The costs, and benefits, of the influencer economy

Influencers on social media have the power to control retail brand conversations and impact consumers' purchasing decisions. But what price are retailers paying to make these connections?

Retailers have lately found themselves in a tricky spot when it comes to marketing. Traditional advertising outlets, including newspapers and television, are losing out to digital at an alarming rate. Yet even on the digital side, it's getting harder to place an ad that anyone will see. In June, Google announced that its popular Chrome browser would begin automatically blocking "annoying" ads and YouTube is set to eliminate its ubiquitous 30-second unskippable ad format by 2018. Millennials and their younger counterparts, Generation Z, have also expressed a strong aversion to advertising, and failed corporate attempts to sound cool have only made the landscape more difficult to navigate. 

This climate has given rise to a different sort of marketing strategy, via social media influencers. It's a category that used to be called simply "tastemakers" but now refers to a wide swath of popular online personalities who have the ability to sway their friends, fans and followers, subsequently influencing their purchase decisions.

It's big business. Some 70% of brands use influencers, according to a report by research firm L2 and influencer marketing agency Mediakix estimates the marketing strategy is a $1 billion industry on Instagram alone. And according to a CBS News report, James Nord, CEO of digital analytics company Fohr Card, estimated that the overall influencer market could reach $5 billion by 2020. Just this summer, Amazon expanded its Amazon affiliate marketing program to add YouTubers to its social media influencer stable. 

Defining the Retailer/Influencer Relationship

A retailer's relationship with the influencers they hire isn't as simple as setting up a partnership and letting it fly. In fact, Jeremy Shih, head of marketing at Mediakix, said that a retailer's relationship with influencers is often part of a complex, multi-level strategy.

"Retailers are working with bloggers and influencers on a branding level, and also for direct response-based campaigns showcasing individual products and sales," he said. "For branding, influencers create content promoting the brand to drive brand awareness, whereas direct response content could feature a haul-style video where all items showcased are part of a retailer's seasonal sale. For branding to be effective, retailers are working with large scale and reach influencers who have millions of followers across their social media channels."

For each type of campaign, Shih said, retailers partner with or sponsor influencers to create and tailor content to that influencer's followers. While some retailers reach out directly to influencers they want to work with, others hire an influencer marketing agency to vet influencer prospects and create viable strategies.

Some branding strategies even reach into product development categories. "We see retailers using influencers across a spectrum, for product ideas, harnessing their followers to create loyalty, and even collaborating on collections," said Jessica Wolfe, a principal in the consumer and retail practice of global strategy and management consulting firm A.T. Kearney. "We even see retailers using influencers to build new brands for them, the way LVMH's Kendo has built a brand using Kat Von D's stardom and following."

The cost/benefit analysis

The goal with influencers, as with traditional marketing techniques, is about more than just raising a retailer's profile, although that's a large part of the process.

"[A]mazingly, leveraging social media influencers for marketing purposes also seems to have tangible bottom-line benefits," Deborah Weinswig, managing director at retail think tank Fung Global Retail & Technology, told Retail Dive. "ShopStyle reported seeing a 65% increase in traffic, and multi-brand retailers selling through the site saw a 250% increase in sales due to sponsored content featuring various influencers." 

"Engaging an influencer can be an awful lot like painting a logo on a race car. It feels good when you first do it, and it makes for a great photo opportunity. But if it's not woven into the fabric of a bigger activation, it usually doesn't provide the return the C-suite is looking for."

It can be hard to translate influence into a direct ROI, though. "Potential reach doesn't necessarily translate into sales," said Wolfe. "It still takes a compelling offer, an authentic message and a trusted voice to have positive impact. The impact of influencers on a retailer's bottom line can perhaps be best illustrated in the negative, where you've seen issues ranging from child labor to out-of-sync marketing campaigns amplified by influencers on social media, and then have a real bearing on sales."

That's why retailers need to ensure that their influencers strategy is part of something bigger. "Influencers can be expensive, and efforts are doomed to underperform if they're not woven into larger marketing campaigns and activations, which, of course, carry hefty price tags themselves," said Ray Hartjen, director of marketing for RetailNext, a business analytics group. "Engaging an influencer can be an awful lot like painting a logo on a race car. It feels good when you first do it, and it makes for a great photo opportunity. But if it's not woven into the fabric of a bigger activation, it usually doesn't provide the return the C-suite is looking for."

For retailers, the benefit of working with one influencer over another may be less about numbers, and more about depth. "Influencers and their value are measured not by their number of followers, but by the engagement they generate among followers," said Weinswig. "Consumers follow influencers because they feel they are an authentic source of deep product knowledge and that their opinion is of value. [Influencers] are seen as contrasting voices to brands' official social media efforts, which many consumers view merely as brands' sales pitches."

Microinfluencers on the rise

When a brand begins its search for the right influencer to partner with, the size of a potential following is usually the first rubric by which value is measured. But experts say that this formula doesn't necessarily deliver results. "The two main questions to ask for forming a successful relationship would be, 'Does this influencer share my values?' And, 'Are this influencer's readers my target market?'" said Sam Cinquegrani, founder and CEO of ObjectWave, a digital marketing and services provider. "It's not just about the size of the influencer's following."

A subset of influencers, called micro influencers, may prove more beneficial to retail brands looking to connect more deeply to their target clientele. "Micro influencers are the tweens of the social media world, and that designation has nothing to do with age," said Hartjen. "Rather, it's a term used to describe the influencer that sits in the sweet spot of social media engagement."

Hartjen said that these micro influencers, who have neither too few followers nor too many, may be the most valuable kind of influencer for marketers. But the concept, which seems counter-intuitive, can be a hard sell. "Many marketers get caught up in the vanity metric of the number of followers," said Hartjen. "But, repeated studies have shown that community engagement decreases as the number of an influencer's followers increase."

A celebrity with millions of followers might only get a 1% to 2% engagement on even their best posts, he said. By contrast, micro influencers might get close to 10%. "Because of scale, the big celebrity will bring in big numbers, even at a low conversion rate," said Hartjen. "But they're expensive. It comes down to a numbers and analytics game." 

"Sixty percent of Gen Z are more likely to believe what a YouTube star says over what a movie star says."

Many of the most valuable influencers aren't even known outside of their limited circles. "We've looked at a number of different types and levels of influencers emerging on the scene," said Weinswig. "One type, 'cewebrities,' or web celebrities, are individuals who are not famous by traditional standards but who have gained significant clout on social media within a particular market." Weinswig said that cewebrities can sometimes have millions of loyal followers, even if they're relatively unknown to the public at large.

But she also emphasized that in this case, bigger does not necessarily mean better. Weinswig said that micro influencers who typically have fewer than 100,000 followers, tend to keep in close touch with them on a more personal level than some of the bigger celebrities. "Brands and retailers that partner with micro influencers tend to have more successful marketing campaigns," she said. "Experticity, a firm that connects category influencers with brands, released a study showing that micro influencers carry on 22.2 times more conversations about what to buy than do typical consumers."

"And according to a study by the Pew Research Center, 82% of consumers are likely to follow a recommendation made by a micro influencer," she said. "This is particularly the case among Gen Z, 60% of whom are more likely to believe what a YouTube star says over what a movie star says, according to Econsultancy. From a brand perspective, micro influencers allow a company to identify the correct target customer more effectively, while also saving money on marketing costs."

Of course, influencers with substantial followings are still the goal for many retailers. "Top influencers have audiences in the millions," said Shih. "Top YouTubers can get over 5 million views per video." But Shih says there are benefits to both kinds of influencers. "Earlier in the year, we conducted a study between top brands who marketed concurrently with both micro and macro influencers," said Shih. "[We found that] macro influencers may perform better for certain types of brands including beauty and fashion."

Major #fails

But as any savvy marketer knows, working with brand ambassadors on any level comes with challenges and potential pitfalls. For one, even the most lucrative partnership needs to be authentic, or followers — meaning potential customers — will sniff out the fakery. And there's a lot of fraud out there, from fake accounts and purchased likes to entire fraudulent followings.

"The relationship needs to be believable to be successful," said Wolfe. "A.T. Kearney recently published a study on consumer behavior called America's Next Commercial Revolution: Influence vs. Affluence. It found the top three principles that will drive the market of the future are trust, influence, and personalization. Trust, specifically, is critical in establishing successful relationships with influencers. According to this study, there is a growing distrust between consumers and brands."

That means that disclosure is an essential aspect of the relationship, from both a brand and an influencer stance. "Influencer fails most often center around the lack of acknowledgement of a paid ad," said Hartjen. "Consumers don't like it when they discover a seemingly natural, spontaneous post was in fact a paid post, and it damages the brand and the influencer." Non-disclosure can be a problem not just for an influencer's followers, but for competing retailers. Such was the case when mattress company Casper sued mattress blogger Derek Hales for essentially not being forthcoming enough about his affiliate marketing partnerships. The lawsuit cost Hales his blog, and highlighted one of the biggest problems with this type of relationship: authenticity.

"Consumers rely on influencers' authenticity and honesty in making product recommendations," said Weinswig. "But for retailers, this can go bad if the relationship isn't handled with extreme delicacy, and if cracks begin to appear in an influencer's veracity." By way of example, Weinswig pointed to a Federal Communications Commission (FCC) crackdown on paid and unpaid advertising.

"Currently, a typical influencer with 500,000 followers and an engagement rate of about 20% might receive a free lipstick from a new beauty brand, plus $1,500 per Instagram post that features that lipstick," she said. "Under the FCC's new regulations, the influencer would be required to mark each post in order to communicate that she, in fact, received some type of compensation for featuring the product on her Instagram feed. Suddenly the influencer doesn't seem as real or true as she did before. Consumers will see her as being in the brand's pocket."

Weinswig cited a survey of 20,000 females aged 18–49 who used the blog platform Bloglovin' which found that 52% of women surveyed felt that inconsistent caption writing — citing for example, that compensation was received — on an influencer's feed made a sponsored post feel fake or inauthentic. Some 38% said that photos that are inconsistent with the influencer's normal feed make a post feel inauthentic; and 31% said that too much brand messaging in a post can make it feel fake. "All of this points to [a] risk for the retailer or brand attempting to partner with an influencer," she said. 

In addition to superficial endorsements and inauthentic tones, there is also the real danger that the entire relationship could sour due to an influencer's behavior. "Partnering with the wrong influencers can result in not reaching the right audience, loss of control of brand messaging, and poor campaign performance and sales," said Shih. "In addition, the wrong influencers can risk a brand's reputation in the instances where an influencer does something to damage their own reputation. Some influencers may be perceived to take brand sponsorships simply to get paid without consideration as to whether their audience would appreciate the brand. This can result in audience backlash."

Even the best-laid plans for influencer support can go badly, and retailers that have not carefully understood the platform or the relationship could risk their own reputations. "Can an influencer be bad for your brand?" said Cinquegrani. "You bet. When everyone seems to have a voice, a platform, and a megaphone, you have to be careful about who is acting as your mouthpiece, especially in this climate. However influential they are, having them on your side could have some pretty negative results. Unfortunately, it's hard to know at the outset what skeletons might turn up in the closet of an influencer."

What's next?

Despite the potential pitfalls, the current fascination with the online influencers narrative continues to be compelling. While there are some indications that the impact of influencers may be waning, there are yet other factors that suggest the trend is simply morphing, rather than dying. For example, Shih said the next wave in this trend will be the continued rise of influencer video, live streaming and Instagram Stories. "Both YouTube and Facebook continue to increase engagement, and user stats on their video platforms and offerings with Instagram Stories surpassed Snapchat in user trends and daily active users within a year of its launch."

More influencers will move from working with brands to becoming brands themselves, said Wolfe. "Top influencers will seek to turn their YouTube and Instagram following into consumers," she said. "Popular influencers like Jeffree Star and Huda Kattan have launched beauty brands in the past year."

As some influencers move on to become corporate branded entities, targeted niche voices may become the ultimate way for retailers to connect. "We think that as regulation on paid advertising starts to ramp up, we will see cewebrities and influencers begin to lose some of their credibility, while microinfluencers will gain an even stronger voice," said Weinswig, who expects to see more microinfluencers serve as a fulcrum between brands and their audience. "This shift in advertising comes at a time when consumers are demanding that brands connect with them on a personal level. Young consumers, in particular, want a brand connection, and to feel like part of a community that surrounds the brand."