Purpose - The purpose of this work is to test several incentive strategies for attaining new customers via electronic referrals, or eReferrals. We examine the roles of both the magnitude of the incentive offered to the sender and the magnitude of the incentive offered to the receiver. We also examine the effect of equity versus inequity of financial incentives for the two parties.
Design/methodology/approach - This study consisted of a large-scale field experiment conducted with 45,000 members of an online mall. The participants were divided into 8 conditions in an incomplete two-factor 4 x 4 between-subjects design, where not every combination of incentive magnitudes was utilized and the magnitude of the incentive offered the receiver and sender varied in size such that sometimes rewards were equal, sometimes receivers of the eReferral had larger rewards, and sometimes senders of the eReferrals received more. Dependent measures included the number of eReferrals sent, the number of those eReferrals that lead to a new customer registering, and the number of new registrants that converted to buyers from completing a purchase.
Findings - The results demonstrate that both the magnitude of financial incentives, and the relative magnitude of the incentives for the senders and receivers both influence eReferral rates. Specifically, we found that offering higher incentives to senders and receivers led to an increase in referral invitations sent, new member sign-ups and new buyers. We also found that the disparity between incentives offered to senders and receivers affected eReferral rates and that inequity should favor the sender to enhance results.
Originality/value - This paper offers marketers valuable insights as to how different combinations of financial incentives to receivers and senders can affect eReferral rates. Our findings suggest that potential referrers respond not only to referral incentives but also to the disparity between their incentives and the receivers’ incentives.