The Reputational Benefits and Material Burdens of Prosocial Referral Incentives
77 Pages Posted: 21 May 2018 Last revised: 21 Sep 2018
Date Written: May 9, 2018
Selfish incentives typically outperform prosocial incentives. However, this research identifies a context where prosocial incentives are more effective: customer referral programs. Companies frequently offer “selfish” incentives to customers who refer, incentivizing those customers directly for recruiting friends. However, companies can alternatively offer “prosocial” incentives that reward the referred friend instead. In multiple field and incentive-compatible experiments, this research finds that prosocial referrals, relative to selfish referrals, result in more new customers. This pattern occurs for two reasons. First, at the referral stage, customers expect to receive reputational benefits when making prosocial referrals within their social network, thereby boosting performance of prosocial referrals. Second, at the uptake stage, the burden of signing up is high, and therefore referral recipients prefer to receive an incentive themselves. Due to the combination of reputational benefits at the referral stage and material burdens at the uptake stage, prosocial referrals yield more new customers overall. The high frequency of selfish referral offers in the marketplace suggests these forces play out in ways that are unanticipated by marketers who design incentive schemes.
Keywords: incentives, prosocial behavior, judgment and decision-making, referral rewards
Suggested Citation: Suggested Citation