Impact Of Celebrity Endorsement On Consumer Purchase Intention Marketing Essay

Impact Of Celebrity Endorsement On Consumer Purchase Intention Marketing Essay Celebrity endorsement has become a modern day staple of advertisement strategies, used to create distinctive competencies in increasingly competitive industries. This is especially the case with the telecom sector of Pakistan, which is one of the countrys most profitable industries and thus the level of competition is fierce and companies often resort to celebrity endorsement to impact consumer purchase intention. This research study aims to study the nature of the relationship between celebrity endorsement variables and purchase intention. The use of previous studies in this field has created a common set of variables that combine to form the celebrity endorsement factor and as such these variables have been extracted from the literature review. The identified variables are: image-fit, brand recognition, likeability, trustworthiness and attractiveness. The research primarily used a quantitative method for analysis as the author wanted the results to be less subject to the authors own intuition and thus his own bias. This analysis was obtained from questionnaires and formed the basis of the data used to regress the variables with each other. Overall, the regression and cross tabulation results concluded that all five variables had a significant impact on purchase intention with brand recognition and trustworthiness being given the highest value by consumers in terms of affecting their purchase intention. Acknowledgements I would like to express my gratitude to all those who helped me during the whole of my project. I gratefully acknowledge the help of my supervisor, Professor Fareedy who has offered me invaluable advice throughout the project. He has spent time and energy to aid in the completion of this project and none of this would have been possible without his patient instructions, insightful criticisms and expert guidance. I would also acknowledge the enormous support and advice received from my dear friend, Ammar Hameed, without whom this thesis would not have been of the quality that it is now. Table of Contents Chapter I: Overview Introduction Advertisement plays a vital role in the economy; it is the foundation upon which this fast paced world learns whats new and available. To sell a product in the competitive global market has become a challenging task. Homogenous products and brands make it difficult to choose from. Minor tweaks in design and voila a new product is ready for the shelves. However advertisement is major difference between the brands and their products and services. In order to survive in this trade, companies require sales to increase which would establish a label for the company seemingly creates a sense of belonging between the consumer and the product. This sense of belonging is awakened in the hearts of the purchasers by going along with celebrity endorsements where consumers can relate to their favorite celebrity that leads on to influencing demand for that brands product or service. When relating to celebrities, it is vital that companies choose celebrities who are up in the popular rating hence strengthening the scope of accomplishment in gaining market share for the particular brand, product or a service. It can be said that the popularity and the association of the celebrity with the brand has a direct relationship. As the popularity level goes up, so does the image of the brand in question. The basic idea of the endorsement is quite simple. General consensus is that people like celebrities, if those celebrities say that they like a product or a service naturally people will like what they like. It is as if by magic celebrities transfer their popularity from themselves to the products. Endorsement also might symbolize quality or any other related virtue. In order to sell a product we need to advertise and what could be better than to advertise on the shoulders of already successful sales i.e. celebrities. It is thus that this research project seeks to understand the how celebrities, and specifically their attributes affect, both positively and negatively, the purchase intention of the consumers and hence the title: Impact of celebrity endorsers attributes on consumer purchase intention Background The history of celebrity endorsement of products dates back to the 1760s. Josiah Wedgwood, the founder of the Wedgwood brand of pottery and chinaware, also called the father of the modern brand ; he used royal endorsements with regard to his brand to create a sense of aura and position the brand in such a way as to exceed its value in comparison to the value created by the product and services offered. The cigarette industry signed on entertainment personalities and used them in its ads in 1905. Since radio became commercial in the late 20s and the invention of TV screens in the 40s, celebrities have done commercials. Western culture has always flocked to the notion of a celebrity driven culture; whereby celebrities dictate the trends of the post-modern materialistic culture. Endorsements help the companies to gain strength in the market in order to be part of the consumers purchase basket. By doing so, sunrise companies prosper and develop into bug giants. Celebrities have a growing interest of the consumer population hence that image and aura is used in relation to a brand to influence the purchase decisions of people all around. This mechanism allows for change in tastes and interests with regard to the celebrity endorsement. Aristotle once said, Any brand can get a celebrity that is easy; but getting a celebrity consistent with the right brand to the right degree at the right time for the right purpose and in the right way; that is not easy. Significance of the Study The usage of famous ambassadors or celebrities in the department of marketing intervention and communications is growing since the late 1970s and has exalted to a percentage of nearly 25% at the end of the 1990s. Some researches show a positive direct economic effect of these famous endorsements despite they are very expensive. It ought to be of greath worth to the companies to know what product/brand goes with which celebrity in light of the expected outcome. Celebrity endorsements amount to millions of dollars in investments and the investment has to be on the mark to produce fruitful results. However to ensure soundness of the investment, appropriate time and money is alloted to the marketing department to match the product with the celebrity keeping in view the popularity ranking of the celebrity in question with forecasted predictions of his/her future public stance. This research measures the Impact of celebrity endorsers attributes on consumer purchase intention to keep a chec k on the consumers behavior patterns in relation to the associated celebrity endorsement. However, Although, marketing strategies if well directed could improve the message getting across thus creating a suitable link between the brand and the celebrity. In light of this, the planning process of the message and the brand equity management should cater to the celebrity appropriately. The research itself would focus on Lowe Raufs client, Nestle and how celebrity endorsements affect consumer purchase behavior and brand equity for milk. The milk industry in Pakistan is an ever growing industry with multiple competitors and multiple ad agencies vying to create effective communication channels for these brands. Milkpak for the first time in Pakistan is not the market leader and as such the use of celebrity endorsement is an effective way of readdressing that balance. Time Frame The time frame for this research project is 5 months, starting from August and ending in December. Research Proposal Submission (August 2012) Revisions to Proposal (1st September 2012) Literature Review (1st September 2012) Hypothesis Generation (1st September 2012) Theoretical Framework (1st September 2012) Methodology (1st September 2012) Data Collection (22nd September 2012) Data Compilation (6th October 2012) Data Analysis (13th October 2012) Results and Findings (20th October 2012) Final Submission (3rd November 30th 2012) Resources Zakria Fawad (Account Manager, Nestle) served as the primary source of reference as he handles the Nestle and Stylo accounts within the firm. Prior case studies generated by Lowe and Rauf also served to help gather further information of the research topic and as such was a useful resource. The GM, Anwar Kabir, was the secondary source of information, providing further insight as to the workings of the firm at a macro level. Chapter II: Lowe Rauf Lowe Rauf Lowe Rauf, Pakistan is an affiliate of Lowe and Partners international, which itself is a unit of Interpublic Group, one of the four biggest advertisement companies in the world. Situated in Karachi, Lowe Rauf firsts established itself in Pakistan in 1951 as an in-house agency of Unilever and gradually morphed into an independent company after a decade. This new independent company was called R-Lintas and was headed by Mr. Rauf who saw it grow and morph into one of the key players in Pakistans advertising industry. In the mid 90s, R-Lintas opened its doors to the Lahore market as well and has been thriving ever since in the city, creating many memorable campagins for some of the largest players in the industry, including but not limited to: Lux, Dalda, Nestle, Unilever Foods, Unilever Non Foods. In 2003, R-Lintas was taken over by Lowe and Partners International and was changed to Lowe Rauf Pakistan ever since with a new philosophy that focuses on fusing local ideas into everyday products that is known in its offices as, Populist Creativity. Mission Statement: Populist Creativity engage the many not the few to achieve top client satisfaction Vision Statement: To create the most significant, cultural and profitable IMCs in Pakistan Clients: Surf Excel, Walls, Nestle (all products), Mitchells, Rexona, Knorr, GFC fans and Stylo shoes. The Lahore office specifically caters to Nestle, GFC, Mitchells and Stylo. The most famous campaigns include: Kha Badami for Walls Daagh tau achay hotay hain for Surf Excel Commander Safeguard for Safeguard Rio Biscuits from Rio for Peak Freans Goals Objectives (2012) Continuous and stringent current client satisfaction for the next 3 years Develop effective communication channels with current client affiliates Increase research into changing consumer expectations based on the past 5 years Build and sustain corporate relationship with overseas subsidiaries Create IMC programs that consistently challenge, innovate and surprise Attract top industry clients whose contract terms with rivals are about to be expired IMC Services Offered IMC Strategy Formulation TVC Campaign Planning, Creation Execution Print Media Campaign Planning, Creation Execution Digital Media Campaign Planning, Creation Execution Media Production Media Buying Public Relations Strategy Press Releases Market Research Organizational Structure The Interpublic Group of Companies sits at the top of the chart with Lowe Partners followed by the local agency, Lowe Rauf, within Lowe Rauf, the Lahore office and the Karachi office function independently, with differing clientele. The Karachi office has eight different departments which include: Account Service, Account Planning, Creative, Finance, Media Buying, Production, Human Resource and Research. The Lahore office shares these resources for some functions, while running independently for others and thus it has smaller set of departments. It has a separate, Account Service, Creative, Media Buying and Production department, while the rest are shared with the Karachi office. Organizational Chart [Source: Lowe Rauf, Pakistan (2012). Organizational Structure, People Procedures Manual, pp. 3] Functional Departments Account Service Department: This department acts as a liaison between the agency and the client. It is responsible for maintaining the client portfolio along with working with the creative department and the client to ensure that information flows smoothly and to maintain a good working relationship with the client so that future work can also be brought in. The account services department, typically the account executive works to create a creative brief, which forms as the basis upon which the creative department comes up with ideas. Account Planning Department: The role of the account planning department is fundamentally to formulate a strategy that will drive all campaign objectives forward in a manner that is consistent with the agencys goals as well as the clients needs and the consumer perception of the brand in question. It is thus the most important department in the agency. Account planners frequently work with the research department because it is based on the information provided by the research team that they form their strategy and plans. Creative Department: The creative department is responsible for coming up with ideas for all campaigns. They use the creative brief provided by the account service department and use that to create print and TVC advertisements. The concepts created by this department are related back to the account service department which shows them to the client for approval. Often creative need to come up with multiple concepts because clients can be finicky and choosy. Media Production Department: The media production department is responsible for producing the TVC or print idea that the creative department has come up with. Once the final idea for the advertisement has been approved by the client, this department works with the creative department to create the advertisement so that a final form can be aired on television or published in newspapers, magazines etc. Media Buying Department: The media buyers use their sources and contacts to purchase advertising space wherever required at the cheapest rate possible. It is thus important to have a very low turnover rate within this department as one of the major ways through which lower rates are gained are through the media buyers contacts. These people also need to be aware of costs with regards to different locations, timings special occasions so that they can act upon it quickly, before the competition. Human Resource Department: The Human Resource Department, like any HR dept. at any organization is responsible for the planning and managing of personnel within the organization. This department mostly uses internet and websites to satisfy personnel needs, however sometimes newspaper advertisements might also be used. Market Research Department: The market research department is constantly in contact with consumers of different clients to understand how, when and why are consumer perceptions changing with regards to new campaigns and changes to brand. They also track brand health and measure equity if the client desires. Finance Department: Like with any other organization, the finance department controls all costs and cash associated with the firm at all levels. Market Strategy and USP Lowe Rauf follow a differentiation strategy in that their services are slightly expensive than most of the competition, however they make up for it by providing efficient services, that are uniquely creative as well as the fact that they are one of the fastest agencies in terms of creating campaigns. That is their major differentiating factor as well as the fact that they are highly experienced in FMCG goods and have a very successful portfolio with Surf Excel, Walls, Nestle, etc. USP: Their unique selling proposition is the fact that they can create uniquely creative advertisement campaigns within 10 days. Financial Statements Lowe Rauf Income Statement 2009 2010 Sales Rs. 22,145,385 Rs. 37,275,400 Direct Cost of Sales 0 0 Other Production Expenses 0 0 Total Cost of Sales 0 0 Gross Margin 22,145,385 37,275,400 Gross Margin % 100.00% 100.00% Expenses Payroll 9,965,423 16,773,930 Sales and Marketing and Other Expenses 3,321,808 5,591,310 Depreciation 0 0 Leased Equipment 0 0 Utilities 110,000 110,000 Insurance 0 0 Rent 1,110,000 1,110,000 Payroll Taxes 1,494,813 2,516,090 Other 0 0 Total Operating Expenses 16,002,044 26,101,330 Profit Before Interest and Taxes 6,143,341 11,174,071 EBITDA 6,143,341 11,174,071 Interest Expense 491,467 893,926 Taxes Incurred 1,535,835 2,793,518 Net Profit 4,116,038 7,486,627 Net Profit/Sales 18.59% 20.08% [Source: Lowe Rauf, Pakistan (2012). Financial Statements, People, Procedures Manual, pp. 17] Lowe Rauf Cash Flow Statement 2009 2010 Cash Received Cash from Operations Cash Sales 5,536,346 9,318,850 Cash from Receivables 15,501,770 26,092,780 Subtotal Cash Received 21,038,116 35,411,630 Expenditures Expenditures from Operations Cash Spending 10,939,820 18,414,048 Bill Payments 5,890,672 9,915,256 Subtotal Spent on Operations 16,830,493 28,329,304 Additional Cash Spent Long-term Liabilities Principal Repayment 2,100,000 2,100,000 Purchase Other Current Assets 0 0 Purchase Long-term Assets 0 0 Subtotal Cash Spent 18,930,493 30,429,304 Net Cash Flow 2,107,623 4,982,326 Cash Balance 10,522,869 15,505,195 [Source: Lowe Rauf, Pakistan (2012). Financial Statements, People, Procedures Manual, pp. 18] Lowe Rauf Balance Sheet 2009 2010 Assets Current Assets Cash 10,522,869 15,505,195 Accounts Receivable 5,787,578 8,527,857 Other Current Assets 1,331,100 1,331,100 Total Current Assets 17,641,547 25,364,152 Total Long-term Assets 0 0 Total Assets 17,641,547 25,364,152 Liabilities and Capital Current Liabilities Accounts Payable 1,157,516 1,705,571 Current Borrowing 0 0 Other Current Liabilities 0 0 Subtotal Current Liabilities 1,157,516 1,705,571 Long-term Liabilities 10,055,682 14,457,567 Total Liabilities 11,213,197 16,163,138 Paid-in Capital 12,700,000 12,700,000 Retained Earnings 2,155,612 -3,987,641 Earnings 4,116,038 7,486,627 Total Capital 6,428,350 9,201,014 Total Liabilities and Capital 17,641,547 25,364,152 Net Worth 6,428,350 9,201,014 [Source: Lowe Rauf, Pakistan (2012). Financial Statements, People, Procedures Manual, pp. 19] Chapter III: Industry Competitors Local Industry Pakistans media network has gained new benchmarks as compared to yesteryears. Once being an agriculturally dominated, Pakistan has developed in this aspect. Cable and television being accessible to wherever there is electricity and road side billboards being the hub of advertisement. Be it radio, television, billboards or internet, advertisement market of Pakistan has expanded its outreach whereby it is now creating alliance with celebrities from overseas and setting aside endorsements as per the requirement of the current times. This opportunity of hiring non- Pakistani celebrities for brand image reaches new popularity levels that were previously held by Pakistani entertainers. Pakistan is increasingly following in the footsteps of the Western world by adopting a celebrity driven culture; where latest trends, fashions and ideas are modeled after various celebrities. History is witness to the fact that investments in celebrity endorsements in Pakistan have increased rapidly in the l ast decade or so hence increasing the quality of competition as well promoting innovation in marketing strategies as well as product development. This chain of events have allowed Pakistan to grow in the positive direction hence creating awareness and increasing knowledge of the general public by means of massive advertisement projects in relation to gaining total strength of the consumer population. Huge investments require similar increases in revenue. Brand image once embossed within the consumers then the companies get their safe haven until they reap the fruit of their own mistakes. Thus companies are increasingly using celebrities to endorse their brands by either publicly using their product or appearing in advertisements for said products. The aim is to increase sales of the product by getting consumers to change their purchase behavior and buying more of the product (either by consuming it in greater quantity or buying more of the product). However celebrity endorsement does not automatically guarantee greater success, nor is the effectiveness same for every brand of a particular celebrity. Thus it becomes important for organizations to understand how celebrity endorsement affects their brand. The purpose of this thesis is to study the impact that celebrity endorsement has on a brand as well as the factors that determine the effectiveness of the endorsement for the brand in order to maintain successful brand recognition. Competitor Analysis The local Pakistani advertising industry is brimming with a multitude of advertising agencies and each day it seems a new one is opening up around the corner. However, most of the top agencies in Pakistan have been around for decades and have a stable client base with which they operate and conduct their business with. Orient McCann: McCann-Erickson is an affiliate of the Interpublic Group of Companies and is a multinational advertising agency with some of the largest and lucrative clients in the world. McCann Erickson combined with a local corporation, Orient in 1996 to form Orient McCann in Pakistan. It soon established itself as one of the best agencies in Pakistan and currently has the highest market share with major clients as Habib Bank, KFC and LOreal. Synergy Advertising: Synergy Advertising has made a name for itself in recent years by winning the award for the best print advertisements in Pakistan. It has also gained strides by roping in Moiblink as its client along with Engro Polymer and NBP. Synergy is the second largest advertising service in Pakistan today. JWT: JWT, another international company with significant backing has been in the industry for over 20 years and has some of the most loyal client base in the industry. JWT prides itself on providing discounts and other deals to its clients, which are unmatched in the industry. Its major clients include Bank Alfalah and Asiatic Bank. Interflow: Interflow was established in Pakistan in 1979 and was initially slow to get off the ground. However over the last 10 years it has consistently performed well and with international clients such as Samsung and LG, it continues to build its reputation in the market. Manhattan International: Manhattan International is one of the few advertising agencies, certainly the only recognizable agency in Pakistan that is actively affiliated with its international office. Most other agencies, including Lowe Rauf are independent organizations with the same set of rules and principles; however Manhattans strongest point is that it can take the help of its international counterparts for campaigns and that is why they are strong in Pakistan, even though they have been here for a very short duration. Their biggest client at the moment is PIA. Pak Media Com: Pak Media Coms claim to fame has been one intensely popular campaign that has made them famous on the circuit. That campaign is the recent Ufone advertisements which have taken the industry by storm. Deemed to be the most recognizable and most appreciated advertisements amongst teenagers and young adults, these advertisements have put Pak Media Com on the map. Midas: Midas has started relatively recently in Pakistan and has been able to get the Indus Motor Company as their clients, along with a recent contract with Samsung post 2012, once their partnership with Interflow expires. This has made them a prominent player in Pakistans increasingly competitive advertising landscape. Evernew Entertainment: Evernew Entertainment has been around for over 20 years but has slowly seen a decline in its client base with the emergence of new players in the industry. It still has a few significant clients, such as Dawlance, which make them a worthy competition even now. Mindshare Pakistan: Just like Evernew, Mindshare has also been in operation for a long time but has a dwindling client base, however with Nokia still in their portfolio, they are deemed significant enough by the other agencies. Argus Advertising: Argus Advertising is not a large firm (as compared to the others on this list) but they have a very large, very profitable client in Sony. Although their client base is limited, the presence of Sony in their portfolio has been the envy of many Pakistani advertising agencies. Competitor Form Sheet [Source: Lowe Rauf, Pakistan (2012). Financial Statements, People, Procedures Manual, pp. 21] Financial Ratio Comparison Lowe Rauf with Argus Ever new Ratio Analysis Lowe Rauf Argus Evernew Sales Growth 9.60% 7.20% 11.40% Percent of Total Assets Accounts Receivable 32.17% 42.06% 35.75% Other Current Assets 7.20% 5.74% 3.41% Total Current Assets 100.00% 100.00% 100.00% Total Assets 100.00% 100.00% 100.00% Current Liabilities 5.89% 6.46% 5.42% Long-term Liabilities 57.60% 34.46% 13.63% Total Liabilities 63.49% 40.93% 19.05% Net Worth 36.51% 59.07% 80.95% Percent of Sales Sales 100.00% 100.00% 100.00% Gross Margin 100.00% 100.00% 100.00% Selling, General Administrative Expenses 106.55% 85.91% 74.60% Advertising Expenses 21.25% 16.22% 15.09% Profit Before Interest and Taxes -2.60% 22.01% 37.23% Main Ratios Current 16.97 15.47 18.45 Quick 16.97 15.47 18.45 Total Debt to Total Assets 63.49% 40.93% 19.05% Return on Net Worth -29.16% 72.40% 80.99% Return on Assets -10.65% 42.77% 65.56% Additional Ratios Year 1 Year 2 Year 3 Net Profit Margin -6.55% 14.09% 25.40% Return on Equity -29.16% 50.68% 56.69% Activity Ratios Accounts Receivable Turnover 3.79 4.6 2.9 Collection Days 56 78 82 Accounts Payable Turnover 12.05 12.17 12.3 Payment Days 27 26 29 Total Asset Turnover 1.63 2.13 1.81 [Source: Lowe Rauf, Pakistan (2012). Financial Statements, People, Procedures Manual, pp. 17] Chapter IV: Literature Review Literature Overview From a marketing perspective, it is important to understand each and every aspect that has an impact on the brand (and product). Hence there are innumerable studies that have dedicated themselves to understanding the factors that lead to an increase in marketing effectiveness and leading to the ultimate aim of greater purchases and greater brand equity. Celebrity endorsement is one such factor that impacts purchase behavior and as such there have been studies that have been dedicated to not only studying the impact of this variable but also how it can be utilized to increase marketing effectiveness as well as the precautions that must be taken into account. The following reviews consist of studies relevant to this study. Celebrity Endorsement Hidden Factors to Success T