Contract Design in Influencer Marketing

In influencer marketing, the differing incentives of advertisers and influencers necessitate a delicate balance between control and creativity. Investigating this trade-off, we explore the impact of contractual constraints on advertiser outcomes, addressing the empirical challenges posed by the fact that contracts are rarely observed by researchers and are strategically offered by advertisers and selectively accepted by influencers. Our analysis uses a unique dataset comprising a thousand contracts offered by hundreds of brands to thousands of influencers to examine the prevalent advertiser-imposed constraints. We relate this data to information on influencer participation and follower responses, assessing how contractual constraints influence these outcomes. Our findings demonstrate that influencers are significantly averse to contractual constraints, which create a relational cost for them. Additionally, the audiences respond less favorably in terms of the advertiser’s outcomes to content produced under more restrictive conditions, implying a creativity suppression cost borne by the advertiser. A uniquely designed two-stage field experiment shows that the creativity suppression cost for advertisers outweighs the relational cost for influencers. Relaxing these constraints allows advertisers to triple their influencer retention rate within the same budget. We highlight the critical need for balancing managerial direction and influencer autonomy in designing influencer marketing campaigns.