Any doubt about the power of influencers should have been dispelled last week when startup mattress brand Casper filed for its initial public offering.
Buried deep in documents filed with the Securities and Exchange Commission at the bottom of a bulleted list of risks was the following red flag: "Use of social media and influencers may materially and adversely affect our reputation and subject us to fines or other penalities."
"The admission from Casper that influencers with whom they have a relationship could impact their brand and IPO sums up everything that is wrong with the marketing industry," says Kevin Twomey, senior director of marketing for Toronto innovation hub MaRS Discovery District.
Twomey, who has led campaigns for clients Danone, Heineken, Labatt and others, is a vocal critic of influencer marketing. He says that by using influencers to chase short-term success, companies such as Casper "have given influencers the keys to the kingdom and they now run the risk of being locked out of their own house."
Influencers have a large kingdom of their own. The idea that Instagram pics of dogs on beds or YouTube videos of people unpacking mattresses could hinder a company valued last March at $1.1 billion should be no surprise. While estimates about the size of the influencer business vary, there’s little doubt it’s large, with three research reports calling it a billion-dollar industry.
In a survey last year of 830 pros in marketing agencies, brand shops and PR firms, influencermarketinghub.com said the influencer marketing business could "potentially become a $6.5 billion industry." Research by influencer marketing tech company InfluencerDB, using the earned media value of sponsored posts as a measure, estimated that the market size for influencer marketing this year would be between $4.85 billion and $16.6 billion.
In one of the most commonly used stats, influencer marketing company MediaKix two years ago predicted that by 2020 the influencer business would be somewhere between $5 billion and $10 billion.
Casper has relied heavily on influencers to market its products. In the IPO filing, the company said it "maintain[s] relationships with thousands of social media influencers and engage in sponsorship initiatives." That ranges from teen stars to popular pets promoting the company’s products on Twitter, Instagram, YouTube and other social platforms, according to Business Insider.
Regardless of how the IPO turns out, Casper’s filing highlights the risks of influencer marketing. Specifically, the company warned that the Federal Trade Commission could seek "enforcement action where an [influencer] endorsement has failed to clearly and conspicuously disclose a material relationship between an influencer and an advertiser."
Casper representatives did not respond to inquiries seeking comment.
FTC action isn’t the only potential legal issue, notes Jim Dudukovich, an advertising and marketing attorney with the law firm Barnes & Thornburg.
"The FTC rules [about disclosure] are the guideposts, but they are not the only guideposts," he explains. "All the states have their own legislation that mirrors the FTC’s rules, and companies can also be challenged by state attorneys general or face consumer class action lawsuits or even legal challenges from a competitor in false advertising lawsuits."
Davis & Gilbert has cautioned marketers that the Securities and Exchange Commission is watching and penalizing influencer marketing activities. The law firm noted in a report issued last summer that the SEC forced musician DJ Khaled to pay $150,000 in penalties and boxer Floyd Mayweather Jr. more than $300,000 for failing to disclose they had been paid to promote initial coin offerings, which are essentially bitcoin IPOs.
Legal action is also not the only potential pitfall, as pointed out in Casper’s IPO. "Even if companies are sued and don't lose, it can cast a negative light on the brand, if people think they were engaged in sneaky practices," Dudukovich adds.
There’s also the matter of bad behavior. Aside from post-legal reputational fallout, Casper’s IPO warns that "influencers with whom we maintain relationships could also engage in behavior or use their platforms to communicate directly with our customers in a manner that reflects poorly on our brand."
That risk is very real, say agency experts, and it increases with the fame and reach of the influencer. "While it can be tempting to partner with those celebrity-level influencers, the greater the visibility, the greater the risk for negative attention," says Danielle Wiley, founder and CEO of influencer and content marketing shop Sway Group, noting that brands can mitigate the risk by carefully choosing the influencers they work with.
"Those with smaller followings are not only far less expensive, they often outperform in terms of engagement because of their passion, knowledge and accessibility," she says.
However, other experts say it’s important to keep the risk of influencers in perspective and remember that it was one of many issues Casper flagged in its IPO filing.
"To be fair, they’re right, [influencers] do pose a risk," says Emma Shuldam, MD of ITB, part of Rogers & Cowan and PMK-BNC. "But the risk a regular influencer poses to the brand is surely minimal when the correct due diligence is undertaken by the brand or agency. There are also risks from customer reviews and staff behavior. We’ve seen many cases where leadership values and behavior have impacted a brand’s reputation. Influencer behavior is a justifiable but additional consideration to a risk assessment around behavior."
Shuldam, Wiley and others advise that taking time for due diligence is a way to avoid problems.
"There has to be a lot of due diligence around brand safety before you recommend an influencer," says Anngelica Newland, head of strategic operations at Edelman Influence. "In some cases it could go as far as background checks. I know that sounds crazy but [it’s logical] if you’re a conservative brand and you don’t want to take a stand and you're talking about a political person, or if you really want to be sure the influencer hasn’t posted alcohol in their content."
It also means that any agency using influencers should have a very close relationship with its clients, notes Rema Vasan, EVP and chief innovation officer at Marina Maher Communications.
"We have close partnerships with our clients, and we ensure our clients approve [influencer] content, as well," she says. "We are very fortunate that we have such long-term relationships and there is a very high level of trust. We value that trust and make sure we select influencers based on who they are and we make sure the content is right, and that’s why we haven’t run into the issues you’re seeing at Casper. They are saying they are not responsible for that content and we’re saying we are 100% responsible for the content our influencers post on behalf of the client."
It’s easier to be picky about the influencers you work with, and the content they post, if they’re seeking your brand out, rather than the other way around. That’s the case with Impossible Foods, according to its global head of influence, Jake Crumbine.
He says his company considers anyone who shows an interest and is willing to talk about its products. It works with celebrities such as Serena Williams, Jay-Z and Katy Perry. Impossible Foods takes a decidedly earned media, rather than a paid approach, to influencer marketing and does not pay influencers.
"My team sits in the comms team, not in marketing," Crumbine says. "We take an earned media strategy with influencers, similar to our work with reporters, to help them to tell stories. We are working to tell and help create stories and we are certainly selective with who we send [product] to for recipes or to who we open doors of our headquarters to."