When Giving Money Does Not Work: The Differential Effects of Monetary Versus In-Kind Rewards in Referral Reward Programs

Abstract

Customer referral reward programs have recently gained popularity as beneficial customer acquisition tools. This research aims to explore the impact of reward type, specifically with regard to the differential effects of monetary vs. in-kind rewards, on referral success. We find that although consumers prefer monetary rewards to in-kind rewards due to their greater economic value, the higher social cost associated with money offsets this benefit and even renders money an inferior incentive when the recommendation is not well justified. Through four experiments, we demonstrate that monetary rewards (vs. in-kind rewards) lead to less referral generation and acceptance, especially when the recommended brands are weak (Studies 1 and 4), and perceived social cost mediates the interactive effect of reward type and brand strength (Studies 1 and 3). Moreover, by increasing the economic benefit or decreasing the social cost associated with monetary rewards, we restore their roles as effective incentives. Compared with in-kind rewards, monetary rewards perform equally well when the reward becomes sufficiently large (Study 2), and they perform even better when both the recommender and the receiver are rewarded (Study 3). This research extends the literature on the psychological consequences of money and provides novel insights into the customer referral process.

Keywords: Referral reward programs, Monetary rewards, In-kind reward, Customer acquisition