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The article, “Why Brands Should Tread Carefully With Influencer Marketing in 2023” was written by Scott Clark on January 19th, 2023. This article was published by CMSWire and was categorized into the digital marketing channel which covers insights into digitized marketing including coverage of new trends and technologies. This article discussed the issues of cancel culture and the effects that an influencer's actions can have on a brand's reputation.

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Tread Carefully With Influencer Marketing

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When a social media influencer goes wrong, the connection to a brand could damage trust.

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Influencer marketing refers to the use of influential individuals, who are experts in a certain subject and/or have a large following (usually through social media) to promote and inform consumers about a brand. While influencer marketing is becoming increasingly more popular and powerful it is important to evaluate the influencers that brands are working with based on their values, missions, and beliefs to ensure that their actions align with the image that the brand has for itself. Along with this it is up to the brand to hold the influencers they work with accountable and ensure that the brand image is maintained by the influencer. This article highlights that if the influencer acts in a way that does not represent the brand well then it is imperative that the brand immediately reacts appropriately based on the situation. This could include firing the influencer, making a public statement, apologizing, etc.

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To ensure that an influencer is the best fit for a brand, the brand should really commit to understanding everything about the influencer’s thoughts, biases, actions, interactions, etc. The article ends by discussing brands' thoughts on influencer marketing. There are disagreements about whether influencer marketing is worth all of this trouble. It can be hard to track the effectiveness of influencer marketing therefore making it hard to justify with a large price tag.

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Along with this, some brands feel that social media is “oversaturated” with influencers making this marketing tactic less effective. Finally, if a chosen influencer works with numerous brands the endorsement of your brand may read as “disingenuous.” Overall, this article was able to explain the risks brands face when working with influencers to market their product and discussed how a brand can effectively minimize these risks.

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What do you think about influencers in marketing?

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What do you think about influencers in marketing?

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Do you think that social media platforms such as TikTok are "oversaturated" with influencers?

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This article, published by Harvard Business Review, highlights the ethical concerns with influencer marketing and outlines the industry standardization that needs to occur to improve this market.

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Why the Influencer Industry Needs Guardrails

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The author argues for an industry in which unethical behavior is punished; professional expectations, pay, and desired outcomes are standardized; and creators are given the same rights and protections as other professional marketers.

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Positive analysis: The article clearly demonstrates both opportunities and risks that exist in influencer marketing.

Opportunities:

Increase brand visibility and consumer engagement due to influencer's large following. For example, the article mentions that influencer marketing has been effective in driving consumer awareness through entertaining and informative content.

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This article relates to the interdependence principle and the cost-benefit principle. In our textbook, we learned that the interdependence principle is the fact that some choices are affected by choices others make and many different variables. With influencer marketing, you are taking the risk that the one person you tie your brand to does not do anything wrong, making you look bad. It also relates to the opportunity cost principle; brands must analyze whether an influencer fits their target audience and whether they could spend that money and time utilizing a different marketing strategy. It reflects the cost-benefit principle because there is a list of possible pros and cons to assess before utilizing influencer marketing, such as the risk of an influencer doing something bad that misrepresents your company, or the benefit of finding a new audience.

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Based on the article, we believe that the price is above equilibrium for the price of influencers in relation to the amount of companies hiring them. As such, influencers are in a surplus in S1 due to cancel culture which makes them increasingly unpopular. In this depiction, both demand and supply lines shift left signaling a decrease in both supply and demand. Furthermore, there are various companies but not all are interested in hiring influencers, based on the high risk factor of associating a company with an individual.

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Do you think the risk of working with influencers is worth the potential benefits it could provide in marketing? 

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What Is Opportunity Cost?

Opportunity cost represents the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another. While opportunity costs can't be predicted with total certainty, taking them into consideration can lead to better decision making.

Key Takeaways

Formula for Calculating Opportunity Cost

The formula for calculating an opportunity cost is simply the difference between the expected returns of each option. Consider a company that is faced with the following two mutually exclusive options:
Option A: Invest excess capital in the stock market Option B: Invest excess capital back into the business for new equipment to increase production
Assume the expected return on investment (ROI) in the stock market is 10% over the next year, while the company estimates that the equipment update would generate an 8% return over the same period. The opportunity cost of choosing the equipment over the stock market is 2% (10% - 8%). In other words, by investing in the business, the company would forgo the opportunity to earn a higher return-at least for that first year.

Opportunity Cost and Capital Structure

Opportunity cost analysis can play a crucial role in determining a company's capital structure. A business incurs an explicit cost in taking on debt or issuing equity because it must compensate its lenders or shareholders. And each option also carries an opportunity cost.

Money that a company uses to make payments on its bonds or other debt, for example, cannot be invested for other purposes. So the company must decide if an expansion or other growth opportunity made possible by borrowing would generate greater profits than it could make through outside investments.

Companies try to weigh the costs and benefits of borrowing money vs. issuing stock, including both monetary and non-monetary considerations, to arrive at an optimal balance that minimizes opportunity costs. Because opportunity cost is a forward-looking consideration, the actual rate of return (RoR) for both options is unknown at that point, making this evaluation tricky in practice.

Example of an Opportunity Cost Analysis

Assume that a business has $20,000 in available funds and must choose between investing the money in securities, which it expects to return 10% a year, or using it to purchase new machinery. No matter which option the business chooses, the potential profit that it gives up by not investing in the other option is the opportunity cost.

If the business goes with the securities option, its investment would theoretically gain $2,000 in the first year, $2,200 in the second, and $2,420 in the third.

Alternatively, if the business purchases a new machine, it will be able to increase its production. Knowing that the machine setup and employee training will be intensive, and the new machine will not be up to maximum efficiency for the first couple of years, the company estimates that it would net an additional $500 in profit in the first year, then $2,000 in year two, and $5,000 in all future years.

By these calculations, choosing the securities makes sense in the first and second years. However, by the third year, an analysis of the opportunity cost indicates that the new machine is the better option ($500 + $2,000 + $5,000 - $2,000 - $2,200 - $2,420) = $880.

The Most Expensive Pizza Ever?

Opportunity Cost vs. Sunk Cost

A sunk cost is money already spent at some point in the past, while opportunity cost is the potential returns not earned in the future on an investment because the money was invested elsewhere. When considering opportunity cost, any sunk costs previously incurred are typically ignored.

Buying 1,000 shares of company A at $10 a share, for instance, represents a sunk cost of $10,000. This is the amount of money paid out to invest, and it can't be recouped without selling the stock (and perhaps not in full even then).

From an accounting perspective, a sunk cost also could refer to the initial outlay to purchase an expensive piece of heavy equipment, which might be amortized over time, but which is sunk in the sense that the company won't be getting the money back.

Opportunity Cost vs. Risk

In economics, risk describes the possibility that an investment's actual and projected returns will be different and that the investor may lose some or all of their capital. Opportunity cost reflects the possibility that the returns of a chosen investment will be lower than the returns of a forgone investment.

The key difference is that risk compares the actual performance of an investment against the projected performance of the same investment, while opportunity cost compares the projected performance of an investment against the projected performance of another investment.

Accounting Profit vs. Economic Profit

Accounting profit is the net income calculation often stipulated by the generally accepted accounting principles (GAAP) used by most companies in the U.S. Under those rules, only explicit, real costs are subtracted from total revenue.

Economic profit, however, includes opportunity cost as an expense. This theoretical calculation can then be used to compare the actual profit of the company to what its profit might have been had it made different decisions.

Economic profit (and any other calculation that considers opportunity cost) is strictly an internal value used for strategic decision making.

What Is a Simple Definition of Opportunity Cost?

Opportunity cost refers to the hidden cost associated with not taking an alternative course of action.

What Is an Example of Opportunity Cost in Investing?

Consider a young investor who decides to put $5,000 into bonds each year and dutifully does so for 50 years. Assuming an average annual return of 2.5%, their portfolio at the end of that time would be worth nearly $500,000. Although this result might seem impressive, it is less so when you consider the investor's opportunity cost. If, for example, they had instead invested half of their money in the stock market and received an average blended return of 5% a year, their portfolio would have been worth more than $1 million. Their opportunity cost in this case would be over $500,000.

How Do You Predict Opportunity Cost?

Any effort to predict opportunity cost must rely heavily on estimates and assumptions. There's no way of knowing exactly how a different course of action will play out financially over time. Investors might use the historic returns on various types of investments in an attempt to forecast their likely returns. However, as the famous disclaimer goes, "Past performance is no guarantee of future results."

The Bottom Line

While opportunity costs can't be predicted with absolute certainty, they provide a way for companies and individuals to think through their investment options and, ideally, arrive at better decisions.

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Opportunity Cost: Definition, Calculation Formula, and Examples

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Opportunity cost is the potential forgone profit from a missed opportunity-the result of choosing one alternative over another.

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Creates a connection with the target audience, as influencers often provide a personal touch that makes them effective in reaching specific audiences.

High reliability can create stronger engagement.

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Risks:

Reputation damage due to influencer misconduct. Examples like PewDiePie mentioned in the article.

Oversaturation and Inauthenticity can reduce effectiveness. When influencers endorse numerous products, the promotion may seem inauthentic and may impact the brand's credibility.

Associating a spokesperson with a brand may be risky as the brand's values become tied to that individual's actions.

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Normative Analysis: brands should manage their influencer relationships through:

Carefully evaluating influencers to ensure that the influencers align with their values. Involves thorough research into an influencer’s past behavior, ethics, and even day-to-day interactions.

Swift response to misconduct. Brands should take action “within minutes” when something goes wrong.

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Avoiding overdependence on a single influencer, as the risk involved in having one person embody a brand’s values are too high, given the unpredictable nature of human behavior.

Choosing partners whose personal branding and public behavior align with the brand image, instead of choosing solely based on popularity.

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Efficiency: Influencer marketing can be very effective for increasing brand visibility and connecting with targeting audiences. However, the risks associated with unpredictability and potential controversies may reduce overall efficiency. The cost of damage control like terminating partnerships and missing public apologies mat detract from the benefits.

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Equity: The concept of equity in influencer marketing is complicated, as brands with resources to afford these popular influencers benefit disproportionately, while smaller brands struggle to justify the costs. Moreover, the article implied that influencers who genuinely align with a brand’s values are preferred, meaning that influencers with controversies in their history are disadvantaged, which creates a divide in the opportunity available to influencers.

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Winners: brands that choose their influencers carefully and align them with their mission and values can benefit greatly from increased visibility and positive consumer engagement. Influencers who effectively represent brands without controversies are also winners, as they would gain partnerships, revenue, and increase in followers.

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Losers: Brands that fail to properly evaluate influencers or respond too slowly to controversies, as they are more likely to face public backlash and loss of consumer trust. Additionally, influencers who act in ways that damage their reputation can lose credibility, partnerships, and financial opportunities.