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On the Role of Fairness and Social Distance in Designing Effective Social Referral Systems

45 Pages Posted: 31 Oct 2016 Last revised: 15 Nov 2016

Yili Hong

Arizona State University (ASU) - W.P. Carey School of Business

Paul A. Pavlou

Temple University - Department of Management Information Systems; Temple University - Department of Strategic Management

Kanliang Wang

School of Management, Xi'an Jiaotong University

Nan Shi

School of Management, Xi'an Jiaotong University

Date Written: October 30, 2016

Abstract

Online referral systems help firms attract new customers and expand their customer base by leveraging the social relationships of existing customers. We integrate ultimatum game theory, which focuses on fairness, with motivation theories to investigate the effects of social distance and monetary incentives on the performance of three competing designs for online referral systems: rewarding only or primarily the proposer, rewarding only or primarily the responder, or dividing the reward equally or fairly between the proposer and responder. A set of controlled laboratory and randomized field experiments were conducted to test how the fairness of the split of the reward (equal/fair versus unequal/unfair split of the referral bonus) and social distance (small versus large) between the proposer and the responder jointly affect the performance of online referral systems (the proposer sending an offer and the responder accepting the offer). For a large social distance (acquaintances or weak tie relationships), equally splitting the referral bonus results in the best performance. However, for a small social distance (friends or strong tie relationships), an equal split of the referral reward does not improve referral performance, which suggests that under a small social distance, monetary incentives may not work effectively. Face validity and external validity (generalizability) are ensured using two distinct measures of social distance across several contexts. Through the analysis of the interaction effects of fairness and social distance, our research offers theoretical and practical implications for social commerce by showing that the effectiveness of fairness on the success of online social referrals largely depends on social distance.

Suggested Citation

Hong, Yili and Pavlou, Paul A. and Wang, Kanliang and Shi, Nan, On the Role of Fairness and Social Distance in Designing Effective Social Referral Systems (October 30, 2016). MIS Quarterly, Forthcoming; Fox School of Business Research Paper No. 16-038. Available at SSRN: https://ssrn.com/abstract=2860471

Yili Hong (Contact Author)

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://my.wpcarey.asu.edu/directory/people/profile.cfm?person=2255148

Paul A. Pavlou

Temple University - Department of Management Information Systems ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Kanliang Wang

School of Management, Xi'an Jiaotong University ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Nan Shi

School of Management, Xi'an Jiaotong University ( email )

No.28 Xianning West Rd.
Xi'an, Shaanxi 710049
China

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