Applying Toilet Paper “Hoarding” Misconceptions To Sponsorship Valuation
BY ADAM GROSSMAN
What do changes in toilet paper consumption have to do with sponsorship? In past posts, we have highlighted the impact of data-driven decision making in helping to mitigate the effects of the coronavirus. In particular, we used sponsorship valuation as the frame to understand the use of data and modeling on strategies employed by government officials and public health officials.
Toilet paper consumption, however, enables us to use converse approach by taking a phenomenon from the coronavirus and applying it to sponsorship valuation. One challenge with the vast majority of people in the United States under shelter-in-place or stay-at-home orders is that consumer staples are in higher demand. This has led to headlines such as “There’s No Good Reason to Hoard Anything, Especially Food” because “hoarders” are buying more of these consumer staples then they would normally need.
These headlines often reflect conventional wisdom and can be misleading as demonstrated Will Oremus in a recent Medium post. He found that the “run” on toilet paper is actually a reflection of people acting rationally in changing circumstances. More specifically, people are spending more time at home rather than at work, restaurants, bars, stadiums, or entertainment venues. This means commercial enterprises are buying less toilet paper while individual consumers are buying more toilet paper because they are staying at home.
This also means that toilet paper is being purchased much more frequently at retail, grocery, and drug stores causing shelves to be emptied and making it look like that people are hoarding toilet paper. Yet, that should be expected given the changed consumption patterns rather than people are hoarding toilet paper in a crisis.
We can use insights from toilet paper “hoarding” as a frame for why need to factor in revenue and audience considerations into sponsorship valuations. A question that we often receive from current and potential Block Six Analytics (B6A) clients is why does your Corporate Asset Valuation Model (CAV) focus on company-specific valuations and examine sponsors’ revenue and brand goals?
The answer is that different companies can obtain different values even for the same sponsorship assets even within the same industry and vertical. One example we typically use to articulate these differences is to highlight the differences in how business-to-business (B2B) and business-to-consumes (B2C) companies generate revenues. In general, B2B companies have fewer costumers that spend larger amounts of money. B2C companies have a larger number of costumers that each spend smaller amounts of money.
Toilet paper consumption demonstrates this point. Companies (or the office buildings that house multiple companies) will typically make large purchasing orders of toilet paper that are delivered in loading docks at office buildings. Individual consumers buy smaller amounts (even during the coronavirus) than commercial customers and typically make those purchases at retail, grocery, and drug stores.
Therefore, toilet paper providers will have completely different strategies based on if its focused on B2B or B2C costumers in normal circumstances. As seen with the coronavirus, however, B2B toilet-paper companies may now want to shift more resources to a more B2C-centric approach. This could include a focus on engaging retail, grocery, and drug businesses to purchase extra supply for increased consumer demand rather than focusing on a more general commercial audience.
These considerations, however, have traditionally had a little to no impact in sponsorship valuations. Many models rely solely on quantity metrics such as attendance, number of impressions, or follower counts. It does not really matter if a sponsor had a B2B business model, how a sponsor’s customers made purchases, or if purchasing patterns changed. If a team, league, event, athlete, or influencer could reach a large audience then a sponsorship was considered valuable.
As the toilet paper example demonstrates, maximizing audience reach is not always the best way for a company to achieve its strategic goals. It is reaching the right audience with the right message at the right time to drive purchasing behavior that is typically the most important to companies. In addition, the right audience and right message can change over time as demonstrated with toilet paper companies. These types of changes should be factored into any sponsorship analysis with models allowing for strategic shifts to cause changes in value calculations.
Toilet paper is one good example of why our CAV model employs a company-specific approach. The coronavirus is going to fundamentally change the strategic goals of both the B2B and B2C companies. Organizations that rely solely on audience reach metrics will be less likely to understand these shifts, engage with sponsors on their shifting priorities, and communicate why value is created or changed in a new environment.