Project

Referral Reward Programs

Goal: We conduct a series of studies to explore the effectiveness of referral reward programs (RRPs) in stimulating referrals. On the one hand, RRPs are viewed as effective in motivating recommendation behavior because they provide incentives and compensate for recommenders’ time and effort. On the other hand, RRPs are seen as inhibiting recommendations because they may have a negative effect on metaperception and resultant impression management concerns. We explore these mediating effects and boundary conditions.

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Jochen Wirtz
added a research item
Customer referral reward programs (RRPs) are ubiquitous especially in the service sector. Yet, their impact on customer behavior has not gained much attention in the research community until recently. The focus of the present study is to examine the effectiveness of RRPs by analyzing a variety of determinants in a real world business setting, where we combined CRM and survey data of private banking customers of a large European bank.
Jochen Wirtz
added an update
Our latest paper was just accepted for publication in the European Journal of Marketing - see uploaded PDF.
Engaging Customers Through Online and Offline Referral Reward Programs
Purpose: This study examines the psychological consequences of a customer engagement initiative through referral rewards programs (RRPs) in online versus offline environments.
Design/methodology/approach: We conducted a qualitative study followed by a scenario-based experimental study.
Findings: We show that recommenders’ concern about how they are viewed by recommendation recipients (i.e., their metaperception) mediates the effects of incentives on referral likelihood in both offline and online environments. However, metaperception has a stronger effect offline where recommenders show higher impression management concerns compared to online. Furthermore, tie-strength and communication environment moderate the effect of incentives on metaperception. When referrals are made to weak-ties, incentives decrease metaperception favorability offline more than online. For strong-ties, this effect is lower, and it is similar in offline and online environments.
Research limitations: Our study focused on an online versus offline dyadic communication and did not consider the differences among social media. Furthermore, we did not consider how other forms of positive metaperception, like being seen as helpful or knowledgeable, could be increased in an online incentivized referral context. It is possible that a recommender thinks others see him as more helpful or knowledgeable online because a lot more useful information and other resources could be offered here compared to offline communications.
Practical implications: We recommend managers to (i) design both online and offline RRPs that minimize metaperception concerns; (ii) target strong ties in any communication environment as metaperception concerns are low; and (iii) target weak ties online where metaperception concerns are muted.
Originality/value: Our work is the first to examine how recommenders’ psychological responses differ offline and online.
Key words: Referral reward program; customer engagement; online environment; incentives; metaperception; tie-strength.
 
Jochen Wirtz
added a research item
Purpose This paper aims to examine the psychological consequences of a customer engagement initiative through referral reward programs (RRPs) in online versus offline environments. Design/methodology/approach The authors conducted a qualitative study followed by a scenario-based experimental study. Findings The authors show that recommenders’ concern about how they are viewed by recommendation recipients (i.e. their metaperception) mediates the effects of incentives on referral likelihood in both offline and online environments. However, metaperception has a stronger effect offline where recommenders show higher impression management concerns compared to online. Furthermore, tie-strength and communication environment moderate the effect of incentives on metaperception. When referrals are made to weak-ties, incentives decrease metaperception favorability offline more than online. For strong-ties, this effect is lower, and it is similar in offline and online environments. Research limitations/implications The study focused on an online versus offline dyadic communication and did not consider the differences among social media. Furthermore, the authors did not consider how other forms of positive metaperception, like being seen as helpful or knowledgeable, could be increased in an online incentivized referral context. It is possible that a recommender thinks others see him as more helpful or knowledgeable online because a lot more useful information and other resources could be offered here compared to offline communications. Practical implications The authors recommend managers to design both online and offline RRPs that minimize metaperception concerns; target strong ties in any communication environment as metaperception concerns are low; and target weak ties online where metaperception concerns are muted. Originality/value This work is the first to examine how recommenders’ psychological responses differ offline and online.
Jochen Wirtz
added an update
Our latest paper using CRM data combined with survey data shows that metaperception (i.e., the process by which individuals determine the impressions other might form of them and their behavior) was the strongest and most significant driver of successful RRP participation, followed by attractiveness of the reward. That is, inductors recommended successfully when they believed that their incentivized referral did not look bad (or even looked good) and incentives were perceived as attractive. This finding is important as metaperception so far has only been examined in theoretical and experimental studies with intent as dependent variables. Second, latent class analyses (LCA) revealed that there were two segments of inductors of which one was opportunistic. Opportunism as a driver of referral behavior has not been shown in past research using more traditional analyses, whereas LCA uncovered it as a driver for one third of all respondents.
 
Jochen Wirtz
added a research item
Purpose Referral reward programs (RRPs) incentivize existing customers (inductors) to refer new customers (inductees). The effectiveness of RRPs is not well understood as previous studies either focused on referral intent and/or ignored inductee responses. However, an RRP is only effective if inductors recommend and inductees respond with buying the service. The purpose of this paper is to examine the drivers of existing customers’ successful referral behavior. Design/methodology/approach This study combines a bank’s customer relationship management (CRM) data which were used to identify successful inductors and non-inductors. Then, observed behavioral and customer background data from the CRM database (including successful referrals, deposits in euros, number of products held, relationship duration, income, age, and gender) were combined with survey data capturing attitudinal variables (i.e. perceived relationship quality, reward attractiveness, referral metaperception, opportunism, and involvement). This approach allowed for the simultaneous testing of all hypothesized drivers of successful referral behavior. Findings Metaperception (i.e. the process by which individuals determine the impressions other might form of them and their behavior) was the strongest and most significant driver of successful RRP participation, followed by attractiveness of the reward. That is, inductors recommended successfully when they believed that their incentivized referral did not look bad (or even looked good) and incentives were perceived as attractive. This finding is important as metaperception so far has only been examined in theoretical and experimental studies with intent as dependent variables. Second, latent class analysis (LCA) revealed that there were two segments of inductors of which one was opportunistic. Opportunism as a driver of referral behavior has not been shown in past research using more traditional analyses, whereas LCA uncovered it as a driver for one-third of all respondents. Practical implications The findings offer managers a better understanding of the key determinants of successful referral behavior with important RRP design implications that counter frequent practice (e.g. designing RRPs with high face value but then reducing its usefulness through terms and conditions). Furthermore, managers may consider segment-specific reward structures to improve the effectiveness of their RRPs. Originality/value This study is the first to examine inductor determinants of successful referral behavior and identify inductor segments.
Jochen Wirtz
added a research item
>>> Purpose: Empirical research presents conflicting findings with regards to the effectiveness of referral reward programs (RRPs) and supports two alternative and conflicting views on the effectiveness of incentivizing recommendations. They are, first, a positive effect via perceived attractiveness of the incentive, and second, a negative effect via metaperception of the recommendation. We examine these two opposing psychological mechanisms to reconcile the conflicting findings. >>> Design/methodology/approach: We conducted three experiments. Study 1 tests the base model. Studies 2 and 3 add moderators to test whether each mediating variable operates exclusively on its intended relationship. >>> Findings: Incentive size enhanced the attractiveness of an incentive, but reduced the metaperception favorability of the recommendation. These two opposing mechanisms operated in parallel, independently, and fully mediated the effects of incentive size to likelihood of making a recommendation. Thus, the net impact of incentives on recommendation behavior depended on the relative strengths of these two opposing forces. >>> Practical implications: We recommend managers to design RRPs with incentives recommenders are seen as highly useful (i.e., to increase attractiveness) but have a low face value (i.e., to reduce metaperception concerns), and to target RRPs to strong rather than weak ties. >>> Originality/value: Our work offers an integrated theoretical account of consumers' responses to incentivized recommendations and managerially-relevant guidelines for more effective RRPs.
Jochen Wirtz
added an update
This paper is now published: B. Ramaseshan, Jochen Wirtz and Dominik Georgi (2017), “The Enhanced Loyalty Drivers of Customers Acquired Through Referral Reward Programs”, Journal of Service Management, Vol. 28, No. 4, pp. 687-706. DOI 10.1108/JOSM-07-2016-0190
 
Jochen Wirtz
added a research item
Purpose: This study extends prior research on referral reward programs (RRPs) by examining if and how the mode of customer acquisition (customers acquired through RRPs versus non-RRP-acquired new customers) moderates the relationships between (i) customer satisfaction and attitudinal loyalty, (ii) perceived switching costs and attitudinal loyalty, and (iii) attitudinal loyalty and behavioral loyalty (i.e., recommendations, cross-buying and total spend). Design/methodology/approach: Set in a banking context, this study is the first in an RRP context to link survey data with actual purchase data from a bank’s CRM records. Specifically, the survey captured customers’ satisfaction, perceived switching costs and attitudinal loyalty, whereas the CRM data provided actual loyalty behaviors (cross-buying and total spend). Findings: The findings show that the effect of satisfaction on attitudinal loyalty, and the effects of attitudinal loyalty on recommendations, cross-buying, and total spend were stronger for RRP-acquired customers than for non-RRP-acquired new customers. Furthermore, perceived switching costs had a lower effect on attitudinal loyalty for RRP-acquired customers than for non-RRP-acquired new customers. Practical implications: The findings offer managers a better understanding of how customers acquired through RRPs differ from non-RRP-acquired new customers with regards to their satisfaction, perceived switching costs, and attitudinal and behavioral loyalty, thus enabling effective management of RRPs. Originality/value: This is the first empirical study that explores the differences between RRP-acquired customers and non-RRP-acquired new customers with regards to the effects of satisfaction and perceived switching costs on attitudinal loyalty, and the effect of attitudinal loyalty on behavioral loyalty.
Jochen Wirtz
added a project goal
We conduct a series of studies to explore the effectiveness of referral reward programs (RRPs) in stimulating referrals. On the one hand, RRPs are viewed as effective in motivating recommendation behavior because they provide incentives and compensate for recommenders’ time and effort. On the other hand, RRPs are seen as inhibiting recommendations because they may have a negative effect on metaperception and resultant impression management concerns. We explore these mediating effects and boundary conditions.