EXPRESS: Referral Contagion: Downstream Benefits of Customer Referrals

Abstract

Companies often invest in referral reward programs to incentivize their current customers to spread word-of-mouth. Previous work has documented that referred customers tend to be more valuable than non-referred customers through their purchases or engagement with the company. We propose a previously overlooked benefit of encouraging referrals – referred customers are also more valuable because they make more referrals. Using a large-scale field dataset, we show that referred customers make 31-57% more referrals than non-referred customers conditional on purchase activities. Using preregistered lab experiments, we replicate the main effect and propose one underlying mechanism: referred customers perceive referring to be more socially appropriate than non-referred customers. In a field experiment, we build on previous work on norm salience and show that reminding referred customers that they joined through a referral further boosts their referral likelihood by 21%. These results advance our understanding of the social motives that contribute to referral decisions and illustrate that promoting referrals is substantially more valuable than previously estimated.