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The Importance of Financial Transparency for Influencers

The influencer market value in 2021 is projected to top $13.8 billion, a rise from $6.5 billion in the past three years as the practice was accelerated by the COVID-19 pandemic. Influencer marketing arose out of traditional, celebrity endorsement ads into content driven marketing campaigns. To say that celebrity influencers have been around forever would almost be true, but the arrival of social media platforms that encourage everyday people to produce creative videos and online performances is reinvigorating the art of endorsement marketing. Studies indicate that consumers are more likely to trust an influencer who only endorses a product they use and like themselves, particularly when the product message fits the influencer’s public persona. But with the significant increase in revenue being generated by influencer marketing, the famous and even the less familiar micro-influencers are at risk of becoming infamous.

Credibility, authenticity, and transparency are the major factors determining the continued viability of influencers’ future impact on consumers. Long-term relationships between brands, influencers, and audiences will only be achieved when confidence in these principles among all participants is reached. Social media influencers can earn major income for promoting products, but can the consumer rely on an influencer to honestly disclose a financial relationship with a brand?

According to the 2020 UK Influencer SurveyOverall, “only 30% of all influencers’ content receives some sort of payment or gift”. The Advertising Standards Authority (ASA) is an organization that establishes standards for advertising and has determined that the proportion of influencers adhering to the disclosure rules “is far below what we would expect”, according to a spokesperson. The ASA has experienced a 55 percent increase in consumer complaints over the previous year. In Europe, the Competition and Markets Authority (CMA) said its investigation into influencers’ practices indicated that many influencers were not adhering to the rules. In 2020, 61 percent of complaints originated with the social media app, Instagram.

Sara Tasker, an Instagram coach and author, says “Clear disclosure regulation means the content can speak for itself, and puts the onus back on the influencers to create posts that are valuable and relevant, regardless of payment or #ad.” In her opinion, “the driving force for influencers trying to disguise endorsements stemmed from perception.” Instagram is responding to non-compliance issues by developing new tools that require influencers to include a clear notice when they receive compensation or incentives to promote a product or service before they can publish the post. New algorithms will be used to identify any possible violations of the notification rule.

The ASA is upping the pressure on social media influencers who persist in violating the standards with the development of a new webpage that will list the names of influencers who frequently and intentionally violate advertising rules. Violators who remain on the list for an extended period of time can expect the ASA to run ads identifying the culprits and may extend the practice to associated brands.  “We prefer to work with influencers and brands to help them stick to the rules, but the first influencers to be named on this list have been given every opportunity to treat people fairly about their ads,” says ASA chief executive, Guy Parker. “It’s not difficult: be upfront and clear when posts and stories are ads. If this doesn’t bring about the changes we expect, we won’t hesitate to consider further sanctions.”

Consumers say they trust social networks to guide them to purchase decisions, but some of that trust is being worn away by paid influencers who fail to make important financial disclosures that exist between the content and the brands they are reviewing. With all the benefits of social media communications and its impact of marketing strategies and tactics, a well-worn mantra, “buyer beware,” may still be the best advice for consumers.