NEW PRODUCT INTRODUCTION VIA SOCIAL MEDIA INFLUENCER
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Firms are increasingly using social media influencers to promote their products. We develop a two-period model to investigate a firm’s strategy for introducing a product via an influencer, where there is uncertainty in the influencer-product match. In the second period, the influencer exerts an effort to promote the product to her followers, who can spread the product information to non-followers via word-of-mouth (WOM). In the second period, the firm sells to the non-followers. We show that the firm’s pricing, production, and commission contract decisions depend on the influencer’s incentive-independent excess payoff from the promotion and on the difference between the WOM effect of followers who do or do not make a purchase rather than the WOM effect of each group. As the influencer’s incentive-independent payoff increase, the firm will increase (decrease) commissison rate and commission rate when the followers’ sensitivity to product price is relatively low (high) compared with that to the influencer’s effort. As the marginal WOM benefit of the first-period sales increases, the firm tends to reduce his unit net profit from sales. The influencer with a medium-sized follower base receives the highest commission rate and exerts the largest promotion effort. While the followers of influencers with a medium-sized follower base may pay the highest price. We also show that (i) there exists a threshold for the probability of match, above which the firm faces zero demand in the first period if an influencer-product mismatch occurs; and (ii) the firm may charge followers a lower price than non-followers, even though followers are less sensitive to price than non-followers. Finally, regarding influencer selection, we find that the firm may not be better off employing an influencer with a larger follower base.