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.

Location-Based Mobile Marketing is Where It's at for Consumers

The ability for mobile devices to track and report a person’s location in real time with a reliable degree of accuracy has come into its own. The tendency of consumers to use that feature is increasing in popularity, as well.

“74% of adult smartphone owners ages 18 and older say they use their phone to get directions or other information based on their current location,” according to the Pew Institute

Use of a geolocation feature is more than a nice-to-have option on a smartphone or tablet — its use has become a routine part of a consumer’s daily life and representing a significant market share of the U.S. buying population as U.S. smartphone penetration at 74% and rising.

Geo-Location Tied To Consumer Behavior

What’s especially interesting to marketers is that, aside from seeking directions to specific place, geolocation-enabled activities are most often directly related to consumer-related behavior. Whether it’s looking for a good place to grab a drink or researching a specific product in a retail store, customers have come to rely on their mobile devices as vital sources of information upon which they make an increasing number of decisions about how to spend their time and money.

Trend reports also show an interesting tipping point, consumers are now more likely to “check out” information that’s related to their current location rather than share or “check in” with their current status.

Checking Out Info, Rather Than Checking In

 There is a decrease in activity for check-in services such as Foursquare and Facebook and an increase in consumers’ preference for marketers to nudge or push relevant, personalized content to their devices in real time. Alert-based ads and product information fit this appetite for content well and provide genuine value to consumers.

In fact, a whopping 72% of consumers say they will respond to calls-to-action in marketing messages they receive within sight of the retailer. With only 23% of retail marketers using some type of geotargeted data in their mobile marketing, there is a huge opportunity to give customers what they want when they want it.

Data-driven geolocation notifications represent a major evolution point from in-store displays that encouraged users to text to opt-in to sweeps or promotions or email promos delivered based on a promotional calendar.

Incentives With Alerts

Some of the most popular mobile geolocation-centered campaigns involve couponing, but not all. Special gifts, alerts to flash sales and early access are also popular incentives that tend to have the pleasant side effect of driving customer loyalty. Many of the most effective incentive-based campaign include some type of alert.

For those marketers that are ahead of the location-based marketing curve (as many fast food marketers are), there’s a new, more hard-hitting strategy known as geo-conquesting. This is a form of geo-fencing where marketers target competitors’ locations with their own aggressive offers. This is another reason for marketers to plan and implement a solid location-based mobile marketing strategy — if they don’t, they risk losing market share to mobile-savvy competitors.

Source: www.marketingland.com by Lynn Baus