Why Sponsor F1?
Author: James Parrish, F1-Confidential.com
Sponsorship: Logos on Cars, It’s Not the Whole Story!
I was recently asked what F1 would be like without sponsors. After a little thinking I came up with this picture in my mind:
Blank cars circle the track – they are certainly not the best and fastest machines in the world. The drivers are rich – they are not the best in the world, instead they are the Tony Stark’s of the world, entrepreneurs looking for hobbies. The stand are empty – the sport has lost credibility with the viewing public.
Not very attractive is it? It is important to know that sponsorship plays a major role in all sports. But it could be said that it plays an even greater role in F1: in 2008 Formula Money calculated that $1.53bn was spent on Formula 1 sponsorship (inclusive of Formula One Management and all teams). So whatever anyone says to the contrary, sponsorship is essential to maintain the show. If you are like me then you may even believe it can enhance the show when done correctly. Despite this, there is no doubt that the general public and global business audience’s understanding of f1 sponsorship is underdeveloped, so this week I want to focus developing this understanding.
It isn’t “Just” Money for Logos on Cars
I recently read one definition that described sponsorship as… ‘A person or company that finances a project or an event carried out by another person or group in return for advertising time.’ I think that sums up most people’s perception. You may have the impression that sponsorship is all about the amount of time a brand is visible either on TV or at a live event, but it isn’t!
For 99% of sponsors the amount of seconds their brand is visible isn’t the priority – at least it shouldn’t be! Don’t get me wrong, all brands in the sport want as much coverage as they can get. It was a priority for LG when they announced their F1 Global Partnership in 2008, but for the majority sponsorship isn’t about achieving the highest number of seconds of brand exposure possible. Ultimately it’s about increasing sales revenue and profitability. It may be blunt but all businesses, just like people, strive for a continual trajectory of progression. It’s all about making incremental gains year on year and becoming more successful.
So how do businesses do this? Well it isn’t by having a logo in every TV shot. Ask yourself how often you buy products based on the fact their logo is everywhere. I’m willing to wager it’s not that often! So how do these companies increase their market penetration and profits by sponsoring an F1 team and/or driver? By enhancing their strategic position in the first instance and by creating and developing unique competitive advantages. In order to explain this in more detail, let’s look at four key areas of sponsorship that can help drive a business’s sales and enhance the value of its sponsorship investment.
Increasing Consumer Sales
People like products, they like brands and they like other people because they personally relate with them. For example sponsorship helps Red Bull reach its target audience through communication linked with their passions. For many, sport provides an escape from everyday life and forms part of their self-identity. By entwining the Red Bull brand with extreme sports and F1, the Red Bull brand becomes part of any person’s self-identity that shares these passions. This emotional connection is an attractive vehicle when communicating with consumers and helps to build brand preference. Note however, this isn’t about brand awareness. Their target market knew they existed before, they just didn’t relate the Red Bull brand to themselves, so didn’t previously purchase Red Bull products.
You might think that this may be easier for a strong energetic brand like Red Bull, but in truth the brand only became strong through sponsorship and there are examples of other brands that aren’t exciting seeing similar positive results. Take the two Unilever brands “Clear” and “Rexona” – mass market shampoos and deodorants, not exactly exciting, but they still increasing sales through F1 sponsorship.
For many consumers around the world “Clear” and “Rexona” are already household-names, so again Unilever had no requirement for any brand awareness. So why pay to brand the Lotus cars? The simple answer is “association”. The more branding you have, the more association you have, which in turn leads to better consumer uptake of promotional activity, particularly around on-pack and point of sale promotional activity. Essentially the branding has developed a strong link to the F1 team in your mind, which means when you see the promotions on TV or in-store they have more credibility and are more likely to be taken up. This approach stimulates “personal preference” in much shorter time scales than more conventional campaigns may do when just limited to print and/or poster.
After taking a look at consumer sales, known as business to consumer or “B2C”, it’s only fair that we look at the other side of the coin, business-to-business (“B2B”) sales. The total volume of global B2B transactions is much higher than the volume of B2C transactions due to supply chains. Many businesses that sell to consumers also sell to the business market, and some even just sell B2B.
Take BlackBerry for an example. The first thought that comes to most people’s minds is that BlackBerry is in F1 to sell mobile phones to consumers. Wrong, through their F1 sponsorship they are also able to sell into the B2B market. How do they do this? Well today F1 has a business network of more than 220 global businesses which are involved in the sport as sponsors in one way or another. Using the F1 paddock as a networking base, BlackBerry can meet many of these businesses over the course of the season and can establish (quite easily and usually on an informal basis) whether these companies are open to BlackBerry supplying them phones for their staff. They can also meet other sponsors at races who provide complimentary services such as Vodafone for example. As a team sponsor, they can also invite decision makers of businesses that are not involved in the sport to initiative conversations that have never taken place otherwise.
Sponsorship and the hospitality options available to brands are a proven platform for client cultivation. Many sponsors are involved in F1 purely for B2B opportunities allowing them to increase willingness to purchase and increase sales. Many also run effective B2B marketing promotions. In fact Vodafone were able to increase the effectiveness of their small and medium enterprise (“SME”) promotions by approximately 250% by using F1-themed activity.
Sponsorship can also increase the range of products a company offers by creation of a licensed product. A licensing agreement authorises a company to use a team’s brand in relation to a particular product. Many recent licensed products relate to the advanced technology on modern day F1 cars, but it need not be limited to technology. Many teams have licensing partnerships with watch brands that align with the style and sophistication of F1. Examples include TW Steel, Oris, IWC and since last Friday, French brand Richard Mille.
Some licensed products simply use the team’s brand name; others – often the more credible and successful – design a product in partnership or take their inspiration from the team or the car. McLaren are one team that have created numerous licensed products. My personal favourite is the partnership with Specialized Bicycles that utilised McLaren’s F1 wind tunnel to optimize their racing cycle’s aerodynamics. Licensed products often help to raise brand perception and often allow the resultant product to carry a premium price tag, generating even greater profit margins than the standard products.
One day companies may be entirely run by computers and machines, but that time hasn’t arrived yet, so for now at least the most important resource in a company is its employees. One area that sponsorship can be extremely effective and is often neglected is employee engagement. Sponsorship can be used to promote better operational performance and demonstrate, inspire and motivate a workforce.
As well as B2C and B2B sales, the Spanish banking giant Santander has used F1 to actively engage their employees. The company has correctly adopted the philosophy that when you have a global workforce you need to give them some motivational tools that reflect positively on the business and communicate its aspirations for the future. To measure F1’s effectiveness, Santander conducted an internal staff survey. The results were surprising and revealed that 96% of its employees agreed that the sponsorship generated improved business results.
In all sponsorships, businesses can use their rights to foster employee pride and create staff development and incentive programmes to help generate strong business results. In F1 for example, most of the teams have several turn-key initiatives such as pit stop challenges that their sponsors can use to engage to their employees. Others run prizes for top sales representatives that award them a few days soaking in the whole glamorous and aspirational F1 lifestyle.
Conclusion: Branding is an enhancement to wider activities
Hopefully after reading this feature, you won’t see F1 sponsorship as “just” stickers on cars or money for TV time any longer. While branding is hugely important to a company’s overall sponsorship strategy, it is often just an enhancement that encompasses other activities such as B2C sales promotions, advertising and B2B sales. When successfully combined, sponsorship helps develop a trustworthy stature for the business and its brand, making the initial investment all the more worthwhile.