Impact of altruism preference difference on the optimal reward structure in online referral marketing

Abstract

AbstractSocial media have significantly boosted the prevalence of online referral marketing, through which firms use referral reward programs (RRPs) to promote their existing customers to disseminate or refer product information within social connections. We start with the idea that customer referral motives include firm‐offered rewards and altruistic motives to examine the optimal RRPs by developing nested Stackelberg game models among a firm, a rational (absolute) altruistic sender, and a recipient. The findings show that both product factors and customer factors influence the effectiveness of RRPs, and taking customers altruistic motives into account helps avoid reward waste and makes the optimal reward structure shift away from rewarding the sender. Furthermore, the optimal reward structure is closely related to the tie strength between the sender and the recipient and varies with altruism preference differences.