In recent years, managers have been generating sales and building brand awareness by latching onto social media influencers and their ability to reach almost every consumer on the globe. In 2020 alone, they are set to pay out $5-10 billion for endorsements by influencers, a large hunk of which will go to hundreds labeled macro influencers.
One is the most junior of the Kardashian-Jenner clan, cosmetic giant Kylie Jenner and her 250 million social media followers. Marketing agencies take Jenner as an example to demonstrate that influencer marketing can generate tremendous value, because she successfully capitalized on her reach to create a billion-dollar empire by selling cosmetics directly to her giant community.
The Price Tag For Goliath
Yet, her endorsement comes with a fearsome price tag: Kylie Jenner charges $1 million to share exclusive branded content with her giant community of more than 120 million Instagram followers. Even macro influencers with a fraction of the follower base can turn their lives into a high-paying career: Danielle Bernstein, a pioneer in the blogger scene, is making seven figures a year with her two million followers on Instagram. Her mastery of converting followers into buyers is widely recognized. For example, Onia, a New-York based clothing company, selected Bernstein to endorse their latest swimwear line online–and sold $2 million in merchandise within only twelve hours as a result of the influencer engagement.
Compare this with the approach of Filip Tysander. The Swedish entrepreneur adopted an opposite influencer-marketing strategy in 2011 when he embarked on a mission to make $200 million from cheap watches. Being constrained by a small initial budget, Tysander chose to promote the newly founded brand Daniel Wellington by using Instagrammers with no more than 5,000 followers. The result was telling: within four years of investing $15,000 in seed capital the watch company is reporting revenues of $220 million.
The Unpaid Endorsement Litmus Test
So, can David (micro influencers) rather than Goliath (macro influencers such as Jenner and Bernstein) help build an empire?
Based on our extensive research, the quick answer in terms of Return On Investment (ROI) is yes. While we are not the first researchers to say these David micro influencers may be more powerful than the Goliath macro influencers, we are the first to back the assertion with relevant evidence while digging deep into the decision-making process when targeting users to build a follower base.
To reach our conclusions, we focused our study on the most basic form of influencer marketing: unpaid endorsements. Why? Well, given the quantum cost hikes in the influencer-marketing economy, especially for endorsements by macro influencers, small and medium-sized businesses often hit a glass ceiling and thus have to give up paid influencer marketing. Consequently, they increasingly rely on unpaid endorsements to build an online presence and raise awareness.
Long-term Micro Power
This pragmatic approach has been widely applied by creative folks such as music artists. An often cited example is San Holo, a Dutch electronic music artist, who focused all his self-promotion efforts on SoundCloud, one of the most important social networks in the music domain with close to 200 million users. Within a few months, San Holo achieved 2 million plays and an increase in his follower base from 4,000 to over 40,000 SoundCloud users.
For our research, we collaborated with a leading global social network to study how tens of thousands of music artists use influencer marketing to build an online presence. Against conventional wisdom, we find the ROI on macro influencers to be lower. Not only does their responsiveness turn out to be extremely low (close to zero), but their (repost) power also proves to be limited. Our data shows that by exclusively targeting micro influencers over a two-year period the follower base grows six times faster. This is good news for small businesses—the glass ceiling can be broken through.
The Dave Carroll Test
To experiment with these empirical findings and demonstrate applicability, we ran a demonstration exercise with musician Dave Carroll, who achieved global notoriety for the YouTube video “United Breaks Guitars.” This song named and shamed United Airlines when the airline company refused to compensate the artist for the on-flight damage to his guitar.
In spring 2018, we asked Dave Carroll to focus for five consecutive weeks on the following tasks: he was to follow 200 different SoundCloud users with less than 100 followers (micro influencers) over a two-week period. After a break of one week, he then was to follow 200 different SoundCloud users with more than 10,000 followers (macro influencers). During the demonstration exercise, it was revealed that targeting micro influencers is indeed very effective: Dave Carroll was able to increase his follower base by more than 60%. This exercise also showed that the responsiveness of micro influencers was in line with our empirical findings (23 micro influencers followed back). On the other hand, the responsiveness of macro influencers proved to be virtually zero.
Out-Of-Touch Macro Stars
Given such results, why does canonical research in marketing seeding literature continue to suggest activating the most connected users of a given social network? It appears that one answer is seeding models have not fundamentally adjusted since the paradigm shift. For example, they continue to implicitly assume that macro influencers are as responsive as everyone else in the network. However, studies underline that macro influencers are self-focused and self-serving and are unlikely to respond to promotional actions from artists like Dave Carroll. Additionally, they have priced themselves into a market where only major corporations are in a financial position to pay macro influencer endorsement prices.
Be A David!
In this context, we believe managers should not necessarily rely on these Goliath’s and, instead target the David’s, these micro influencers with just a few thousands of followers. Given the massive cost explosion in the influencer-marketing economy, such a study comes at a crucial moment. It is also timely because ad fraud has become ubiquitous and the world’s social networks are struggling to respond. An in-depth New York Times investigation in 2018, for example, uncovered a shadowy planetary marketplace designed to create millions of fake followers.
Hence, it may be that big brands that usually run campaigns with macro influencers need to rethink their strategy. Last summer, Unilever emerged as the first large corporation to push for greater transparency in the influencer-marketing space to combat fraud in the digital ecosystem. Maybe they too are realizing the value of leaving Goliath and starting to capitalize on David––just like Filip Tysander did.
Andreas Lanz, Jacob Goldenberg, Florian Stahl and Daniel Shapira are respectively professors at HEC Paris, IDC Herzliya, University of Mannheim, and senior lecturer at Ben-Gurion University.