Current Issue Summary
March 2021 (Vol. 61, Issue 1)

Analyzing Price Premiums in International Sponsorship Exchange: What Drives Marketing Costs in Formula One Racing?
Despite  a generous body of research on sponsorship returns, scholars, until recently, neglected the related investment. According to Jonathan A. Jensen (University of North Carolina at Chapel Hill), Joe E. Cobbs (Northern Kentucky University Haile/U.S. College of Business), Benjamin Albano, (professional racecar driver and UNC-Chapel Hill alumnus), and B. David Tyler (University of Massachusetts, Amherst, Isenberg School of Management)—the key question is: “Are sponsors incurring higher costs by paying price premiums associated with certain sponsorship-exchange conditions?” Sponsorship exchange has been characterized by “the provision of assistance either financial or in-kind to an activity by a commercial organization for the purpose of achieving commercial objectives (Meenaghan, 1983, p. 9).” Such arrangements are increasingly sophisticated, and their proprietary nature has prevented empirical research from explicating the costs incurred by sponsors through prices paid for the commercial affiliations.

But, the researchers argue, “Studying the equilibrium reflected by price within market conditions is necessary to assess ROI.”

They analyzed multiple years of prices paid for the global sponsorships of Formula One racing teams. Their model uses one of the largest datasets of sponsorship prices—329 distinct sponsorships, involving 25 countries on three continents and myriad product categories, with more than 600 observations. The model also quantifies spending at multiple levels (i.e., title, sponsor, partner, official status and supplier level), while controlling for other characteristics of the sponsor, property and relationship. Findings bucked previous research in that “when sponsor industry and sponsorship level were controlled for, prices were not influenced significantly by congruence, clutter, sponsoring company size or performance of the sponsored organization.” In fact, results showed that the “sponsoring company’s brand equity and shared nationality with the sponsored team predicted price premiums, suggesting agency conflicts among advertisers.”

Among the implications:

• Companies high in brand equity should scrutinize sponsorship prices, particularly in cases of shared nationality.
• Sponsors should take advantage of otherwise congruent and uncluttered sponsorship relationships and strongly consider high-performing sports teams, “because the well-established theoretical benefits may not be associated with significant price premiums in Formula One Racing.”

Read the full article here.