Strategic use of social media influencer marketing

Abstract

We set out a model of social media influencer marketing in which a firm may hire influencers to inform consumers about an innovation. Influencers generate sales through purchases of their followers and followers’ social networks and set prices for their endorsements. In turn, the firm decides which influencers to hire, which story to convey via the influencers, and sets the retail price of the innovation. In equilibrium, influencers price according to their marginal contribution to industry profits and increase consumers’ willingness to pay with their stories. In particular, under a weak condition it is the influencers with the most reactive followers who are hired and obtain positive profits in equilibrium. Finally, we show that the firm may be better off if it could commit to hire fewer influencers.

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