Reward for refering a friend: NOT always generating WOM in promotional emails

The holiday season just ended, and my inbox is piled up with various promotional emails. A consumer behavior student at Columbia myself, I am extremely interested in the hidden motives behind those beautiful pictures and persuasive words. In those emails, many desperate business owners tried hard to use my credibility to create 'word of month' with baits such as cologne sample, gift card as well as coupons, providing bonus for referring the product to a friend.

Snapshot from a Jo Malone promotional email

But do people actually refer and forward those emails to friends? Does the orange blossom body creme sample actually seduce email recipients to spread the words on how they love the Jo Malone cologne?

The answer is: sometimes yes, and more often, No.

Consumer behavior researchers had traditionally name the phenomenon as 'Referral Reward' programs.Those programs are designed to encourage existing customers to recommend product with stimuli such as vouchers, gifts, free minutes or miles. CPG, hospitality as well as credit card are some of the most common industries to apply such practice.

What determines the possibility of referral?

A wide range of studies covered factors such as overall satisfaction with previous purchase (Chandon et al., 2000), strength of the brand (Ryu and Feick, 2007), sensitivity of product (Kornish and Li, 2010), and price of the product (Xiao et al., 2011). Some of the results are more intuitional. For example, tampon, an extremely sensitive and personal product, is not likely to be recommended via emails regardless of the promised benefits provided.

Some more interesting papers discussed the category of rewards. Shi and Wojincki accalimed in their 2007 paper that category of rewards (tangible versus intangible), has a decisive impact over likelihood of referral. It is stated that to promote WOM (word of month) of tangible products, it is better to use tangible rewards (use body creme to promote cologne), whereas for intangible products such as airline tickets, intangible rewards such as miles work better.

Credit card company use cashback bonus,
an intangible reward to motivate referral

What makes the right product to use referral reward?

The below statement are more of my own research than some established consumer theory. Based on studies over hedonic consumption, I believe that the differentiation of hedonic versus utilitarian products could be extremely important when voting for or against referral reward program.

Scholars such as Hischman and Holbrook (the later a well known Columbia faculty) started a heated discussion on hedonic consumption in the early 80's, and Dhar and Weterbroch further developed the theory. It is first hypothesized then proved that the product attribute would influence the overall product choice, and consumers make decisions based on different concerns. Bring such insight into the study of referral reward program, congruency framework is considered to be one of the major discovery, summarized by Chandon in his 2000 publication. An easy example - to promote toothpaste, better reward consumers with toothbrush rather than some random product which does not fit into the congruency framework.

Three simple rules to follow:

1. Reward referral of cologne, not detergent. 

Rewards for purchasng hedonic products, such as cologne, vocation home and candle; generate more referral than for utilitarian products, such as detergent, airport hotel and cigar lighter.

2. Use egg to reward referral of chicken, not milk.

To generate more WOM, use hedonic product to reward referral of hedonic products, and use utilitarian rewards for utilitarian purchases.

3. Talk about the beautiful view, not the convenient location.

A product with both hedonic values and utilitarian values, when emphasizing hedonic values, would generate more referral with rewards. When selling an apartment and trying to make people recommend it to friends, try to focus on the beautiful view rather than how close it is to the nearest subway station.