A STUDY ON REFFERAL REWARD PROGRAMS: DRIVERS OF USAGE AND EFFECTIVENESS

Abstract

An increasing number of service firms are using referral reward programs (RRPs) to harness the power of word-of-mouth (WOM) recommendations. In spite of the ubiquitous usage of such programs, no past research has examined firms’ usage of RRPs. Furthermore, consumer responses to these RRPs in the marketplace have never been studied. In this thesis, two studies are conducted to examine firms’ behavior on the usage of RRPs and to evaluate the effectiveness of RRPs according to the usage drivers. Study 1 involves data collection on characteristics of firms, services and the usage of RRP for key services. Study 2 comprises a consumer survey to collect customers’ responses to awareness and usage levels of RRPs implemented by firms. Findings from Study 1 show that global firms, brands with lower brand equity, services with lower price points, contractual services and services with higher customer involvement are more likely to use RRPs. These behavioral findings suggest that firms possess greater motivations to implement RRPs under such circumstances. However, the success of an RRP ultimately depends on consumers’ responses towards and acceptance of the RRP. In view of this, findings from Study 2 show that customers are more likely to be aware of RRPs from firms with dominant market share, firms with lower brand equity, B2C services and services with lower price points. Though dissimilarities exist in consumers’ awareness of RRPs for different types of services, it was found that once awareness of RRPs is established, the only significant factor that drives customers to use the RRPs for recommendation purposes is their satisfaction with the RRP, amidst various other characteristics of firms and services. This suggests that the design of the RRP, which invariably leads to satisfaction, is key in motivating recommendation behavior by customers once they are aware of the RRP. Thus marketers should work towards designing an attractive incentive program. As part of an effective RRP, the incentive given should be attractive as such attractiveness was found to significantly increase RRP recommendation behavior, with this relationship fully mediated by satisfaction with the RRP. These findings unleash a wide spectrum of possibilities for future research and border on business implications that marketers should be aware of and tap on to ensure competitiveness in the marketplace.