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

17 Pages Posted: 21 May 2018 Last revised: 19 Oct 2021

See all articles by Rachel Gershon

Rachel Gershon

University of California, Berkeley

Cynthia Cryder

Washington University in St. Louis - John M. Olin Business School

Leslie K. John

Harvard Business School

Date Written: May 9, 2018

Abstract

While selfish incentives typically outperform prosocial incentives, in the context of customer referral rewards, prosocial incentives can be more effective. Companies frequently offer “selfish” (i.e., sender-benefiting) referral incentives, offering customers financial incentives for recruiting new customers. However, companies can alternatively offer “prosocial” (i.e., recipient-benefiting) referral incentives. In two field experiments and an incentive-compatible lab experiment, recipient-benefiting referrals recruited more new customers than sender-benefiting referrals. In five additional experiments, we test a process account that invokes two countervailing forces: reputational benefits and action costs. First, at the referral stage, senders anticipate reputational benefits for referring when recipients receive a reward. As a result, recipient-benefiting referrals are just as effective as sender-benefiting referrals at this stage. Second, at the uptake stage, recipient-benefiting referrals are more effective than sender-benefiting referrals: recipient-benefiting referrals directly incentivize uptake (i.e., signing up for a new product or service), which is a high-effort action in referral programs. The preponderance of sender-benefiting (vs. recipient-benefiting) referral offers in the marketplace suggests these effects are unanticipated by marketers who design incentive schemes.

Keywords: incentives, prosocial behavior, judgment and decision-making, referral rewards

Suggested Citation

Gershon, Rachel and Cryder, Cynthia and John, Leslie K., Why Prosocial Referral Incentives Work: The Interplay of Reputational Benefits and Action Costs (May 9, 2018). Available at SSRN: https://ssrn.com/abstract=3176019 or http://dx.doi.org/10.2139/ssrn.3176019

Rachel Gershon (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Cynthia Cryder

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Leslie K. John

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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