Strategic use of social media influencer marketing

Manuel Foerster, Tim Hellmann and Fernando Vega-Redondo

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We set out a model of social media influencer marketing in which a firmmay hire influencers to inform consumers about an innovation. Influencersgenerate sales through purchases of their followers and followers' social networks and set prices for their endorsements. In turn, the firm decides whichinfluencers to hire, which story to convey via the influencers, and sets the retail price of the innovation. In equilibrium, influencers price according totheir marginal contribution to industry profits and increase consumers' willingnessto pay with their stories. In particular, under a weak condition itis the influencers with the most reactive followers who are hired and obtainpositive profits in equilibrium. Finally, we show that the firm may be betteroff if it could commit to hire fewer influencers.

Keywords: Strategic; Product; Marketing; Social; Media; Influencer; Innovation; Social; Networks; Bertrand; Competition. (search for similar items in EconPapers)
Date: 2024-06-17
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-pay
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