Landing celebrity endorsements can be a huge victory for corporations. But when that celebrity becomes engulfed in scandal, companies face the challenges of managing the situation and determining whether to cut ties with their celebrity partners. So how do companies weigh the pros and cons of these partnerships, and how have social media outlets changed the game? We asked Bruce Clark, associate professor of marketing and the Frank Murphy Family Fellow in the D’Amore-McKim School of Business, to examine these issues.

What makes celebrity endorsements so attractive to companies, and how do they weigh the pros and cons of those partnerships?

Companies like celebrities because people like celebrities, and customers who like a particular celebrity also identify with that person in some way. Companies hire these individuals because they believe it will favor their brands very well. Celebrities are also eye-catching; there’s a pure awareness factor that makes you stop and look at an advertisement because you recognize the spokesperson. That’s very attractive to many companies. Stars are paid for these endorsements of course, and while customers know this, they often feel as if the celebrity wouldn’t take the money if he or she didn’t like the product.

The problem is that celebrities are human, and humans make mistakes. The danger of taking on a celebrity is you can’t control that person. It’s a high-risk, high-reward situation. When it works, it works fabulously. Michael Jordan was one of the greatest marketing success stories every written. When Nike started the “Be Like Mike” campaign, some were skeptical, but wow did that work. There was a huge upside for the company.

We’re now seeing more companies make up their own celebrities, like creating cartoons or characters. Take Geico’s Gecko, for example. The Gecko won’t be getting arrested or cheating on a spouse. Customers can still develop an emotional connection with those characters, and the company is taking much less risk. I think more and more, companies are reconsidering their celebrity portfolios. They can write morals clauses in their contracts with celebrities, but the damage is usually done by the time those clauses are revisited.

What factors determine how a company responds to a scandal involving a celebrity sponsor and what impact the situation has on the company itself?

It depends partly on the degree of transgression. There’s a big difference between someone caught smoking pot – e.g., Michael Phelps – and someone has been charged with murdering his girlfriend – e.g., Oscar Pistorius.

It also depends on how strongly associated the company is with the celebrity.  This you can do research on. You can ask people what comes to their minds when they think about a specific company. If it’s the celebrity in question and the scandal, that might be a problem. But if customers think about the company’s product and not the celebrity, then the company is more likely to withstand the scandal. This raises the question, of course, as to whether the celebrity relationship is worth it.

A third consideration is to what degree the target market cares about what the person has done. If you’ve got a celebrity making a living being controversial, then it’s usually not a big deal. Think of radio personalities Howard Stern and Rush Limbaugh. Here are guys who have controversial reputations, generally speaking, and they thrive on that. If you wake up and find out Howard Stern has done something outrageous, that’s the personality the company has bought into, and his fans probably don’t care much about it either.

These days, you can also get instant feedback by looking at the sentiment on the Web and what people are talking about on social media. It becomes clear very quickly just how angry people are.

That’s a good point. How has social media changed the landscape on these issues?

It’s done two things. First, it’s obviously increased the speed of transmission. We find out about news so much faster nowadays, and from places all across the world. Second, it also may shorten the time that something has an impact. Unless there is a new development, the media get bored and move on. That’s true of social media, as well. I might be outraged for a few days, but unless there’s something new, I stop thinking about it because something else has probably come along. So we have faster transmission, but perhaps also less persistence because the information ecosystem is changing so fast that an issue may not last as long as it once did.

However, the fact that people are no longer talking about a scandal is usually not enough for a company to return to a partnership with that celebrity. The renewed sponsorship in itself would be news and would reinforce the scandal narrative.