Background

Proliferating marketing

Brands are increasingly using influencers as part of their marketing campaign - either paying them or giving products for free -, as they show themselves as someone alike the user and the audience tends to trust them more than traditional advertisement.

The influencer marketing industry has risen considerably in recent years and it is expected to grow to $16.4bn in 2022, according to Influencer Marketing Hub. This is nearly 10 times the size it had in 2016, and it is projected to keep rising around the world. The analytic company HypeAuditor estimates that this market could reach $22.2bn globally by 2025.

The use of influencers is not exclusive to commercial companies. Politicians and other types of organisations are also investing in content creators to engage with people, promote their popularity and influence their decisions (some examples: Goanta et al. Fay Jones and Michael Bloomberg and the PR company paying influencers on TikTok).

Apart from content creators (whose number has grown also dramatically) and brands promoting their products, services or ideas, other types of organisations are also benefiting from this prolific sector. In 2021, the number of influencer marketing-related companies/services increased by 26% globally, according to Influencer Marketing Hub 2022 report.

Influencer marketing is a well-established business in Italy. Market research by DeRev Lab, conducted in 2021 estimated 280 million euros in revenue, 15% more than the previous year, with the creation of 450.000 new jobs.

Photo by Joshua Rondeau on Unsplash

    Who is an influencer?

    There is no harmonisation of the term Influencer and they are not exclusive to a single platform. Most of them use instead several social media platforms to reach their audience and promote content. 

    But influencer marketing reports point out Instagram as the platform where business is done. “Instagram is a perfect place to reach new audiences and gain direct access to markets,” said HypeAuditor.

    Several studies have attempted to define the difficult term “influencer,” and a study published by the European Parliament summarises some of these definitions by key experts and academics. This research concludes with a definition of the term “influencer” from a marketing and consumer protection perspective:

    An influencer is a content creator with a commercial intent, who builds trust and authenticity-based relationships with their audience (mainly on social media platforms) and engages online with commercial actors through different business models for monetisation purposes.

    This definition is based on the key features of the influencer:

    • The content creation, namely the service provided by influencers;
    • The commercial intent, which is driven by direct revenue from brands (monetary and nonmonetary), revenues from audience engagement, or by platform compensation; 
    • The monetisation aspect, namely the revenue generation through different business models (also beyond influencer marketing and including affiliate marketing, crowdfunding, and direct selling) and emerging trends such as livestream shopping; and 
    • The trust and authenticity aspect, namely the source of influence, is related to the parasocial relationship of trust established with the audience, and the perceived authenticity and relatability of the content. 
    • Facilitating labeling of sponsored content, particularly in ways that maintain compliance across regulatory contexts; 
    • Directly facilitating relationships between influencers and brands through their own proprietary marketplaces; 
    • Remunerating through their partnership programmes and creator funds

    The study also warns against using the number of followers and the engagement rate as metrics to define influencers due to the fake followers' problem and concerns about calculating engagement. 

    The number of followers is a biased metric and cannot be defined (or built) cross-platform, raising questions on the parameters used to measure the engagement and how to access data from a regulator’s perspective.

    Professor Catalina Goanta said the main aspect of influencer marketing remains in their ability to monetise content. She has established four elements to assess whether an individual can be considered an influencer

    • The industry: Forbes identified 12 sectors: pets, parenting, fashion, entertainment, travel, gaming, fitness, beauty, home, food, tech & business, and kids. According to professor Goanta, the dimension of the industry is relevant to classifying an individual as an influencer because the number of followers will depend on the size of the industry. “In the gaming sector, influencers will thus need to have several hundreds of thousands of followers to become relevant, while in more niche markets some thousands will be sufficient to have an impact on the market”
    • The source of their popularity. People are exclusively known for their activity on social media as opposed to those who use social media for their personal and professional promotion (celebrities). 
      This second element is important as the first group (show-business professionals in general) ought to be well informed as to their role as public figures and the compulsory disclosure of sponsorship. The second group (originally ‘peers’), on the contrary, may start being treated in the same way as the first one (the ‘professionals’) only from the moment they start amassing a significant amount of market power and influence, typically translated into the number of followers and the ability to shape for example their commercial behaviour.
    • Influence analytics. Data-driven metrics (followers, subscribers, views, likes, retweets, impressions…)
    • Legal status: influencers who are companies, influencers who are freelancers, and influencers who are still consumers.

    HypeAuditor breaks down Instagram influencers into five groups (nano, micro, mid-tier, macro and mega influencers: celebrities). These are based on the number of followers and it seems to be a classification followed by other commercial platforms and across the industry.

    The success of an influencer is measured through engagement (how well it is connected to its audience) and monetisation of its content. Nano-influencers tend to have a higher engagement rate (around 5%), followed by micro-influencers. Brands have focused on smaller influencers due to their engagement rates and the ability to create more genuine content.
     

      Vulnerable audience

      In a world where YouTube and Instagram have become the new television, and where children and teenagers closely follow the advice given by social media celebrities and aspire to become influencers rather than doctors, firemen or astronauts, it is imperative to discuss the need to regulate this activity

      Professor C. Goanta

      The relationship between the influencers and the audience is successful because consumers tend to trust on their “peers” more than on commercial advertisers’ opinions, and influencers are perceived as “peers” (people like them).

      This perception of closeness, trust and authenticity has an impact on consumers’ attitudes towards brands and on consumer purchase decision-making. And children, young people and consumers with low education are more easily influenced and manipulated. They are more vulnerable to influencer marketing. But content shared on social media can also affect people’s ideology and how citizens vote.

      Most social media users tend to be under 34. The youngest audience is on TikTok but almost half of the Instagram users are between 25 and 34, according to the 2022 report published by HypeAuditor.
       

      Photo by Golf Gzaa on Vecteezy

        Regulations of influencers' marketing

        Marketing is not the only challenge the social media influencer industry faces but has taken a prominent role.

        In 2021 the Federal Trade Commission in the US sent around 700 notices of penalty offenses concerning deceptive or unfair conduct around endorsement and testimonials. And a study carried out by the UK Agency of Standard Advertisement found that compliance with ad disclosure on Instagram was low.

        Hidden advertisement on Instagram has been also investigated by the UK Competition and Markets Authority. In October 2020 they announced Instagram was taking actions to make it easier for users to comply with consumer protection law.

        Instagram Rules

        Instagram Branded Content Policies state that “branded content may only be posted with the use of the branded content tool, and creators must use the branded content tool to tag the featured third-party product, brand or business partner with their prior permission.”

        Branded content includes promoting a product for which there has been compensation, either monetary or not. The creator may receive a payment or gifts, free products or services. Instagram considers that branded content does not apply when promoting one's own products

        Users can disclose their partnerships with brands in Feed, Stories, Live, Reels and Instagram videos using the tag branded content tool. They can add the paid partnership label – which will have to be approved by the brands – when sharing a post. But this feature is only available for business and creator accounts. Not for personal accounts.

        Instagram's official policies say that “all branded content on Instagram must be disclosed using the paid partnership label,” and it does not mention any other way of disclosing the partnership. 

        However, more popular and user-friendly blog posts say that the user can also “simply say the product or service was gifted in your Stories, videos or feed text” is enough to disclose the business relationship. This type of praxis is not supported by some official governmental regulations. UK rules, for instance, do not consider the hashtag #gifted as a good method to disclose partnerships. 

        UK regulations

        The UK Agency of Standard Advertisement states that “consumers should be able to recognise that something is an ad, without having to click or otherwise interact with it.” The creator, the brand, and any intermediate involved in the creation or publication are responsible for the labeling of the post, and the labels used should be understandable for consumers. 

        The list of recommended labels by the UK ASA is an ad, advert, advertising, advertisement, and advertisement feature. They advise against Supported by/Funded by, In association with, Thanks to [brand] for making this possible,  Just @ [mentioning the brand], Gifted, Sponsorship/Sponsored, Affiliate/aff, Spon/sp….

        “It would be impossible to comment on every potential word or phrase that might be used to identify an ad but – in light of the ASA’s research it’s unlikely that labels other than those that explicitly and directly call the content what it is, in a way that consumers understand, will be good enough.”

        The position of that label is also important to comply with UK regulations. The label needs to be upfront and prominent and is recommended to be at the start of the post (in a title, thumbnail, or image). People need to notice it without the necessity of clicking on the post on any device. 

        “This means that burying the label in a sea of hashtags, putting it where it can only be seen by clicking “see more”, having to click to view the full post, or only being able to tell a video is an ad by watching it, really isn’t going to cut it.” In line with Instagram rules, the UK regulation for promoting brands does not apply if promoting their own products or services as long as this is clear from the post. 
         

        Mexico regulations

        In the case of Mexico, there are no regulations for content and activity of influencers on social media. Since May 18th, 2022, commissions in Congress have analyzed an initiative presented by pro-government deputies to modify the Federal Consumer Protection Law and regulate the messages of content creators on the different platforms, in addition to including them in a tax regime that force them to pay taxes due to their earnings.

        One of the main objectives is that influencers do not carry out misleading advertising and acquire legal and fiscal obligations under the figure of "audiovisual communication service providers". If it is approved by the Congress, content creators will have to give details about the advertising contracts they receive and to prove the truth of their statements about the products they advertise.

        Italy regulations

        As far as the Italian market is concerned, the rules of the influencers market are outlined very clearly and defined in several legislations and codes of conduct aimed at regulating the relationship between marketers and consumers.

        We should also note that Italian influencers and brands are well aware of these principles and they were recently featured in "The law of influencers. Rules and tools to protect your social media business" a freely available e-book by the 42 Talent. Il Sole 24 Ore presented this initiative in the spring of 2022. The project was born from the partnership of Giuseppe Vaciago and Matteo Flora, of the 42LF The Innovation Law Firm, and Riccardo Lanzo and Massimo Giordano, managing partners of IUS 40 Studi Legali who represent some of the Italian influencers superstars like Khabi Lame. The aim of the project is to offer professional services to content creators and companies that invest in influencer marketing. It's of course not a definitive guide but it's an excellent starting point.

        The rules of influencer marketing can be summed up in the general principles that "honest, truthful and fair marketing communication, which should never be deceitful, ambiguous or misleading for consumers" and that "explicit communication of the promotional nature" of the message is always required. The book dedicates a chapter to this topic, "Surreptitious promotional communication in Influencer Marketing" and we refer to that for a more complete picture.

        “The main law that applies is the Consumer Code published through Legislative Decree No. 206 of 6 September 2005, relating to changes in existing laws regulating consumer protection, which include most of the customer protection provisions set out by the European Union over the previous 25 years. [...]”

        "As regards the digital realm and, more specifically, Influencer Marketing, Title III of the Code, recorded as “Commercial practices, advertising, and other marketing communication” is the area we are interested in.

        In terms of promotional communication, the Code sets out the ban on unfair commercial practices carried out through false advertising. In particular, Article 20 specifies that “unfair” means “any act, omission, course of conduct or representation, marketing communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers.”

        The Code cites “any act”, but what impact would such an act need to have on the consumer in order for it to qualify as false advertising? Article 18 specifies that such unfair practices must significantly impair the consumer’s freedom of choice, causing them to make a transactional decision they would not have made otherwise.

        The scope of application of such advertising laws and their goal to protect consumers was initially only aimed at traditional communication; however, it was later extended to include new forms of advertising as well, such as social media.

        Currently consumers – or followers within the social media context – are not able to distinguish between spontaneous and sponsored content, without specific indications provided by Influencers.

        Indeed, Influencers need to pay significant attention and distinguish content that is subject to sponsorship agreements and content that only aims at (at least apparently) sharing, spontaneously and without interest, one’s daily life. When sharing sponsored content within their presentation of their own daily life, Influencers must ensure to include all relevant disclosures of the promotional nature of the content.

        To do so, they should simply employ specific hashtags, which represent a symbolic “warning sign” for followers/consumers viewing the sponsored content. [...] They might use #ad, #advertising, #sponsor, #sponsored, #sponsorizzato, among others. Hashtags must be included in a visible position, i.e. from the beginning of the sponsored content.

        Brand owners can also contractually outline the modes with which to disclose the promotional nature of each post and of any content relating to the promotional message, explicitly regulating every single aspect of the campaign with the Influencer, in order to avoid any breach of the law."

        Another regulatory body that applies to influencer marketing is the Italian Antitrust Authority.

        "The Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato , AGCM) outlined specific ad hoc guidelines for subjects, including Influencers, who decide to launch promotional campaigns on social media.
        AGCM is an administrative independent authority founded in October 1990, which deals with the application of laws issued for competition and market protection. Firstly, AGCM regulates entrepreneurial behavior, to ensure it does not damage other competitors through unfair practices. AGCM also safeguards agreements signed with consumers and, in general, all unfair commercial practices carried out by companies towards consumers, including promotional ones.

        In particular, ACGM has highlighted the need for specific regulations regarding advertising on social media. ACGM is often required to intervene to investigate unfair advertising behaviors on social media and sanction them as needed.
        Through such activities, ACGM must remind users that advertisements need to be clearly recognizable as such, and they often underline the general scope of the disguised advertising ban – therefore, it must be applied even with reference to social media communication, as Influencers must not lead their followers to believe they are acting spontaneously and without interest, when in fact they are promoting a brand within the scope of a sponsorship agreement.

        And finally, there are the non-binding codes of conduct that in several marketing sectors are implemented voluntarily ad defined by trade associations.

        "The relationships between Influencers, companies, and consumers (followers) are also regulated by the Code of Marketing Communication Self-Regulation, as well as by the Digital Chart. [...] The Code of Marketing Communication Self-Regulation, now in its 68th iteration, was issued on 9 February 2021 and is a code of conduct adopted by the Self-Regulatory Institute for Advertising (Istituto di Autodisciplina Pubblicitaria, IAP).

        Such codes of conduct, as outlined by the Consumer Code, can be implemented by business and professional associations and organizations, “in relation to one or more commercial practices or one or more specific business sectors” and they define companies’ and professionals’ behaviors, who in turn commit to adhering to them. This clarifies that codes of conduct are implemented voluntarily. [...]

        Fashion brands tend to work with Influencers the most, in order to direct their marketing activities. For this reason, and considering the specific nature of the industry, the National Chamber for Italian Fashion (Camera Nazionale della Moda Italiana, CNMI), which is the most significant body representing Italian fashion brands, published “Guidelines and Interpretative Rules for Influencers”.

        CNMI explicitly notes that such guidelines are neither binding nor does their application ensure that users are exempt from disputes or sanctions by relevant authorities. At the same time, they note that such guidelines might be a useful tool to “adopt or improve internal policies with a view to support the brand’s good faith and to mitigate liability in the instance of investigations”.
         

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          • Merlan, A., Vice, A PR Firm Is Paying TikTok Influencers to Promote Liberal Causes and Hype Democrats’ Middling Accomplishments (2022) Link
          • Michaelsen, F., Collini, L. et al., Directorate-General for Internal Policies. PE 703.350, The impact of influencers on advertising and consumer protection in the Single Market. Policy Department for Economic, Scientific and Quality of Life Policies (2022) PDF
          • Goanta, C., and Ranchordás, S., Cheltenham, UK: Edward Elgar Publishing, The Regulation of Social Media Influencers: Chapter 1: The regulation of social media influencers: an introduction (2020) DOI
          • Agency of Standard Advertisement (ASA), Influencer Ad Disclosure on Social Media (2021) PDF
          • Riccardo Lanzo and Massimo Giordano, The Law of influencers. Rules and tools to protect your social media business (2022) Register to download e-book
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