Buying Future Endorsements from Prospective Influencers on User-Generated Content Platforms

Abstract

Excessive monetary compensation and existing contractual agreements of influencers limit the ability of many firms to engage in effective influencer seeding. The authors suggest a forward-looking approach of targeting prospective influencers—while they are still largely unknown (e.g., a few months after their platform registration)—and signing them to endorse the firm in the future (e.g., more than a year later). This approach has the potential to significantly reduce costs. However, as only rarely do newly registered users ultimately become influencers (and as signals are weak), the authors propose a novel framework to cope with this rare-event problem. For empirical demonstration and application, the authors conduct data-based simulations using a data set from a worldwide leading audio platform. Every wave of newly registered users is associated with a profit potential stemming from future endorsements by prospective influencers. With knowledge about the order of magnitude of the return on successful influencer spend, managers applying the framework can extract around 20% of this profit potential (if the return is around three times the spend).