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van Everdingen, Yvonne; Hariharan, Vijay Ganesh; Stremersch, Stefan
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Mercedes is racking up Formula One wins, but at what cost? Parent company Daimler AG reportedly invests around $200 million annually to compete with its Mercedes-AMG Petronas Motorsport team in the F1 championships. Could it possibly get that much in return?

New research dives into the world of sports to answer this question and more. By looking beyond sponsorships to gear makers' competitive event participation with their own teams, a 2019 paper by Yvonne van Everdingen, Vijay Ganesh Hariharan and Stefan Stremersch investigates both branding (marketing) and breeding (innovation) results.

While focused on 30 car brands and the effect of participation in the F1 championships over 15 years, the logic of their findings can be applied to other realms where brands compete via teams to win -- namely, in cycling, skiing and motorsports. Managers in these fields would be wise to consider that both branding and innovation results depend on the company's overall spending on advertising and R&D, respectively.

The results in brief: companies that spend the most on R&D reap the most innovation gains from high-stakes races. At the same time, the study finds that car brands that spend relatively little on advertising (think Ferrari, Lotus and Jaguar) stand to win the most in terms of sales from the races. On the flip side, brands with large advertising budgets but low levels of R&D spending may be better off staying to the sidelines.

Big spenders, for better or worse
Car companies compete in the F1 championships for two predominant reasons: to develop and improve the gear itself (innovation, measured by patent citations) and to achieve greater brand visibility to boost sales (measured by new car registrations). The study found positive outcomes for both innovation and sales, but these largely depended on the amount of money the brands were already spending on R&D and advertising, respectively.

Brands that invest heavily in R&D -- such as BMW and Honda -- see significant innovation returns from participating in the F1 competitions, as they expand their patent base and then leverage new technologies developed for their commercial markets afterwards. But companies spending less than 3.8 billion euros annually on R&D -- such as Fiat and Renault -- do not gain from racing the F1 circuit. If these car manufacturers want to boost their patent base and innovation returns, the study suggests they need to also boost their R&D spending to make the F1 efforts worthwhile.

The branding benefits worked differently: While all F1 entrants gained some positive branding effects, only the companies that spent less than 10.6 million euros a month on advertising actually gain from a better performance in the races.

Breeding and branding
Examples of breeding or innovation results that emerge from participation in sports competitions include the Atomic ski team's DoubleDeck technology developed for the FIS Alpine Ski World Cup. For Atomic, elite athletes provide constant feedback about the gear performance in an extremely demanding setting, competing with teams using rival gear. A similar situation is seen in the F1 championships with drivers and technicians providing feedback on every aspect of their gear as they rev up and turn tough corners.

Meanwhile, sporting competitions' large viewership helps boost brand exposure with demonstrable results: Renault's F1 title in 2006 resulted in a direct increase in its car sales. Likewise, Ferrari, Jaguar and Lotus also came out as winners here. By competing in F1 races, these three brands show off their products in a relevant context to connect with future customers.

About the research
For this study, the authors focus on the popular (352.3 million global viewers in 2017) F1 championships. The F1 schedule, with car manufacturers' teams competing in races throughout the year, allows R&D teams to generate many hundreds of ideas a year and test them immediately to see if they improve performance. TV viewership and the intense identification of success with brands also make it a good case study for measuring marketing results.

The authors analyzed 30 car brands, accounting for 90% of passenger vehicles in Europe, of which 10 brands had participated in Formula 1 at some point in the study's range from 2000-2015. Even after controlling for certain variables -- such as engine outsourcing, brand size and the time it takes innovation to yield fruit -- the results confirmed their main findings: firms that spend the most on R&D and the least on advertising benefit the most from participating in F1.
This article is based on:  Gear Manufacturers as Contestants in Sports Competitions: Breeding and Branding Returns
Publisher:  Sage Publications
Year:  2019
Language:  English