Can Companies Initiate Positive Word of Mouth? A Field Experiment Examining the Effects of Incentive Magnitude and Equity, and eReferral Mechanisms

Abstract

This research examines strategies for generating electronic referrals (eReferrals). Acquiring customers through Word of Mouth (WOM) appeals to companies because of the perceived transmitter credibility as well as low customer acquisition cost. Company-initiated eReferrals, a form of online WOM, offer marketers a way to influence customers through encouraging WOM. This research utilized a field experiment focusing on company-initiated eReferrals. Several independent variables were manipulated including incentive magnitudes for the referring party and the party being referred. The dependent variables were the number of referrals made and the number of referrals that led to sales. As expected, larger incentives increased referral rates. In addition, we found that offering the same magnitude incentive to both the referrer and referee led to a greater number of referrals. However when offer incentive magnitudes were not equitable, those with higher offers for the referrer performed better than those with a higher offer for the referee.