Influence or Advertise: The Role of Social Learning in Influencer Marketing

We analyze influencer marketing and advertising campaigns that can facilitate learning about uncertain qualities of products, while making consumers aware of them. We establish conditions for when influencer marketing, which lets consumers learn from other followers, is preferred to advertising, that does not enable such information sharing. Influencers facilitate learning when they are consistent in their post quality and have homogeneous followers relative to the degree of targeting of advertising campaigns. Whether efficient learning increases profits depends on the quality uncertainty of the product, e.g., whether the brand is established or unknown. For established brands, we find that many micro-influencers are more profitable than a targeted ad campaign, while for unknown brands, either macro-influencers with many followers or micro-influencers are more profitable. We also show that influencer campaigns tend to either "go viral" or "go bust", highlighting the value of ex-post promotional coupons. Additionally, for niche products we find that the heterogeneity of the follower base affects learning efficiency the most, while for mass products, the creativity of the influencer is the more important factor.