A Penny for Your Thoughts: Referral Reward Programs and Referral Likelihood

Because referral reward programs reward existing customers and build the customer base, firms use them to encourage customers to make recommendations to others. The authors report on four experiments in which they find that rewards increase referral likelihood. More specifically, they find that rewards are particularly effective in increasing referral to weak ties and for weaker brands. It is also important who receives the reward. Overall, for weak ties and weaker brands, giving a reward to the provider of the recommendation is important. For strong ties and stronger brands, providing at least some of the reward to the receiver of the referral seems to be more effective. The authors discuss the implications of the results for the design of reward programs.