Monthly Archives: April 2014

Refer-a-friend programs

Word-of-mouth marketing is normally viewed as something that should arise out of person’s intrinsic motivation to spread the message rather than explicit rewards for spreading it. An exception to this is refer-a-friend programs. The internet made the process of referring extremely easy, making refer-a-friend programs an attractive tool for marketers.

In the tradition form, a refer-a-friend program would offer a reward to the referrer for each successful referral. In the last few years, many refer-a-friend programs started offering equal compensation to the referrer and the invitee. In fact, googling “recommend a friend” one may struggle to find a program that does not compensate the invitee. Successful examples of symmetric refer-a-friend programs include online storage service Dropbox offering 500 extra megabytes of free space and a taxi company Uber offering £10 of credit. There is an element of gamification that intensifies the incentives: people brag about how many free taxi rides they got.

Compensating the invitee equally with the referrer ameliorates the concern that either party will feel the referrer is taking advantage of his friends in the hopes of getting referral rewards. Another criticism of refer-a-friend programs is that the referrer might feel he is selling information of his friends. However, social networks help avoid this problem. Instead of entering emails of friends, one might post a message with the referral link on Facebook, Twitter, blog, etc. This is also much easier to do (just click “share on facebook”) and is likely to have a wider reach.

Symmetric refer-a-friend programs have become popular enough for a business to appear that matches a prospective new customer with a referrer. Not exactly what designers of refer-a-friend programs had in mind, but they have little reason to complain.

Why stop at compensating the referrer and the invitee equally? Pushing it all the way towards altruism, means only the invitee gets compensated. Will this work? We are undertaking a natural field experiment to find out which refer-a-friend version works best in which context. And we are looking to partner up with a company that wants to learn more about its customer referral behavior. If you are one of them, get in touch!