A social media influencer’s product recommendation can go a long way. If a beauty influencer with 100K+ YouTube subscribers gives a company’s mascara a positive review, that’s an effective “ad” for the product and boost for the brand.
That’s why some firms have gotten into the practice of paying influencers to skew product reviews in their favor. By some estimates, “influencer marketing” has become a $2 billion market. But the question remains—how closely should a firm affiliate with influencers? And what is the impact on the consumer?
Surprisingly, recent research has uncovered that a more detailed level of disclosure about the nature of the relationship between the influencer and the firm did not always help the consumer.
“In fact, an intermediate level of disclosure may be optimal for consumer welfare,” said Dina Mayzlin, associate dean for the Marshall Ph.D. program and professor of marketing at the USC Marshall School of Business, who co-authored the study with Amy Pei, an assistant professor at Northeastern University and a graduate of Marshall’s Marketing Ph.D. program. The paper, “Influencing the Influencers,” was recently accepted for publication in Marketing Science.
The researchers developed a model for how closely a company should work with influencers. A close affiliation could involve payment and products; a less-close affiliation could involve only free products, for example. An independent influencer would have no connection to the company.
By FTC regulation, influencers need to disclose any affiliation with a company when endorsing their products. But as a practical matter, it’s hard to convey the extent of the affiliation. It’s an imperfect system, the researchers agree.
“Under an imperfect disclosure regime, the influencer may not be able to convey the exact nature of her relationship to the firm,” said Mayzlin. “This in turn would imply that the consumer would assume that the influencer is fully aligned with the firm and discount the recommendation. Hence here the firm may want to allow the influencer to remain independent, which benefits the consumer.”
When the consumer knows that the influencer works closely with the company, the recommendation becomes essentially an ad: The positive review becomes less credible and convincing, Mayzlin said.
However, she added, even if the review is not very persuasive, it may still raise awareness of the product. “If the consumer is already positively predisposed toward the product, which would be the case if the brand has a very strong reputation, awareness of the product may be enough to facilitate a purchase.”
Mayzlin and Pei show that affiliation with influencers potentially benefits the firm by enabling the posting of a review that raises awareness of the product and increasing the probability of a positive review.
How closely should the firm affiliate with the influencer? The answer depends on the existing reputation of the product.
Suppose that the product does not have a very strong reputation, which implies that the consumer needs to be persuaded to purchase the product. In this case, the firm needs to preserve the credibility of the recommendation by letting the influencer retain some independence.
“If the firm can affiliate a little bit, to the extent that it doesn’t destroy the credibility of the recommendation, it should do so by simply supplying the product, but not telling the influencer what to say in his or her review, for example,” said Mayzlin.
In contrast, when the product’s reputation is strong, the firm prefers to fully affiliate with the influencer to both maximize awareness and prevent a negative review. Thus, if a firm that is well-known and has a good reputation wants to introduce a new product, the firm could affiliate in order to preempt possible negative reviews.
The key takeaway? While some disclosure may be necessary, it doesn’t have to be perfect.