Issues on selling products via social media influencers

  • Zhenhao LI

Student thesis: PhD Thesis (Lingnan)

Abstract

Recent years have witnessed an exponential growth of firms promoting and selling products via social media influencers. Although such practice has attracted a growing interest in academia, relevant studies are largely empirical, while analytical studies remain limited. To address this gap, we analytically investigate issues related to a firm's strategy of selling products via influencers in two studies.

In the first study, we develop a two-period model to investigate a firm's strategy for introducing a product via an influencer, where there may exist uncertainty in the influencer-product match. For the promotional campaign in the first period, the influencer exerts an effort to sell the product to her followers, who may spread the product information to non-followers via word-of-mouth (WOM). In the second period, the firm sells the product. We show that the firm's pricing, production, and commission contract decisions for the promotion usually depend on the difference between the WOM effect of followers who do or do not make a purchase, rather than the individual WOM effect of either group of followers. As the marginal WOM effect of first-period sales increases, the firm should generally raise the commission rate, while increasing or decreasing the product price depending on the followers' price sensitivity relative to effort sensitivity. The firm should pay the highest commission rate to the influencer with a medium-sized follower base. If followers have a low interest in buying the product, the firm should set the highest price when the influencer has a medium-sized follower base. In other circumstances, the firm should increase the price as the size of follower base increases. The firm may charge followers a lower price than non-followers, even though followers are less sensitive to price than non-followers. Moreover, there exists a threshold for the probability of an influencer-product match, above which the firm faces zero demand if a mismatch occurs. Finally, we find that the firm may not be better off employing an influencer with a larger follower base. Our results provide important managerial insights for firms that leverage influencers for product promotion. In particular, firms need to distinguish the WOM effect of an influencer's followers who make a purchase from the effect of those who do not. They should not always offer a higher commission and a lower price to influencers with a larger follower base.

The second study investigate an influencer's false claim about product quality in the presence of regulations and skeptical consumers. Influencers often make false claims about firms' products to boost sales. To mitigate such dishonest selling, regulators may impose penalties on firms and influencers. Influencers can make their claims deceptive to hinder consumers' verification of product information. We show that the influencer is less likely to exaggerate product quality if the penalty is high, the difference in potential product quality is small, and the influencer's followers constitute a small proportion of the market. A stricter regulation may improve the firm's profit but reduce the social welfare. As the product quality difference becomes smaller, the influencer's false claim is more likely to be caught by the regulator, resulting in a lower profit for the firm. Moreover, selling products via an influencer with a larger follower base cannot ensure a higher profit for the firm. When the firm makes the commission rate decision, we find that the firm may set a small commission rate if the penalty is low, while offering a large commission rate if the penalty is high, which makes the influencer less likely or more likely to make a false claim. Furthermore, when the regulator determines the penalty, we show that if the product quality difference or the influencer's cost for deceiving consumers is sufficiently small, the regulator may deliberately allow the false claim.
Date of Award7 Aug 2023
Original languageEnglish
Awarding Institution
  • Lingnan University
SupervisorLi Ping LIANG (Supervisor) & Mingming LENG (Co-supervisor)

Keywords

  • new product introduction
  • influencer marketing
  • word-of-mouth
  • pricing
  • false claims
  • regulation

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