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  • February 2020
  • Article
  • Journal of Marketing Research (JMR)

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

By: Rachel Gershon, Cynthia Cryder and Leslie K. John
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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; Motivation and Incentives; Consumer Behavior; Decision Making

Citation

Gershon, Rachel, Cynthia Cryder, and Leslie K. John. "Why Prosocial Referral Incentives Work: The Interplay of Reputational Benefits and Action Costs." Journal of Marketing Research (JMR) 57, no. 1 (February 2020): 156–172.
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About The Author

Leslie K. John

Negotiation, Organizations & Markets
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  • Measuring the Prevalence of Sensitive Behaviors By: Tamar Krishnamurti and Leslie John
  • The Agreeable Revealer: Personality Correlates of Self-Disclosure By: Elinora Pentcheva and Leslie John
  • Should I Stay or Should I Disclose? How Omission Bias Guides Our Disclosure Decisions By: Elinora Pentcheva and Leslie John
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