The Influencer Equation: Balancing Rewards & Risks for Brands. By Nikita Dolan: BA (Accounting), SETU

Our summer intern, Nikita Dolan, explores the risks and rewards brands face with influencer marketing and how both need to align their values to maintain authenticity.

According to the Influencer Marketing Hub, 21% of social media users ages between 18 and 54 have purchased something as a result of an influencer’s recommendation. Among Gen Z social media users, the number shoots up to 32%. Though influencers can be seen as a symptom of out-of-control capitalism, they have had undeniable importance for marketers targeting consumers in the social media age.

According to HubSpot’s 2023 Marketing Strategy & Trends Report, which includes data from 1,200+ Global Marketers, over 1 in 4 marketers currently leverage influencer marketing. It offers the second highest ROI of any trend. In 2022, the influencer market in the U.S. alone was valued at a record 16.4 billion, and 72% of Gen Z and millennials follow influencers on social media. Facebook is the most used social media platform, leveraged by 64% of marketers, followed by Instagram (58%), YouTube (57%), Twitter (43%), TikTok (42%), and LinkedIn (33%).

Although Facebook is currently the most widely used by marketers and has the highest ROI of any platform, it has slower growth than other apps like Instagram and TikTok, which can be attributed to the takeover of influencer marketing. Short–form video, used by both TikTok and Instagram, has the highest ROI of any media format and has the most growth of any trend. In 2023, over 50% of marketers will invest in these two platforms, with the highest planned investment being TikTok.

Risk.

For successful influencer marketing, the relationship between the audience and the influencer is the deciding factor. The influencer needs to find their niche, grow a following of like-minded people, and create a human connection with that audience using their authenticity to build trust. With the media becoming oversaturated with influencers, it didn`t take long for consumers to become sceptical of influencer content.

As the saying goes, fool me once, shame on you; fool me twice, shame on me. Influencers that have a large following are chosen by brands in order to reach a larger audience, because of this the influencer often endorses multiple products in a short period of time, which seems inauthentic and insincere. The longer an influencer continues with this, they will be perceived as disingenuous and overly promotional, losing their authenticity and credibility. Ethical issues in influencer marketing have been a subject of discussion. The use of influencers with fake, paid-for followers, undisclosed paid partnerships, or deceptive practices raises questions about ethics and transparency. The ROI on influencer use can be difficult to quantify because of the complex nature of consumer marketing. Connecting a specific sale directly to an influencer’s efforts can be challenging, but when a brand invests in an influencer, they hope at the very least that the association with them will be a positive one, and will then enhance their own image, though the association is the most significant risk of using influencer marketing. Many brands throughout the years have had to pull sponsorship deals and denounce any association with the influencer they chose to work with, for example, Kanye West’s long collaboration with Adidas was cut short in 2022 following West’s antisemitic comments, or model Kate Moss’ dropping by Chanel in 2005, after she was allegedly photographed taking cocaine in public.

Influencers are public figures, their actions, words, and past controversies can permanently damage a brand’s reputation, leaving the brand with no choice but to incur the added expense of public relations marketing to mitigate the damage as much as possible. There are also careful considerations to be made when it comes to brand owners, executives, or anyone in a leadership position within a company, who can indeed be viewed as influencers in their own right.

Brand owners are increasingly active on social media platforms, where they share their perspectives and engage with the audience. This can amplify the reach of the brand but also expose it to potential risks. They often act as thought leaders within their industry, their opinions and insights can shape the narrative and influence how the brand is perceived. The risk lies in the potential for personal opinions or actions of brand owners to be associated with the brand, especially in controversial or sensitive topics. A recent example of this risk can be seen in the reaction to Web Summit`s Chief Executive and founder Paddy Cosgrave, who resigned last month after his comments on the Israel-Hamas conflict prompted some major technology companies and investors to withdraw plans to attend its conference in Portugal. Events like Web Summit provide a platform for brand owners to showcase their thought leadership. However, they also expose them to a diverse audience with varying opinions.

Reward.

Contrary to the above, it would be negative to paint all influencers with the same brush, influencers put their passion and time into building their personal brand and business, which reflects the entrepreneurial spirit that capitalism encourages, and each individual will have their own set of values and ethics by which they live by, eg Molly Mae and Rosie Connolly, who have each built a career from influencing. The influencer scene is also very diverse, allowing for greater diversification and representation in the media landscape, which gives consumers a wider range of choices and information to make informed decisions on their purchases.

TV and radio ads, billboards, and print media are still effective, but they are increasingly sharing the stage with digital and influencer-driven campaigns. Is the average teenager more likely to be watching ads on television after school, or are they going to be watching their favourite YouTuber or Twitch streamer? On the opposite spectrum, is your grandmother more likely to be watching ads in between Coronation Street or will she be watching Markiplier play Grand Theft Auto V?

Being an influencer – Is it still worth it?

Becoming a successful influencer is challenging, but it can be very rewarding if you build a large enough following and a good professional relationship with your brand partners. Popular influencers can often demand large compensation packages and can charge a per-post fee, receive a percentage of sales, or even a salary. Most influencers also receive free products for promotional use, and some even receive free services and travel. Many successful influencers have used their entrepreneurial skills to their full advantage and later became business owners in their own right. Zoe Sugg, “Zoella”, started her YouTube channel in 2009, and amassed over 10 million subscribers. She collaborated with brands such as Very and Unilever, and eventually went on to launch her own brands, a beauty and homeware brand under “Zoella”. She`s now a published author and has a net worth of €4m. One example of success in the Irish influencer space is Suzanne Jackson. Suzanne started as the creator of the popular SoSueMe blog, and has since worked with many brands including Primark, Karen Millen, H&M and Look Fantastic. She also released a range of her own products under “SoSue Cosmetics”. In 2020 her company Cohar Ltd reported profits of €2.12m.

As lucrative as it can be, there are complexities that influencers need to consider, which may outweigh the benefits depending on their individual circumstances and business practices to date.

Previously, many influencers mistakenly enjoyed the benefits of receiving free products without worrying about tax liability. However, the Irish Revenue Commissioners recognised the potential for tax evasion in this practice and have cracked down on it in recent years. Influencers in Ireland are required to declare the value of gifts or products they receive as taxable income. This means that if an influencer is sent a high-end gadget or a selection of luxury fashion items for promotion, the fair market value of these items will be considered part of their taxable income. While this change may make financial sense, it has raised concerns within the influencer community.

If brands supply you with benefits, services, or gifts in return for your endorsement, these are taxable. When gifts are given with no obligation to review the item, it is not payment, it`s a gift. However, if you are gifted items/services valued over €3,000 by a single brand in a tax year, these are also taxable above €3,000.

In recent weeks, Irish influencers and everyone else earning income via online platforms have received a Level 1 Compliance Intervention notice from Revenue, urging them to declare all income, including gifts, free products and services, virtual currencies, and tokens. They could then self-correct their tax returns or submit extra income through an unprompted qualified disclosure. This is the first of a three-level framework, with level three being a Revenue investigation.

Just last month the Competition and Consumer Protection Commission (CCPC) and the Advertising Standards Authority for Ireland (ASAI) published reformed guidance for Irish influencers on the clear labelling of ads on social media. The aim of this new guidance is to ensure influencers correctly and clearly label when they are posting content that contains a paid–for promotion so that consumers are not misled and can distinguish content from advertising. All promotional content now needs to be clearly labelled with #Ad and be instantly visible to consumers. Content that contains the influencers’ own brands must also be labelled.

Final thoughts.

In summary, while influencer marketing offers benefits, brands must carefully assess the risks and choose influencers who genuinely reflect their values and maintain authenticity. Monitoring influencer behaviour, having contingency plans for potential crises, and diversifying marketing strategies are essential steps to protect a brand’s image in the evolving digital landscape.

To all aspiring interns reading this, I encourage you to take the leap and apply for an internship at Fitzgerald Power. Embrace the chance to gain extraordinary first-hand experience, broaden your horizons, and ignite your passion for accountancy. Your future self will thank you for the transformative experience that awaits you at Fitzgerald Power. Get in touch today to apply careers@fitzgeraldpower.ie.

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