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What is the value of a celebrity endorsement?

Thursday, April 30, 2020
What is the value of a celebrity endorsement?
30
Apr

Celebrity endorsements are not a new thing. This extremely effective form of marketing is believed to have originated in the 1760's when Josiah Wedgwood and Sons, producers of pottery and chinaware, used royal endorsements as a way to demonstrate value to potential customers. Towards the end of the 19th century, trading cards that had images of celebrities and well known individuals were introduced. Actors, singers and sports celebrities were incorporated into product packaging and were collected by fans. Cigarette brands leveraged celebrity trading cards as a way to create product loyalty and increase demand from customers who wanted to collect all the different cards.

Celebrity endorsements became increasingly effective and popular in the 1900's reaching a breakthrough point in the 1980's when companies began creating products around celebrities. One of the most well known examples happened in 1984 when Nike designed a shoe around then up and coming basketball star Michael Jordan. From that point on, celebrity endorsement became mainstream. There are numerous examples of celebrity endorsements that set companies apart, including Priceline (William Shatner), Smart Water (Jennifer Aniston), Beats (Dr. Dre), Godaddy (Danica Patrick), Vitamin Water (50 cent), Calvin Klein (Brooke Shields), Weight Watchers (Oprah Winfrey), George Foreman Grill (George foreman), Shoedazzle (Kim Kardashian), Jell-O (Bill Cosby), and perhaps the greatest ever - Kyrie Irving as Uncle Drew for Pepsi.

What value do celebrities bring to the table?
  • Visibility, recognition and awareness. The fact that celebrities are the center of attention shines a light on the products and services they use and support. Even the best products can disappear if the market doesn't hear about them. Marketing campaigns are typically broken down by reach and frequency. The suggestion is that in order to have people become aware of a product, they need to be reached multiple times. Celebrities have the ability to continuously introduce a product to the same audience without it feeling like an intrusive marketing campaign.
  • Image and credibility. Customer faith in brands has been dropping rapidly over the last 15 years. Younger audiences do not have the same attachment to brands that older generations do. Consumers today look for different signals about the quality of a product. These often come from peer recommendations, online influencers and, when matched correctly, with celebrities that have credibility with a specific audience. For example, when Michael Jordan played with Nike shoes he signaled to fans that those are high quality shoes. Otherwise, he would have never used them in such a competitive and demanding environment.
What is Starfund's approach to celebrity endorsements?

We do not match celebrities with startups for the sake of matching. In order for Starfund to become involved with a startup, one of our celebrity partners has to be an authority figure in that specific startup's space and our audience research tools show that they are likely to influence the relevant audience and viewed by that audience as an authority figure. We believe this is the key to a successful relationship.

How much do celebrity endorsements cost?

Celebrity endorsements are traditionally a very high risk, high reward option. Until the influencer revolution on social media in recent years, they were a privilege only big brands could afford.

We pursue a completely different model that opens the market up to attractive early stage companies and celebrities that are interested in becoming partners, as opposed to hired guns. Typically, you do not pay your celebrity partner as a Starfund member, but it is important to understand what their involvement would typically cost so you can understand the value you are receiving.

Typical endorsement deals cost between hundreds of thousands to millions of dollars. These deals are often contain a component that compensates the celebrity for the rights around their name, voice and likeness, and an additional component focused on services. Typically, celebrities charge between tens of thousands to hundreds of thousands of dollars for posting on Instagram on behalf of the brands they endorse. In July 2019, Business Insider posted an article detailing how much the biggest stars were charging per post. Are you ready for this?

  • Kylie Jenner - $1M
  • Selena Gomez - $800K
  • Ronaldo - $750K
  • Kim Kardashian - $720K
  • Beyonce Knowles - $700K
  • The Rock - $650K
  • Justin Bieber - $630K
  • Neymar - $600K
  • Messi - $500K
  • Kendall Jenner - $500K

Of course, not every celebrity charges these amount. On the other hand, we don't believe in single posts. We believe in ongoing relationships that create long term value and trust with consumers. To put things in perspective, our celebrity partners do a lot more than post once or twice on Instagram. We value a typical celebrity relationship that we create at the $2.5M-$5M range in value if you actually had to pay for it, and often more.

On top of it, we layer services to manage the relationship that are handled by Starfund to ensure the relationship is successful. Obviously, we know we work with companies that can't afford to pay these types of fees and as such we view them as our investment in the company in exchange for warrants and an option to participate in future rounds.

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