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.

Social Networks and Word of Mouth (WoM) – a perfect marriage

Some history

A network is defined as a set of nodes and links. In the late 18th century Euler invented the field of network theory. For the following century and a half it remained in the realm of the abstract in mathematics departments. In the second half of the 20th century social scientist started studying social connectivity. Milgram’s famous six-degrees-of-separation experiment revealed how highly interconnected humans are. You can reach anyone else in the world following on average six links. Nevertheless, this average hides the fact that some people are “social hubs” and can link to anyone else in as few as 3 links and others are highly disconnected and need more than 100 links to reach anyone far away from their cluster. In the 90’s scientists started looking at digital networks. First they turned into the world wide web which is a highly tractable network where websites are the nodes and their links are the network’s links (a fact that Google uses in its search algorithm). More recently scientist turned their attention to digital social networks where people are the nodes and the friend connections are the links, Facebook being the largest social network today. In parallel, scientists have also studied the evolution of epidemics and spread of contagious diseases.

The connection to WoM

All this lines of research coupled with the internet revolution give rise to the opportunity to start studying Word of Mouth marketing in social networks. Network theory plus epidemics theory applied to WoM can provide huge insights on how messages (promotions, brands, product reviews, etc) spread in a social network (in the same way a contagious disease spreads). The first thing researches need is a map of the network (Facebook has it). Second, they need a way to track messages to analyze the “contagion effect”. Finally, researchers should follow the “touched” users to understand how they act on the message (e.g. do they talk about the product?, do they visit the brand’s website?, do they buy the product?) With this information marketers could leverage WoM much more effectively. In fact, current WoM services are based on artificial buzz generation (e.g. hired agents dropping messages) and sign-in communities that participate in WoM initiatives (e.g. SheSpeaks). The problem with the former is that the buzz is artificial and does not resemble the organic spread of messages. The problem with the latter is that it more a pool of people willing to participate in marketing activities and in that sense are more like a digital focus group instead of a real incubator of worth of mouth.

The opportunity

Given that the tools exist (network theory, social interaction theory, epidemics theory, and complex systems theory) and the current services for WoM do not capitalize on the full potential, there is an opportunity to study WoM on social networks like facebook and start offering a better service. For example, if you know which users are the “social hubs” for different products/services, so companies can know where to drop the message and what message to drop where.