The power of Instagram: Brands eye more social media influencers

Ashley Wilking shows an Indie Fresh product in a social media post
Source: Ashley Wilking
Ashley Wilking shows an Indie Fresh product in a social media post

Forget models in magazines.

More consumers are buying goods and services based on what they see in their Instagram feed, recent trends suggest.

The shift is happening for good reason, and it's forcing companies to adapt. A new study by TapInfluence found that social media influence marketing is 11 times more effective than banner ads, meaning that social media accounts with wide followings, so-called "influencers," are coveted by companies looking to reach plugged-in consumers.

The dynamic means that advertising dollars are increasingly flowing to social media-based campaigns. According to a 2015 study by eMarketer, Instagram's global mobile ad revenues are expected to close in on nearly $3 billion by 2017. That figure would accounting for over 10 percent of the revenues of Facebook, its parent company.

The new paradigm underscores the influence of social media, and users who are shunning traditional methods of consuming information. In the brave new world of streaming and social networks, companies are finding there's less payoff in television and print media advertising, some experts say.

"Consumers trust the opinions of those in their social media group, including friends, bloggers and celebrities, more than messages they are getting directly from brands," Liz Dunn, founder & CEO of Talmage Advisors, told CNBC. "As a result, retailers and brands are trying to cultivate relationships with influencers to gain consumer attention."

The power of an influencer

Instagram, for example, has become a wonderland for consumer products as diverse as food, clothes and grooming. On any given day, users harness the platform's viral capabilities to sell or endorse products—and they don't have to be celebrities, either.

Ashley Wilking, a New York-based fitness instructor, uses social media heavily as an extension of her own brand. "I like to incorporate products that I use in my everyday life," she told CNBC. Wilking works with Indie Fresh, a New York based startup, which sells fresh smoothies, soups and more.

In an Instagram post, she often poses holding its products and offers a 10 percent off discount to her nearly 5,000 followers. The discount code is specific to her name "ashleywilking10," so the company can easily track how many sales are coming from her. In return, Wilking gets discounted products herself.

Shom Chowdhury, Indie Fresh's CEO, told CNBC that social media engagement is significantly higher with people than with brand pages. "We wanted to make our products part of people's daily lifestyles," he said. In return for the athletes that promote his products, athletes get discounts. "Instead of saying, 'we want X amount of posts for this amount of payment,' we decided to set up the athletes with discount codes," he said.

Chowdhury said he previously used Facebook ads, but the adoption rate wasn't as high as using influencers.

Aloha, which sells fresh protein and nutrition products, uses a similar model. "You're more influenced by what they're posting if you saw a banner ad," Lee Hurley, the startup's marketing director, told CNBC. "The things someone is promoting, you're more likely to investigate it or purchase it down the line."

Macy's gets in on the action

It's not just startups, however. Now, legacy companies like Macy's are tapping into influencers as their way of advertising.

Earlier this year, Macy's Bar III launched a new social campaign, "#SettingTheBar," aimed at highlighting millennials who create their own styles and influence others.

"The influencers we feature tell an aspirational yet relatable story," Nancy Slavin, senior vice president of marketing at Macy's merchandising group, told CNBC. That enables the company "to connect with consumers in a more interesting and ultimately more engaging way than traditional marketing allows."

With 85 cents of every new dollar spent in online advertising going to Facebook and Google, should the tech giants be worried their own users are biting the very hands that feed them?

"They're aware of this trend for sure, and they'll likely create new ways to encourage and enable influencers posting on their platforms," said Yory Wurmser, an analyst at eMarketer. "You're already seeing some of this with the video offerings on Facebook and Facebook Live, and with various new ads on YouTube."

Wurmser says, despite slight shifts in ad dollars, Facebook and Google still benefit, as more time is spent on their platforms. He thinks there is plenty of room to grow, but said there could eventually be consumer backlash from influencer marketing.

"A lack of authenticity could breed consumer cynicism above all," Wurmser added.