Referral Programs for Platform Growth: Evidence from a Randomized Field Experiment

48 Pages Posted: 15 Aug 2018

See all articles by Rodrigo Belo

Rodrigo Belo

Rotterdam School of Management, Erasmus University

Ting Li

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Date Written: August 1, 2018

Abstract

Some platforms provide value to their users by facilitating interactions among close connections (e.g. Facebook); others provide value by facilitating interactions among participants that are not directly connected to each other (e.g. online dating sites). For the latter, organic growth is harder to achieve because, even though users benefit from having access to a larger market, they have no incentives in inviting their close connections to the platform, which can lead to an under-supply of new users. In some cases, platforms correct this distortion by using referral programs and providing incentives for users to invite their friends and acquaintances in exchange for getting a free or discounted access to premium features of the platform. In this paper, we use data from a randomized field experiment in an exclusive online dating site to study the effect of member-get-member referral programs on platform growth. Our findings suggest that referral programs can work as a double-edged sword. We find that stricter policies, i.e., policies that require users to invite more friends in order to use the service for free, are more effective not only at contributing for platform growth in terms of the total number of users, but also at fostering paid memberships. However, these benefits appear to come at the cost of reduced level of user engagement on the platform, potentially decreasing its value for all users. We consider two mechanisms that may be at play: delayed access to premium features and social enrichment. We discuss the contributions for literature and implications for business.

Keywords: referral program, field experiment, platform strategy

Suggested Citation

Belo, Rodrigo and Li, Ting, Referral Programs for Platform Growth: Evidence from a Randomized Field Experiment (August 1, 2018). Available at SSRN: https://ssrn.com/abstract=3224330 or http://dx.doi.org/10.2139/ssrn.3224330

Rodrigo Belo (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

RSM Erasmus University
PO Box 1738
Rotterdam, 3062 PA
Netherlands

HOME PAGE: http://www.rsm.nl/people/rodrigo-belo/

Ting Li

Rotterdam School of Management, Erasmus University ( email )

Burgemeester Oudlaan 50
3062PA Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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