Advertising by Recruiting Influencers

Abstract

The rise of social media platforms has enabled customers to rely on influencers and peer reviews to guide their purchasing decisions. As products increasingly focus on experiences, firms are leveraging influencer marketing as a crucial tool. This paper addresses key challenges of influencer marketing by considering different types of influencers and partnership schemes, alongside the impact of social learning. We introduce a two-period model wherein, in the initial period, the firm unveils a new service experience of unknown quality alongside an influencer marketing campaign. The campaign relies on two types of influencers that differ in popularity and credibility and two partnerships; sponsored advertising and public relations. Customers base their purchasing decisions on their original (heterogeneous) beliefs, influencer-driven information, and reviews from early adopters in the second period. When customers are equally likely to follow the same influencer, the firm should choose a single influencer type and partnership. Social learning proves highly beneficial for undervalued experiences when supplemented by additional advertising, which need not necessarily be more costly. Moreover, within a societal structure characterized by distinct classes where followers and influencers often belong to the same class, a mix of influencer advertising methods, in terms of the types of influencers or partnerships, may be optimal. Our study proposes strategic partnerships for firms to establish with social media influencers to effectively promote new products or services, contingent upon factors such as credibility, popularity, market composition, and platform characteristics. We further encourage capitalizing on social learning and instruct on optimal market choices.

Keywords: influencer marketing, social learning, product diffusion