Altruism Pays! Towards Optimal Call-to-Action for Online Referral: A Randomized Field Experiment

Despite the growing popularity of online referral programs, little is known about the theoretical underpinnings that drive the key actions associated with successful referrals. The underlying premise of referral marketing is to target existing, ostensibly delighted, customers to spread awareness and influence adoption of the focal product amongst their friends who are also likely to benefit from adopting the product. We study how firms can optimally design a call-to-action to encourage existing customers to make online referrals, given a fixed incentive scheme. We posit, and causally demonstrate, via a large scale randomized field experiment involving 100,000 customers, that altruism plays a key role in activating the ideal form of product advocacy from those initiating referrals. When contrasted with egoistic and equitable framing of calls-to-action, the altruistic framing yields a significantly higher propensity to initiate a referral as well as a significantly higher number of successful referrals. The effects are economically significant - altruistic framing yields 99% and 30% higher total number of referrals than egoistic framing and equitable framing respectively, the latter two being statistically indistinguishable from the control group. Further, altruistic framing yields 425% and 135% levels of recipients‟ purchases compared to egoistic framing and equitable framing respectively. The yields associated with egoistic and equitable framing are again statistically indistinguishable from the control group. Additional mechanism level analysis that interacts the treatments with customer characteristics such as repeat purchase, net promoter score, and time since last purchase, and a post-experiment survey, confirm our priors about the importance of an altruistic element in generating a higher quality of advocacy and reducing referral frictions. The altruistic group, positively interacts with customer affinity variables such as repeat purchases indicator, net promoter score and positively interacts with the recency of purchase. Further, subjects in the altruistic group report lower levels of guilt associated with sending a referral and are more readily able to identify friends and family who might benefit from the product. Together, this results in higher quality of advocacy which explains our robust (to multiple econometric specifications) findings on the benefits of altruistic call-to-action for online referrals.