Celebrity endorsement: Does it really work?

Endorsement can be defined as financial assistance given to a person where the giver and taker exploit the situation for their advantage. In the world of marketing, the giver is the brand marketing company and the taker is the celebrity who will use it for one’s consumption.

There have been many debates on the benefits and the weaknesses of using such initiatives in marketing. Let me peruse this argument with a Sri Lankan case in point.

Nation Trust Bank (NTB)

Nations Trust Bank (NTB) is one of Sri Lanka’s leading financial institutions, which mainly operates in the national commercial banks sector. Presently NTB undertakes corporate and consumer banking, fixed income securities trading and leasing. In addition to that it has been the exclusive franchisee of American Express (Amex) credit cards in Sri Lanka since its acquisition of this franchise in 2003 and is the second largest issuer of credit cards in Sri Lanka.

It is relatively young commercial bank that commenced operations as a licensed commercial bank in 1999 by acquiring the Sri Lankan branch of Hong Kong-based Overseas Trust Bank (OTB). At the inception it was promoted by two leading corporates in Sri Lanka, the John Keells Group and Central Finance Group, together with the International Finance Corporation.

These promoters, JKH and CF, held 29.9% and 20% of its equity at end-2010. They are required to decrease their individual holding to 15% in April 2012 under a regulatory restriction on the ownership of bank shares carrying voting rights.

The key promoters with strong profiles, images and track records in business created a unique position for the bank in the banking industry, which assisted them to being distinguish from the similar sized peers. This was further strengthened by the experienced and effective management team of by the bank.

Financial and marketing data

There has been a steady performance in the Gross Income hovering at Rs. 12 billion and net profit reaching Rs. 2 billion before tax and Rs. 1.5 billion after tax at net profit margin of 18% by 2011.

The interest margin which is a very critical Key Performance Indicator for a financial institution has been increased over the years from 2007 to 2010 but has been decreasing slightly in the recent past, which is worrying from a business perspective.

From 2009 onwards the advertising cost as a percentage of total expenditure has increased to 6.5% with the total budget touching a hefty Rs. 4.4 billion. The impact of this advertising has been positive where the brand value has increased to $ 31 million.

Data analysis

2009: The composition of operating cost base remained unchanged in 2009 with advertising expenses being 3.18% out of total operating expenses. According to the ranking of public brands in Sri Lanka by Brand Finance, an independent brand rating agency, the bank improved its position from 41st place in 2008 to 21st place in 2009, with brand value increasing by 182% from Rs. 497 m to Rs. 1.4 b. The net profit margin of the company is only 10%.

2010: It is noted that there is an increased advertising cost and the same time the brand position has gone up to 17 from 21. The net profit margin of the company has further increased to 17% from 10% recorded in 2009. 2011: The bank steadily moved up in the LMD and ‘Brand Finance’ rankings and was ranked as the 14th most valuable brand in 2011 with a brand value of Rs. 3.35 b. Ranked within the Top 50 listed companies in Sri Lanka, Fitch rating upgraded to A(Ika), assets topped Rs. 100 b, credit cards exceeded 100,000, brand rating improved to 14th position and profit after tax moved to Rs. 1.5 b. The success would have been behind this is the increased advertising promotion expenses which is 6.5% of total expenses. The company has been able to maintain its net profit margin as high as 18%.

2012: Brand NTB has been ranked at number 20 by Brand Finance in the 2012, marking a drop by six places in the ranking from the previous year where the rank was at number 14, which may be an indication that the celebrity endorsement is weakening in the consumer’s mind.

We should note that from the information published, the years 2009, 2010 and 2011 depict a steady growth in advertising cost as a percentage of total expenses. The brand ranking also has had a positive path from years 2008 to 2011 with rankings increasing from 41 to 21 and 17 to 14, which means the monies invested in celebrity advertising has worked not only in the financial data but also on brand rankings. However the drop in rating in 2012 needs further analysis so that it can be corrected from a brand communication point of view and proposition perspective.

Key marketing initiatives

Point of difference: More popularly called PODs, these are attributes or benefits that consumers strongly associate with a brand. On this front brand NTB initially took the high ground by introducing the 365 days banking proposition that created a clear-cut differentiation in the minds of a target consumer hooked the positioning ‘convenience banking’.

Brand value significantly increased post 2009, due to endorsement of Kumar Sangakkara in 2008 that supported the values of the brand such as innovation, simplicity, dlexibility and responsiveness. The logo change also worked well with the focus on the ‘tactics for brand elements’. The strong advertising exposure exploited the situation very well too.

Impact in the market

The impact of the above strategy paid dividends with the rankings in Brand Finance spiking a growth of 182% the very next year. The rank jumped 20 slots to occupy position No. 21. Thereafter the brand value and the rankings increased to No. 17 in 2010 and by 2011 it achieved the landmark position of No. 14. However the drop to number 20 in 2012 is worrying and it needs to be carefully analysed.

From an overall business perspective LMD top rankings also increased for NTB in the year 2008/2009 to No. 22, but once again took a nose dive to No. 26, then in year 2010/2011 it further came down to No. 34, which that the momentum has begun to decline. The 2011/2012 performance coming down to 41 needs urgent action

This clearly shows that that the bank needs a clear push again in overall branding as what happened in 2008 and 2009. We can see an increase in the advertising spend over the years and the highest being in 2012, but this does not reflect in the overall performance of the brand.

Next steps

It is clear that the brand NTB is up against a challenge as per the above data and it needs further research if the impact of the long term has not been managed post an immediate spike from the strong celebrity campaign that came to play post 2008.

The drop seen in brand value, ranking, enterprise value and corporate LMD rankings needs to be corrected. Maybe the 2013 numbers can throw more light to the above analysis. Some strategies that can be pursued can be as follows:

1. Build on the proposition of ‘convenient banking’ given the strong competition that has been seen in the recent past.

2. Communicate effectively the value proposition of the brand with a new campaign to correct the overall rankings and consumer impact

3. Relook the point difference as some of it has already been copied by competitors.

(The thoughts are strictly the ideas of the author and have no implications on the positions he shoulders in Sri Lanka or internationally. He can be contacted on [email protected].)