A newly published study in the Journal of Marketing, conducted by researchers from the University of Mannheim, Erasmus University Rotterdam, Reichman University, and the University of Basel, delves into the efficacy of paid influencer endorsements, especially for Direct-to-Consumer (DTC) companies. Entitled “Revenue Generation through Influencer Marketing,” the paper is the collaborative effort of Maximilian Beichert, Andreas Bayerl, Jacob Goldenberg, and Andreas Lanz. It arrives at a time when influencer marketing has burgeoned into a $17.4 billion industry, with over 80% of U.S. businesses now utilizing influencers for marketing endeavours. This surge in influencer marketing’s popularity is further accentuated by Instagram’s introduction of enhanced analytical tools for influencers and brands in 2023, solidifying Instagram’s status as the leading platform for user-generated content for brands and influencers alike, boasting 3.8 billion sponsored posts annually.

This research specifically targets the effectiveness of paid endorsements by influencers for DTC companies. It navigates through the entire influencer marketing funnel, from Instagram followers to the audience reached, engagement with the sponsored posts, and, ultimately, the revenue generated. The researchers need to find a notable disconnect in understanding these campaigns’ actual Return on Investment (ROI), pinpointing the identification of influencers who can generate positive ROI as a primary challenge for DTC firms.

A fascinating aspect of their findings is the spotlight on nano-influencers, who, despite having smaller followings, demonstrate greater cost-effectiveness in generating revenue compared to their macro counterparts with larger audiences. This contradicts the industry’s prevailing notion that more followers equate to more incredible value. The study underscores the importance of engagement and the personal connection between nano-influencers and their audience, contributing to more effective marketing results.

Employing a combination of secondary revenue data and field studies, the researchers analyzed data from one of Europe’s leading DTC companies. This data, linked to nearly 1.9 million product sales and over €17 million in revenue, was garnered from influencer-specific discount codes shared on Instagram. The study’s outcomes were further validated on platforms like YouTube and TikTok through three field studies involving 319 paid nano- and macro-influencers on Instagram, offering valuable insights into macro versus nano-influencers’ comparative reach and persuasion in purchasing decisions.

The research not only contests but also builds upon previous studies that favoured macro-influencers, suggesting that the rapid expansion of social media and the consequent growth in follower counts have led to a reclassification of what defines a macro-influencer. A novel aspect of this study is its focus on the level of engagement before a sponsored post, with findings indicating that nano-influencers tend to have a communication style more closely aligned with their followers, enhancing their relatability and effectiveness in influencer marketing campaigns.

For DTC firms and marketers, this study offers several key takeaways:

– The potential of nano-influencers to provide higher ROIs and forge authentic connections with audiences should be considered.

– Influencer marketing platforms allow for the efficient management of multiple low-followership influencers, offering a cost-effective alternative to engaging a single influencer with a large following.

– A comprehensive view of the influencer marketing funnel, from follower engagement to revenue generation, is crucial, with nano-influencers consistently outperforming their macro counterparts across ROI metrics.

– The study introduces the concept of Return on Influencer Spend (ROIS), highlighting the significantly higher efficiency of nano-influencers compared to macro-influencers in terms of both revenue generation and associated costs.

This research heralds a paradigm shift in digital marketing strategies, advocating for a more discerning approach to influencer selection. It emphasizes the impactful role nano-influencers can play in enhancing audience engagement, urging DTC firms and marketers to reassess their influencer marketing strategies to maximize returns on investment.

More information: Maximilian Beichert et al, Revenue Generation Through Influencer Marketing, Journal of Marketing. DOI: 10.1177/0022242923121

Journal information: Journal of Marketing Provided by American Marketing Association