measure and do not help to pay the rights fees next quarter.

Another way to disguise a decision without facts is to justify it through the value of “brand exposure”. This happens very often in football. Companies sponsor teams in exchange for the field boards (the ones nobody pays attention to). If your brand needs visibility, I guarantee there are better media options than investing in sponsorships.

Assessing sponsorship investments accurately is not an easy task, but there are a few simple steps any company can take to lessen gut reliance.

For starters, don't let a fan negotiate a contract with his or her team, even if they are the company president. If possible, hire a good agency to advise you on decisions.

Second, define - based on your historical sales data - what your goals should be in as much detail as possible. How much will the frequency of consumption, market penetration, pricing, etc. will be achieved thanks to this sponsorship.

When it comes to pricing. remember that the price of sponsorship is not set by the seller, but by the buyer.

When you understand how many incremental units you will need to sell to offset the investment, the budget required becomes real. If you have not grown your volume by 5% in the last years, how can a sponsorship drive 50% growth?

The maximum price you can pay is defined by your expected (be honest!) incremental profit. If through the sponsorship promotions you are planning to conduct, your profit is likely to increases by one million dollars, you should never pay more for the sponsorship.

In the case of our big gut CMO, he pretty much ignored all of that and some more. He set up his company for an impossible mission of doubling the size of the business (for the records, the company hasn’t grown more than 2% per year in the past decade). His decision cost dozens of millions of dollars in their bottom line.

The sophistication of the models depends on the needs of each sponsor. But even if you can only do the basics, your result will still be much safer than delegating responsibility to the poor, unprepared gut.

Note: article originally published at Meio & Mensagem in Portuguese. https://www.meioemensagem.com.br/home/opiniao/2019/11/25/gut.html

?