Referral Reward Size and New Customer Profitability

For your marketing

Possible founder application

Evaluate referrals on net customer profitability, not just the number of signups. Test reward levels with margin, retention and reward cost included in the outcome.

Reported result

What the study found

Larger referral rewards acquired more new customers but considerably decreased the profitability of referred customers in both studies.

Research question

What the authors investigated

How does referral reward size affect the number and profitability of newly referred customers?

Design

A field experiment involving bank customers is complemented by archival data from a telecommunications provider to assess generalizability.

Sample and setting

More than 160,000 bank customers in the experiment and approximately 270,000 telecommunications customers in the archival analysis.

Scope and transfer

Limitations to keep in view

The evidence comes from banking and telecommunications programs; reward economics and customer behavior may differ for software. The abstract does not provide the exact optimal reward size for other programs.

Research sources

INFORMS publisher metadata and abstract, corroborated by the journal preview; both sample contexts and central tradeoff are reported in the source.