Influencer Marketing: Sure, It’s Effective, But At What Price?

Brands are turning to influencer marketing as a hedge against ad blockers and a Millennial/Gen Z resistance to traditional advertising. At the same time, however, some wonder whether it is scalable and can remain effective with widespread use.

“So I got the opportunity to check out the demo of this game …” said Felix Kjellberg, a.k.a. YouTube star PewDiePie, in a 2014 video.

But it turned out that Kjellberg, who has about 48 million YouTube subscribers, was being a bit disingenuous. Actually, Warner Bros. was paying him and others tens of thousands of dollars to talk up “Shadow of Mordor,” a then-new video game.

Two years later, the Federal Trade Commission cracked down on Warner Bros., and Kjellberg offered his defense. His YouTube page had disclosed that the video was “sponsored by Warner Bros.” Kjellberg pointed out that he wasn’t required to disclose the payment but opted to do it anyway. “Yes, I could have disclosed it better,” he said. “I could have put it above the fold …”

As scandals go, this was a small affair. Yet as more and more brands opt for influencer marketing and the Federal Trade Commission has begun monitoring the practice, such gaffes have become more common.

That’s, perhaps, a reflection of influencer marketing’s popularity. Brands are turning to influencer marketing as a hedge against ad blockers and a Millennial/Gen Z resistance to traditional advertising.

While no one tracks the size of the overall market, the term “influencer marketing” hit a peak in popularity in September 2016, according to Google Trends. In a poll of 125 marketers in 2015, nearly 60% said they planned to increase their influencer marketing budgets. Captiv8, an influencer marketing firm, estimated that brands spend $255 million a month just on Instagram. In another signal of influencer marketing’s ascendency, Google announced in October it would buy FameBit, a marketplace that connects influencers and brands.

“We’re definitely not seeing test budgets,” said Krishna Subramanian, co-founder of Captiv8. “These are six- and seven-figure deals that are repetitive and renewing. It’s definitely here to stay.”

At the same time, however, some wonder whether influencer marketing is scalable and can retain effectiveness with widespread use.

Why Influencer Marketing Is Hot

Influencer marketing proponents point to a variety of factors that are driving the market right now. “If you zoom out, it’s really looking at what’s broken with traditional advertising,” Subramanian said. “When brands are trying to get in front of Millennials, they quickly realize that Millennials aren’t going to click on a banner ad and go out and buy something. They’re heavily influenced by their peers as well as digital influencers, not Hollywood talent.”

Added Victor Ricci, founder of influencer marketing firm TrendPie, whose clients include AOL, Unilever, and Yahoo: “People are on their phones all the time, and the most direct way is through apps they’re already on.” Indeed, a Forrester Research study found consumers spend 84% of their time on five non-native apps. Facebook led in time spent.

Influencer marketing also can provide dramatic increases in ROI. A study by Nielsen Catalina in 2015 found influencer marketing had 11 times the ROI of a standard digital campaign. Another study found that influencer marketing provided $6.50 back for every $1 spent. “People have realized that word-of-mouth is more effective than advertising,” said Jonah Berger, a Wharton professor and author of “Contagious.” “A dollar spent on word-of-mouth goes 10 times as far. So companies are thinking about how they can generate buzz more effectively.”

As a result of the demand, some prices are hard to fathom. A sponsored Instagram post from Kylie Jenner, for instance, can cost up to $300,000. Deals can still be had, though. A tweet from TweetLikeAGirl, a parody account with 1.65 million followers, can cost more in the range of $30. Why a parody account? Ricci points out that people follow parody accounts specifically for the content and pay closer attention to it than they do to a celeb account.

Challenges With Scale

While those ROI figures are vastly superior to the performance of banner ads, for instance, banners have one advantage over influencer marketing: scalability.

If a marketer wants to amplify a message, she can just buy more banners. However, influencer marketing is a much more labor-intensive process that involves identifying influencers and then arranging deals with them.

“It’s definitely the case that it’s hard to scale,” said Misha Talavera, co-founder of influencer marketing firm NeoReach. “I don’t think influencer marketing is going to be fully automated. I think anyone who thinks it is deluding themselves about that; it has a human component that is its strength but also its challenge.”

The strength comes from consumer trust, Talavera added. “There is a level of trust because the influencer is picking something that they actually like and think there’s value for their followers to know about,” she said.

Missteps

Trying to scale influencer marketing sometimes leads marketers to take shortcuts, like going after celebs with millions of followers but no affinity for the brand or scruples about divulging their endorsements. That’s what happened when Scott Disick, a peripheral member of the Kardashian clan, was caught merely cutting and pasting instructions about what to post from sponsor Skinny Tea back in May.

This summer, meanwhile, Kylie Jenner got caught praising Airbnb in an Instagram post but failing to clearly disclose that it was a paid endorsement. After some watchdog groups complained, she changed the language of the post.

In light of the spread of influencer marketing and frequently sloppy executions, the Federal Trade Commission has been taking a more aggressive stance. It’s no longer enough to merely add hashtags–such as #ad, #sp, or #sponsored–especially if they’re buried at the bottom of a post. Instead, brands need to make it clear to consumers that they are paying a celebrity to promote the brand.

To make its point, the FTC fined retailer Lord & Taylor for failing to disclose it had paid 50 Instagram influencers thousands of dollars each to promote a dress. The agency’s other big enforcement action so far was its takedown of Warner Bros. and PewDiePie.

Diminished Returns?

Publicly, at least, many influencer marketers view the FTC intrusion as a net win since it will weed out brands and marketers that are abusing the system.

Even with full disclosure, though, it’s likely that influencer marketing will lose efficacy as it becomes more widely used. Once every celeb and category influencer is doing paid promotions, there’s a risk that consumers will develop a category version of banner blindness.

“It basically becomes another tool, and the payoffs become smaller,” said Derek Rucker, a professor at Northwestern University’s Kellogg School of Management. “As more and more people do it, it’s less an opportunity to get ahead and more just keeping up.”

In that case, influencer marketing may be less useful to build trust and more about mere exposure. Or perhaps that’s already the case. Assessing the Disick episode, Ricci pointed out that when all was said and done, a lot of people had been exposed to the brand. “I saw Scott Disick savaged on Twitter, and those tweets alone were getting 25,000 retweets, 25,000 likes, and just crazy, crazy numbers,” he said. “If I were Skinny Tea, I wouldn’t be too mad about those numbers.”