Customer Referral Programs Research Articles

Exploring the influence of submission devices on customer referral creation and receiver reactions in customer referral programs

AbstractCustomer referral programs (CRPs) are considered an effective means of customer acquisition through which firms stimulate existing customers to refer services and products to potential new customers. Digitalization and technological developments have led to the common practice of using digital devices like smartphones or laptops to create and submit customer referrals. This is the first study to investigate the influence of submission devices in CRPs from both the sender's and receiver's perspective. Based on four experiments, we demonstrate that smartphone‐generated referrals are shorter and less positive than those composed on laptops/PCs. These differences in text length and valence negatively influence receiver responses, leading to lower purchase intentions due to the perceived usefulness of the referral mediating this relationship. Our findings underscore the important role of submission devices for online referral behavior and contribute to the growing body of research on device‐mediated consumer behavior, offering crucial insights to optimize the promotion and design of CRPs.

I Will Get a Reward, Too: When Disclosing the Referrer Reward Increases Referring

Incentivized customer referral programs (e.g., “Refer a friend, reward yourself!”) are prevalent, yet they usually have low referring rates. One reason, the authors suggest, is that existing customers (referrers) view incentivized referring as an exchange activity that feels incompatible with their communal relationship with friends (referees), resulting in a psychological barrier (i.e., negative feelings such as discomfort, conflict, guilt, etc.). In seven studies (five preregistered, two in the field; N = 2,060) and one preregistered supplemental study (N = 176), the authors propose and find that disclosing the referrer reward in the invitation message—a not yet widely adopted method—can promote referring by making the referring action seem more compatible with communal norms and reducing the experienced psychological barrier. They also document the potential of disclosing the referrer reward on increasing acceptance, conversion, and sales. The authors further identify three theoretically and practically relevant boundary conditions: (1) the relative reward amount (whether the referrer reward is greater than, equal to, or less than the referee reward), (2) the stated source of the referrer reward (the company or the referee's spending), and (3) the framing of the referral opportunity (whether it is already framed as a communal activity). The authors conclude by discussing the theoretical and practical implications.

Reward Design for Customer Referral Programs: Reward-Product Congruence Effect and Gender Difference.

Referral reward design is the core component of customer referral programs, which are often applied to recruit new customers. This research investigates the effectiveness of utilitarian vs. hedonic rewards in terms of referral generation. Through one field study and two laboratory studies, we demonstrate a reward–product congruency effect; that is, utilitarian rewards, compared with hedonic rewards, yield a higher referral likelihood for utilitarian products, while the opposite holds true for hedonic products. However, such a congruency effect would be crippled by gender segmentation. When males make referral decisions toward hedonic products, the effectiveness of utilitarian rewards is at least equal to that of hedonic rewards. When females make referral decisions toward utilitarian products, there is no difference in effectiveness between utilitarian and hedonic rewards. These findings provide novel insights into referral reward design.

Why Prosocial Referral Incentives Work: The Interplay of Reputational Benefits and Action Costs

Selfish incentives typically outperform prosocial incentives, and customer referral programs frequently use such “selfish” (i.e., sender-benefiting) incentives to incentivize current customers to recruit new customers. However, in two field experiments and a fully incentivized lab experiment, this research finds that “prosocial” (i.e., recipient-benefiting) referral incentives recruit more new customers. Five subsequent experiments test a process account for this effect, identifying two key psychological mechanisms: reputational benefits and action costs. First, at the referral stage, senders (existing customers) anticipate reputational benefits for referring recipients (potential new customers), who receive a reward for signing up. These reputational benefits render recipient-benefiting referrals just as effective as sender-benefiting referrals at the relatively low-cost referral stage. Second, at the uptake stage, recipient-benefiting referrals are more effective than sender-benefiting referrals: recipient-benefiting referrals directly incentivize recipients to sign up, providing a clear reward for an otherwise costly uptake decision. The preponderance of selfish, or sender-benefiting, referral incentives in the marketplace suggests these effects are unanticipated by marketers who design incentive schemes.

Understanding the quality–quantity conundrum of customer referral programs: effects of contribution margin, extraversion, and opinion leadership

Firms can substantially profit from customer referrals, but they must understand the different stages of the referral process to determine what drives the number of referrals (first stage), conversion (second stage), and average contribution margin per referral (third stage). Applying a framework that integrates perceptual and behavioral drivers, this study uses a financial services company’s customer survey and transaction data to investigate how the effect of contribution margins of referring customers at all three stages depends on their perceived extraversion and opinion leadership. Extreme extraversion and opinion leadership diminish the positive effect of the contribution margins of referring customers on the number of referrals; their effect on the number of successful referrals is insignificant. In terms of the contribution margin of successful referrals, extraversion has a negative and opinion leadership a positive moderating effect.

How Customer Referral Programs Turn Social Capital into Economic Capital

Customers acquired through a referral program have been observed to exhibit higher margins and lower churn than customers acquired through other means. Theory suggests two likely mechanisms for this phenomenon: (1) better matching between referred customers and the firm and (2) social enrichment by the referrer. The present study is the first to provide evidence of these two mechanisms in a customer referral program. Consistent with the theory that better matching affects contribution margins, (1) referrer–referral dyads exhibit shared unobservables in customer contribution margins, (2) referrers with more extensive experience bring in higher-margin referrals, and (3) this association between the referrer's experience and margin gap becomes smaller over the referral's lifetime. Consistent with the theory that social enrichment affects retention, referrals exhibit lower churn only as long as their referrer has not churned. These findings indicate that better matching and social enrichment are two mechanisms through which firms can leverage their customers' networks to gain new customers with higher customer lifetime value and convert social capital into economic capital. One recommendation for the managers of the firm studied is to recruit referrers among their customers who have been acquired at least six months ago, exhibit high margins, and are unlikely to churn.

Reward-scrounging in customer referral programs

Rewarding existing customers for the recruitment of new ones has become an increasingly popular acquisition tool for companies. However, when a company rewards the recruitment of a new customer, managers are unaware of whether the rewarded referral was actually necessary or whether “reward-scrounging” has occurred because the referral receiver would have converted anyway. As a consequence, companies risk overestimating the effectiveness of their referral programs, which is why gaining insights into how and when reward-scrounging occurs is crucial. In this study, we employ a large data set from the telecommunications industry to analyze the drivers of reward-scrounging. The results indicate that reward-scrounging reduces the effectiveness of referral reward programs over time and that its likelihood depends on both the referral sender's network position and the company's marketing activities. The findings are used to develop managerial means to alleviate the negative effects of reward-scrounging.

Customer Referral Reward-Brand Fit: A Schema Congruity Perspective

Customer referral programs (CRPs) are widely applied as an effective means to stimulate word-of-mouth. While previous research mainly focuses on CRPs impact of acquiring new customers, this study introduces referral programs as a strategic brand management tool. Grounded on Mandler’s (1982) schema congruity theory, we propose that the perceived congruity between a reward and the recommended brand is an essential driver of referral program performance outcomes. The results show that rewards that conform to the image of the recommended brand yield more favorable brand evaluations and positively impact reward attractiveness perceptions. Furthermore, we show that brand evaluations and the perceived attractiveness of the reward fully mediate the effect of congruity on recommendation behavior. Our research extends the literature on judgmental evaluations resulting from schema-based processing and provides novel insights into the design of CRPs.

Can Friends Also Become Customers? The Impact of Employee Referral Programs on Referral Likelihood

Customer referral programs, which encourage existing customers to recommend a firm’s services in their social network, have become a popular marketing tool. This research focuses on another social group that may also issue recommendations, namely a firm’s own employees. Drawing on social identity research, the authors find that employees are more likely to promote their firm’s services when their employee identity is highly salient. Moreover, this effect is moderated by relational norms, such that employees are only willing to refer their friends when they feel that this is an appropriate behavior in a friendship. Specifically, the results reveal that identity salience only affects referral likelihood when referrals are framed in terms of communal sharing rather than market pricing (Study 1) and when referral rewards are assigned to the friends rather than to the employees (Study 2). Finally, Study 3 shows that relational framing is only effective in increasing referrals when employees feel that there is little risk that their firm’s services will not perform as expected. Thus, managers interested in increasing employee referrals of friends may not only need to link referrals to employees’ organizational identity but may also need to convince employees that referrals do not violate relational norms.

Growing Existing Customers’ Revenue Streams through Customer Referral Programs

Customer referral programs are an effective means of customer acquisition. By assessing a large-scale customer data set from a global cellular telecommunications provider, the authors show that participation in a referral program also increases existing customers’ loyalty. In a field experiment, recommenders’ defection rates fell from 19% to 7% within a year, and their average monthly revenue grew by 11.4% compared with a matched control group. A negative interaction between referral program participation and customer tenure reveals that the loyalty effect of voicing a recommendation is particularly pronounced for newer customer–firm relationships. A laboratory experiment further demonstrates that referral programs with larger rewards strengthen attitudinal and behavioral loyalty, whereas smaller rewards affect only the behavioral dimension. This article contributes to our theoretical understanding of the roles played by the commitment–consistency principle and positive reinforcement theory as mechanisms underlying the effectiveness of customer referral programs.

Commentary—Invited Comment on “Opinion Leadership and Social Contagion in New Product Diffusion”

AboutSectionsView PDF ToolsAdd to favoritesDownload CitationsTrack CitationsPermissionsReprints ShareShare onFacebookTwitterLinked InEmail Go to Section HomeMarketing ScienceVol. 30, No. 2 Commentary—Invited Comment on “Opinion Leadership and Social Contagion in New Product Diffusion”David GodesDavid GodesPublished Online:10 Dec 2010https://doi.org/10.1287/mksc.1100.0605 Previous Back to Top Next FiguresReferencesRelatedInformationCited byImpacts of normative and hedonic motivations on continuous knowledge contribution in virtual community: the moderating effect of past contribution experience10 February 2023 | Information Technology & People, Vol. 22Relationships among immigrant consumers' cultural orientation, innovativeness and opinion leadership15 November 2021 | International Marketing Review, Vol. ahead-of-print, No. ahead-of-printConsumer susceptibility to social influence in new product diffusion networks: how does network location matter?31 December 2020 | European Journal of Marketing, Vol. 55, No. 5Social Media Firm Specific Advantages as Enablers of Network Embeddedness of International Entrepreneurial VenturesJournal of World Business, Vol. 56, No. 3Leaders that bind: the role of network position and network density in opinion leaders' responsiveness to social influenceAsia Pacific Journal of Marketing and Logistics, Vol. ahead-of-print, No. ahead-of-printCreating Social Contagion Through Firm-Mediated Message Design: Evidence from a Randomized Field ExperimentTianshu Sun, Siva Viswanathan, Elena Zheleva5 August 2020 | Management Science, Vol. 67, No. 2Improving the value of the retailer brand through social media equity18 April 2020 | Journal of Brand Management, Vol. 27, No. 5Social interactions impact on product and service development27 July 2020 | Proceedings of the International Conference on Business Excellence, Vol. 14, No. 1Who is tech savvy? 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Goldstein24 October 2013 | Marketing Science, Vol. 33, No. 1Creating Social Contagion Through Firm Mediated Message Design: Evidence from a Randomized Field ExperimentSSRN Electronic Journal, Vol. 106Leveraging Peer-to-Peer Networks in Pharmaceutical Marketing26 October 2013Research Commentary —Information in Digital, Economic, and Social NetworksInformation Systems Research, Vol. 24, No. 4Rejoinder—Further Reflections on Studying Social Influence in New Product DiffusionRaghuram Iyengar, Christophe Van den Bulte, Thomas W. Valente, 10 December 2010 | Marketing Science, Vol. 30, No. 2Marketing on Tumblr Volume 30, Issue 2March-April 2011Pages 195-388 Article Information Metrics Information Received:June 24, 2010Accepted:June 27, 2010Published Online:December 10, 2010 Copyright © 2011, INFORMSCite asDavid Godes, (2010) Commentary—Invited Comment on “Opinion Leadership and Social Contagion in New Product Diffusion”. Marketing Science 30(2):224-229. https://doi.org/10.1287/mksc.1100.0605 Keywordsdiffusion of innovationsopinion leadershipsocial contagionsocial networksPDF download

Cross-Cultural Differences in the Effect of Received Word-of-Mouth Referral in Relational Service Exchange

Because of suggested beneficial effects of word-of-mouth (WOM) referral, service companies have invested large amounts of money in customer referral programs as well as programs aimed at fostering positive communication among their existing customers. The question of cross-cultural differences in the effectiveness of WOM has recently gained increased prominence. The authors contribute to research on this topic by proposing a positive effect of received WOM on service quality perceptions among existing customers. Moreover, they predict that cultural values moderate this effect. They test the model on 1910 bank customers in 11 countries. The results show that received WOM has a positive effect on customer service quality perceptions. Furthermore, received WOM has a stronger effect on the evaluation of customers in high-uncertainty-avoidance than in low-uncertainty-avoidance cultures. No other cultural value is a significant moderator. The results imply that received WOM is also important to existing customers and that managers should adjust their strategy of referral marketing to match their target group's uncertainty-avoidance level.