09-10: Severin Friedrich Bischof
Chair: Tuck Siong Chung
Referral Rewards Programs: A Longitudinal Comparison of Customer Generations
Many companies incentivize existing customers to recruit new ones by offering signup bonuses to both the referring and the referred customer. These referral programs, however, carry the risk of motivating opportunistic or even fraudulent behavior. Customers can play this system by opening alias or even fake accounts with which to earn referral bonuses while not contributing to the company’s customer base (Fisk et al., 2010).
Research has discovered the relevance of opportunistic consumers and unethical customer behavior (Kum & Wirtz, 2003; Wirtz, 2011; Wirtz & Kum, 2004; Wirtz & McColl-Kennedy, 2010). Further behavioral research in the realm of referral rewards programs focused on identifying successful and beneficial referral behavior (Wirtz et al., 2018) as well as psychological drivers in referral reward programs (Orsingher & Wirtz, 2018).
We observe a research gap regarding the longitudinal analysis of referral behavior across multiple generations of customers. We pose the question whether first- or later-generation customers differ in terms of their interaction with a firm and other behavioral domains? We therefore ask whether a referrer’s referee is also automatically a good referrer or not, yielding further insights into the subject of referral reward programs.
We attained longitudinal data of a peer-to-peer referral platform with 65’535 members from 11/2008 to 11/2018, where members can earn money for referring others to companies or services.The firm receives a commission from firms when users successfully refer others to sign up for Specialty Deals (SYD). These SYD stem from a variety of industries and product categories, ranging from banking and financial products to magazines and household services. 27% of all customers have purchased SYD over the past ten years. 3.5% of the platform members have successfully referred others for an SYD. The incentives for the referring customer ranged from USD 5 to USD 10. Any user activity, however, such as posting interesting deals, commenting or liking posts, as well as daily logins, is rewarded with Community Engagement Points (CEP). These CEP are an indicator of community activity and can be exchanged for vouchers and coupons.
Our ANOVA observes significant differences in first- and later-generation customers regarding their profitability to the peer-to-peer referral platform. Later-generation customers purchase significantly more SYD (F(1, 65534)=204.10, MFirst=.72, MLater=1.36, p<.001), thereby generate significantly more commissions for the platform (F(1, 65534)=9.54, MFirst=18.12, MLater=22.01, p<.01), and enlist significantly more customers (F(1, 65534)=467.03, MFirst=.04 MLater=.27, p<.001). They are, however, also twice as likely to exhibit fraudulent behaviour through self-referrals via alias or fake accounts (F(1, 65534)=39.07, MFirst=.01 MLater=.02, p<.001). Both customer generations do not significantly differ regarding CEP.
With our research, we would like to contribute to an understanding of whether, how, and which behavior of referring customers transfers to referred customers.