I Will Get a Reward,Too: When Disclosing the Referrer Reward Increases Referring

Abstract

Incentivized customer referral programs (e.g., “Refer a friend, reward yourself!”) are prevalent, yet they usually have low referring rates. One reason, the authors suggest, is that existing customers (referrers) view incentivized referring as an exchange activity that feels incompatible with their communal relationship with friends (referees), resulting in a psychological barrier (i.e., negative feelings such as discomfort, conflict, guilt, etc.). In seven studies (five preregistered, two in the field; N = 2,060) and one preregistered supplemental study (N = 176), the authors propose and find that disclosing the referrer reward in the invitation message—a not yet widely adopted method—can promote referring by making the referring action seem more compatible with communal norms and reducing the experienced psychological barrier. They also document the potential of disclosing the referrer reward on increasing acceptance, conversion, and sales. The authors further identify three theoretically and practically relevant boundary conditions: (1) the relative reward amount (whether the referrer reward is greater than, equal to, or less than the referee reward), (2) the stated source of the referrer reward (the company or the referee's spending), and (3) the framing of the referral opportunity (whether it is already framed as a communal activity). The authors conclude by discussing the theoretical and practical implications.

Keywords

customer referral disclosure communal relationship social relationship marketing

Customer referral programs, or “member-get-member” programs (e.g., “Refer a friend, reward yourself!”), are prevalent. Companies across a wide range of industries—banks (e.g., Discover, Chase), fashion and beauty products (e.g., Stitch Fix, Estée Lauder), hotels (e.g., Marriott), ridesharing (e.g., Lyft), telecommunication (e.g., Cricket), and so on—run referral programs to acquire new customers. Referral programs often provide incentives to both the referrer (i.e., existing customer) and the referee (i.e., the existing customer's friend), contingent on the referee's acceptance of the referral offer (e.g., placing an order, subscribing to the service). For example, as of December 2021, Discover gave both the referrer and referee a $100 statement credit if the referee applied and got approved for a credit card, and Marriott offered 2,000 bonus points to the referrer and referee after the referee's first stay.

To facilitate the referral process, many companies generate automatic invitation messages that referrers can easily share with their friends via email, text, or social media. Interestingly, although most referral programs reward both the referrer and the referee, most invitation messages do not mention the referrer reward. For example, Discover approached existing customers by saying, “Refer a friend and get a $100 statement credit when they get a card. And your friend can get $100 too,” but it did not tell referees about the referrer reward in the invitation message, which read, “Become a Discover Cardmember and get a $100 statement credit.” In a survey of 45 referral programs from nine industries (e.g., banking and payment systems, ridesharing, telecommunication, travel; see Web Appendix A), only 7 programs incorporated information about the referrer reward in the invitation message (e.g., “It's a beautiful win–win” [Shiseido]) as of December 2021. Inconsistencies in reward disclosure exist not only across companies but also within companies. For example, Airbnb included the referrer reward in its invitation message via the email channel (“I’ll get $20 in travel credit, too”) but not the text channel.

These inconsistencies suggest that marketing practitioners are largely unaware of the impact of disclosing the referrer reward in the invitation message. We explore this question, with a focus on its impact on referring. Seven studies (five preregistered, two in the field; N = 2,060) and one preregistered supplemental study (N = 176) found that disclosure increases referring. In the field setting, disclosing the referrer reward also increased conversion rate and sales. In the lab setting, disclosing the referrer reward also increased referee's acceptance.

Why is disclosure beneficial? We begin by highlighting a psychological barrier that makes existing customers reluctant to refer. Specifically, initiating an activity with a friend activates communal norms, whereas an incentivized referral is exchange in nature, resulting in an incompatibility between relationship type (i.e., communal) and activity type (i.e., exchange). This perceived incompatibility thus imposes a psychological barrier (i.e., negative feelings such as discomfort, conflict, guilt, etc.) (Aggarwal 2004; Grayson 2007; McGraw, Tetlock, and Kristel 2003; Tuk et al. 2009; Verlegh et al. 2013; Wirtz et al. 2013) on prospective referrers, deterring them from referring. We suggest that disclosing the referrer reward in the invitation message can resolve the incompatibility, and thus alleviate the psychological barrier, primarily for two reasons: (1) disclosure conveys the referrer's honesty, which is expected from a communal partner, and (2) disclosure highlights the social and collaborative aspect of the referral opportunity, which is desirable in communal interactions. We further identify three boundary conditions of practical importance and theoretical relevance: (1) the relative reward amount (i.e., whether the referrer reward is greater than, equal to, or less than the referee reward), (2) the stated source of the referrer reward (i.e., from the company or the referee's spending), and (3) whether the referral opportunity is already framed as a communal activity. We also analyze the potential impact of disclosing the referrer reward on referees’ acceptance in both lab and field settings, as well as the impact on conversion rate and sales in the field setting.

Our work adds to the emerging research on referral programs, in particular the research on improving the effectiveness of referral programs (Berman 2016; Schmitt, Skiera, and Van den Bulte 2011; Van den Bulte et al. 2018; Wolters, Schulze, and Gedenk 2020). Whereas previous research examines how the presence, amount, and type of referral rewards influence referring (Biyalogorsky, Gerstner, and Libai 2001; Gershon, Cryder, and John 2020; Hinz et al. 2011; Jin and Huang 2014; Kornish and Li 2010; Ryu and Feick 2007; Wirtz and Chew 2002), we explore the influence of the communication of referral rewards.

Our work also contributes to the research on information disclosure. Whereas the effect of disclosure is studied traditionally in the context of interpersonal communication (Aron et al. 1997; Collins and Miller 1994; Moon 2003; Sedikides et al. 2002; Willems, Finkenauer, and Kerkhof 2020), we add to a growing stream of research on the impact of disclosure in business communications (e.g., Abendroth and Heyman 2013; John, Barasz, and Norton 2016; Kim et al. 2019; Loewenstein, Cain, and Sah 2011; Mohan, Buell, and John 2020; Sah, Fagerlin, and Ubel 2016; Trifts and Häubl 2003; Tuk et al. 2009; Verlegh et al. 2013). Moreover, we adopt a unique focus on business communications between communal partners (i.e., consumer to consumer), complementing existing work that studies business communications between exchange partners (e.g., salesperson to consumer, financial advisor to advisee).

Theoretical Framework

Referral programs are popular because they can be a cost-effective way to acquire new customers for multiple reasons. First, they are cheaper than traditional marketing communications (e.g., advertisement, celebrity endorsement). Second, recommendations from friends lead to greater compliance than those from salespeople because friends are seen as more trustworthy (Tuk et al. 2009). Third, because friends tend to have similar preferences, referral programs target potential customers with greater lifetime value (Berman 2016; Schmitt, Skiera, and Van den Bulte 2011; Van den Bulte et al. 2018).

Despite these advantages, most referral programs have low participation rates because most existing customers do not refer (e.g., Study 1 in Gershon, Cryder, and John [2020]). Even among highly satisfied customers, the average referring rate is only about 29%, which yields an even lower conversion rate (i.e., the referring rate multiplied by the acceptance rate) of 2%–3% (Decker 2018; Veerasamy 2022). Similarly, according to the State of Business Customer Referral Programs report (Amplifinity 2017), only 36% of customers who self-enrolled in a referral program made a referral, resulting in a conversion rate of only 4%.

Thus, a growing stream of research has started exploring factors that increase referring. In general, the referring rate increases when the company offers referral rewards, whether the reward recipient is the referrer, referee, or both (Gershon, Cryder, and John 2020; Hinz et al. 2011; Ryu and Feick 2007; Wirtz and Chew 2002), and greater rewards lead to a higher referring rate (Biyalogorsky, Gerstner, and Libai 2001; Kornish and Li 2010; Wirtz and Chew 2002). The type of reward also matters: rewards are more effective if they are congruent with the brand (e.g., for a telecommunication company, mobile data would be more effective than a music streaming service) (Stumpf and Baum 2016), and in-kind rewards (e.g., gifts, free products) sometimes work better than monetary rewards (e.g., cash, coupons) (Jin and Huang 2014).

Whereas previous research examines how the presence, amount, and type of referral rewards influence referring, we focus on the communication of referral rewards; specifically, we focus on whether the referrer reward is disclosed to referees, given the aforementioned inconsistencies in marketing practice and the profound impact of information disclosure on behaviors documented in academic research (Carl 2008; Kim et al. 2019; Loewenstein, Cain, and Sah 2011; Mohan, Buell, and John 2020; Sah, Malaviya, and Thompson 2018; Willems, Finkenauer, and Kerkhof 2020). We start by identifying a psychological barrier that deters referring.

A Psychological Barrier That Deters Referring

Why are customers reluctant to refer? Beyond common barriers, such as laziness and low reward value, we suggest that the incompatibility between the nature of incentivized referring (an exchange activity) and the nature of the behavioral norms activated by friendships (communal norms) (Grayson 2007; Price and Arnould 1999) matters.

We draw on research on relationship type, which categorizes interpersonal relationships into two categories: (1) communal (also called communal sharing) and (2) exchange (also called market pricing, commercial, or transactional) (Clark and Mills 1979, 1993, 2011; Fiske 1991, 1992, 2004; Fiske and Haslam 2005; Gasiorowska and Zaleskiewicz 2021; Zaleskiewicz, Gasiorowska, and Vohs 2017). Communal relationships are often exemplified in friendships and are characterized as giving benefits out of genuine care for the recipients’ welfare without expecting anything in return. Exchange relationships are often exemplified in business relationships and are characterized as giving benefits with the goal of receiving comparable repayment. Thus, one critical difference between communal and exchange relationships is reward contingency; that is, whether one expects to receive benefits by offering benefits to the relationship partner (Clark et al. 1987; Clark and Aragón 2013; Fiske, Seibt, and Schubert 2019).

In the context of recommending products, communal norms expect existing customers to assess whether the product fits a specific friend's preferences or needs. However, the logic of incentivized referrals is to recruit existing customers into the sales force and reward them contingent on conversion (e.g., their friend's purchase). This incompatibility can lead prospective referrers to experience negative feelings about profiting from their friends; indeed, profit seeking is strange in friendships (albeit common in exchange relationships). That is, prospective referrers may feel uncomfortable, conflicted, guilty, and other negative emotions, which we dub the “psychological barrier” (see also Aggarwal 2004; Grayson 2007; McGraw, Tetlock, and Kristel 2003; Tuk et al. 2009; Verlegh et al. 2013; Wirtz et al. 2013) that deters them from referring.

Disclosing the Referrer Reward Makes Referring More Compatible with Communal Norms and Promotes Referring

Thus, the critical question is: Can we make the referring action seem more compatible with communal norms (and reduce the psychological barrier)? We explore this possibility by focusing on the communication of the referrer reward in the invitation message. As previously mentioned , many companies generate an invitation message for existing customers to send to their friends. Most companies include the referee reward only (i.e., the referrer reward is undisclosed); a small proportion also include the referrer reward (i.e., the referrer reward is disclosed). Because disclosure is a core ingredient of communal relationships (Collins and Miller 1994; Moon 2003; Willems, Finkenauer, and Kerkhof 2020), we speculate that disclosing the referrer reward can render the referring action more compatible with communal norms for two primary reasons.

First, disclosing the referrer reward communicates honesty of the referrer, a laudable practice in communal relationships (Clark and Mills 1993). Indeed, whereas people in exchange interactions (e.g., sales persuasion, business negotiation) are often expected to conceal or distort information (Granados, Gupta, and Kauffman 2008), people in communal interactions usually feel obligated to be honest, otherwise they would feel guilty and worry about social costs (Duck 1991; Zhang and Merolla 2006). When receiving a product recommendation from a salesperson (i.e., an exchange partner), people may not expect the salesperson to reveal their personal benefit (e.g., sales commission or bonus). By contrast, when receiving a product recommendation from a friend, people appreciate the friend's transparency. An invitation message that solely emphasizes the referee reward (e.g., “It's good for you!”) is similar to a sales pitch that conveys half-truths (e.g., lies by omission), whereas a message that discloses the referrer reward (e.g., “It's good for you, and it's good for me too!”) is more candid. Because people are aversive to lying to friends (Chakravarty, Ma, and Maximiano 2011; Ennis, Vrij, and Chance 2008), a message with disclosure (e.g., not lying by omission) is more compatible with communal norms.

Second, disclosing the referrer reward highlights the social and collaborative aspect of the referral opportunity, which is desirable in communal interactions (Baum and Critcher 2020; Collins and Miller 1994; Kelly and McKillop 1996; Omarzu 2000; Sprecher et al. 2013). In fact, because of the referral program's incentivized nature, people tend to forget that the referral program calls for cooperation between existing customers and friends; as long as they work together, they can reap a “free pie” from the company (i.e., a third party, an out-group member) and “share the fortune.” When the invitation message describes only the referee's side of the program, it presents a solo task that is assigned by the referrer to the referee to work on alone. When the invitation message mentions the rewards on both sides, however, it implies joint responsibility and emphasizes joint benefits (a win–win). That is, it presents a joint task that the referrer invites the referee to work on together. Because communal relationships feature a “we orientation” and a joint commitment (Aggarwal and Law 2005; Baron 2002; Clark 1984; Gilbert 1996; Haslam and Fiske 1999; Tomasello and Carpenter 2007), and people like to cooperate with communal friends (Rank and Tuschke 2010; Shaddy, Tu, and Fishbach 2021; Silk 2003), an invitation that discloses the referrer reward aligns with communal norms better.

When existing customers perceive greater compatibility with communal norms, they will experience a reduced psychological barrier (e.g., discomfort, conflict, guilt). Therefore, we predict that existing customers will be more likely to refer when the invitation message discloses (vs. does not disclose) the referrer reward to the referee.

Although we highlight disclosure as a means to reduce the psychological barrier, one may wonder whether disclosure works by conferring reputational benefits. Indeed, when comparing prosocial referrals (i.e., referrals that benefit the referee only) and “selfish” referrals (i.e., referrals that benefit the referrer only), Gershon, Cryder, and John (2020) found that anticipated reputational benefits made people refer more in the former condition. We deem the reputational benefit account plausible, but also speculate that its impact might be weaker in our context (i.e., incentivized referrals). This is because for prosocial referrals, referrers send benefits to referees without any profit, a truly noble action that justifies the reputational gains, whereas for incentivized referrals, prospective referrers always get some profit, which may not be noble enough to earn reputational benefits. Therefore, the reputational benefit account may be less relevant or prominent in our context. Nevertheless, we put the reputational benefit account to empirical test.

Boundary Conditions

Our core theory—disclosing the referrer reward works by increasing the perceived compatibility between referring and communal norms—suggests a few boundary conditions that are of both theoretical and practical relevance (for our theoretical framework, see Figure 1). One type of boundary condition reveals incompatibility, canceling out the positive impact of our intervention, whereas another type of boundary condition boosts compatibility on its own, diminishing the (marginal) contribution of our intervention. Both would attenuate the proposed main effect, which we elaborate subsequently.

Figure 1.
Theoretical Framework.

We start with boundary conditions that reveal incompatibility, focusing on the setup of the referrer reward. We note that the setup of the referrer reward in the standard condition (i.e., the same as the referee reward and from the company) fits communal norms (i.e., seems fair and does not cost the referee), and thus is benign to disclose. But what if the setup of the referrer reward violates communal norms? We suggest that disclosing it in this situation will reveal incompatibility and cancel out the positive impact of our intervention.

One specific situation is about the relative amount of the referrer reward; that is, whether the referrer gets more than, the same as, or less than the referee. Indeed, whereas many referral programs (64% of the 45 referral programs we surveyed) offer equal rewards to the referrer and referee, some programs reward the referrer more (e.g., “Your friends get $10 off their first box, and you get $15 FabFitFun credit after their first purchase” [FabFitFun]) and some reward the referee more (e.g., “Refer friends to Freshly and get $30 for every friend who joins. Plus, they get $90, too” [Freshly]). The schemes with equal and smaller rewards for the referrer are compatible with expectations in communal interactions because the former feels fair and the latter benefits the friend more (Clark and Mills 1993; Gershon, Cryder, and John 2020). In contrast, the scheme with larger rewards for the referrer violates communal norms because it benefits the self more (Lee et al. 2017). Consistent with this rationale, referral programs that reward the referee only or reward both the referrer and the referee engage customers better than those that reward the referrer only (Gershon, Cryder, and John 2020; Jin and Huang 2014). Thus, when the referrer reward is greater than (vs. equal to or less than) the referee reward, disclosing it will reveal incompatibility with communal norms, canceling out the positive impact of our intervention and attenuating the proposed main effect.

Another specific situation is about the perceived source of the referrer reward. Whereas many referral programs describe the referrer reward as coming directly from the company (e.g., “For every person you get to join Trello, we’ll give you a free month of Trello Gold, up to 12 months” [Trello]), some identify the referee's spending as the source of the referrer reward (e.g., “You get rewarded with 5% of your friend's purchase for each referral” [Dorco]). In reality, whether the referrer reward flows from the company or the referee's spending can be flexibly accounted. However, when the referee's spending is stated as the source, the referral opportunity seems exploitative rather than mutually beneficial. Therefore, disclosing the referrer reward will reveal incompatibility with communal norms, canceling out the positive impact of our intervention and attenuating the proposed main effect.

Although our proposed intervention works by increasing the perceived compatibility between referring and communal norms, we suggest that if other factors in the referral process can also boost compatibility on their own, the (marginal) contribution of our intervention will be diminished, attenuating the proposed main effect. Our rationale is similar to that in Aggarwal and Larrick (2012). Specifically, Aggarwal and Larrick find that when a brand distributes rewards among consumers with whom it holds a communal relationship, a friendly and honest interaction, which is compatible with communal norms, will increase brand evaluation; however, the impact of the friendly and honest interaction will attenuate when an external factor, such as distributional fairness, also affords such compatibility.

In the context of referral programs, one such external factor is the overarching framing of the referral opportunity. Although many referral programs use an exchange-activity framing that emphasizes the reward contingency (e.g., “Refer a friend, reward yourself” [American Express]), some emphasize the social and collaborative aspect of the referral opportunity (e.g., “Journeys are always better with friends—the Pokémon GO referral program is here!” [Pokémon GO]), which is desirable in communal relationships (Baum and Critcher 2020; Collins and Miller 1994; Kelly and McKillop 1996; Omarzu 2000; Sprecher et al. 2013). Because the communal-activity framing already legitimizes the referring action in communal relationships and boosts compatibility, the (marginal) value of disclosure will be diminished, attenuating the proposed main effect.

The Impact of Disclosing the Referrer Reward on the Referee's Acceptance

Although we initially explore the impact of disclosing the referrer reward on the referrer's behavior (i.e., the beginning of the conversion funnel), it is natural to also ask how disclosing the referrer reward impacts the referee's behavior (i.e., the acceptance rate). The message that discloses the referrer reward could increase the acceptance rate because the communication is more compatible with communal norms and should increase referees’ responsiveness. However, in the real world, referees may be drawn to the information about the product and become less sensitive to disclosure because referrers would send the referral invite to select friends on the basis of their preferences and/or needs; that is, referrers would help precisely target potential customers (Berman 2016; Schmitt, Skiera, and Van den Bulte 2011; Van den Bulte et al. 2018). We test the impact of disclosing the referrer reward in the lab and field settings in our empirical package.

Overview of Studies

We test our conceptual framework in seven studies and one supplemental study. Studies 1a and 1b establish the main effect in the field: disclosing the referrer reward in the invitation message increased the referring rate for a fish taxidermy company and an educational service company. In addition, disclosure increased the conversion rate and sales. In a lab setting using a coffee shop as the context, Study 2a replicates the positive effect of disclosure on referring and rules in our proposed mechanism via a mediation approach; we do not find evidence for reputational benefits as an alternative account. Study 2b demonstrates in the lab that disclosure also increases the referee's acceptance. Supplemental Study 1 generalizes the disclosure effect on acceptance to another context (i.e., meal delivery service).

Studies 3–5 delve into the proposed mechanism and provide comprehensive evidence by testing the three proposed boundary conditions. We find that the positive effect of disclosure on referring is attenuated or even reversed when (1) the referrer reward is greater than the referee reward (vs. equal to or less than the referee reward) (Study 3), (2) the referrer reward seems to come directly from the referee's spending (vs. from the company) (Study 4), and (3) the referral opportunity is already framed as a communal activity (vs. exchange activity) (Study 5). We summarize the study results in Table 1, include the texts from invitation messages in Web Appendix B, and publicize the data and surveys at https://osf.io/5fxp3/.

Table 1.
Summary of Study Results.

Study Measures Referrer Reward

Undisclosed Disclosed Statistics

Study 1a (N = 371) field, preregistered Referring 5% 14% p = .005, odds ratio = 2.84

Acceptance 10% 22% p = .399

Conversion .5% 3% p = .057, odds ratio = 6.13

Sales $946 $7,238

Main finding: Disclosure increased referring, conversion rates, and sales in a referral program for a fish taxidermy company in the United States.

Study 1b (N = 163) field Referring 17% 31% p = .031, odds ratio = 2.24

Acceptance 100% 100%

Conversion 17% 31% p = .031, odds ratio = 2.24

Sales $6,131 $10,949

Main finding: Disclosure increased referring, conversion rates, and sales in a referral program for an educational service company in China.

Study 2a (N = 155) lab, preregistered Referring 3.49 4.08 p = .016, Cohen's d = .39

Compatibility 4.21 4.70 p = .034, Cohen's d = .34

Psychological barrier 3.53 2.75 p = .001, Cohen's d = .52

Main finding: The positive effect of disclosure on referring was serially mediated by higher levels of perceived compatibility and lower levels of psychological barrier.

Study 2b (N = 200) lab, preregistered Acceptance 4.05 4.54 p = .067, Cohen's d = .26

Compatibility 4.12 4.71 p = .002, Cohen's d = .44

Main finding: Disclosure increased acceptance. The effect was driven by perceived compatibility between the acceptance action and communal norms.

Study 3 (N = 601) lab, preregistered Referring (equal reward) 3.74 4.53 p = .004, Cohen's d = .42

Referring (referrer less) 4.09 4.67 p = .034, Cohen's d = .30

Referring (referrer more) 4.25 3.66 p = .032, Cohen's d = .30

Main finding: Disclosure increased the referring likelihood under the equal reward scheme and the referrer less scheme but decreased the referring likelihood under the referrer more scheme.

Study 4 (N = 308) lab Referring (company) 47% 70% p = .003, odds ratio = 2.67

Referring (referee's spending) 48% 34% p = .071, odds ratio = 1.81

Main finding: Disclosure increased the referring rate when the referrer reward was described as coming from the company but not when it was described as coming from the referee's spending.

Study 5 (N = 262) lab, preregistered Referring (control framing) 3.17 4.18 p = .007, Cohen's d = .48

Referring (communal-activity framing) 4.06 3.52 p = .135

Main finding: Disclosure increased the referring intention in the control/exchange-activity framing condition but not in the communal-activity framing condition in which the referral activity was already framed as compatible with communal norms.

Study 1: Testing the Disclosure Effect in the Field

We first aimed to test the effect of disclosing the referrer reward on the referring rate in two field experiments in collaboration with two small businesses (one in the United States and the other in China) that offered different products. Neither company had run a referral campaign, leaving us with an uncontaminated pool of customers. Both companies became interested in running the referral campaign after meeting with one of the authors. In addition to generating data on the referring rate, the two field experiments naturally generated data on the acceptance rate, conversion rate, and sales.

Study 1a: Fish Taxidermy

Study 1a (preregistered at https://aspredicted.org/375xb.pdf) was conducted with a family-owned fish taxidermy company in the United States that sells customized fish replicas based on customers’ photos to customers in 38 states. The company was founded in 2002 and processes around 400 orders annually. The price of a fish replica ranges from $350 to $1,000 depending on its size (usually 20–60 inches). Fish replicas are a niche market product for fishing lovers. Around 20%–30% of the customers make repeated purchases, which account for approximately 40% of the company’s annual sales.

The referral campaign started in the first week of January 2021. Existing customers received an email about a referral opportunity and viewed an invitation message that they could send to their friends. We manipulated whether the invitation message disclosed the referrer reward, and we predicted that disclosure would lead to a higher referring rate. We also obtained and analyzed data on the acceptance rate, conversion rate, and sales.

Method

Study 1a used a two-cell (referrer reward: disclosed vs. undisclosed) between-participants design. Following our preregistered data collection plan,¹ we targeted the referral email campaign to the 371 active customers who made at least one purchase in the previous year.

All customers received an email (i.e., the referral ad) titled “Up to $100 off for fish replicas!” The first half of the email described the referral opportunity: “For each friend who purchases a replica with your invitation code, you will receive up to a $100 discount ($1 per inch) on all fish replicas, and your friend will receive up to a $100 discount ($1 per inch) on all fish replicas.” The second half of the email contained an invitation message that customers could send to their friends. In both conditions, the message started, “Hey, I’d like to introduce [the company name] to you. I think you may like it. Buy a fish replica for your Trophy Fish with my code: [a customized code].” In the undisclosed condition, the message ended, “You’ll receive up to a $100 discount ($1 per inch) on all fish replicas!” In the disclosed condition, the message ended, “You’ll receive up to a $100 discount ($1 per inch) on all fish replicas! I’ll also receive up to a $100 discount ($1 per inch) on all fish replicas!” Customers who wished to refer could click a “send email” button to enter the email(s) of up to three friends, who then received an invitation message.

Results and discussion

We first analyzed the referring behavior of each existing customer. We coded whether they referred at least one friend (1 = yes, 0 = no). In support of our hypothesis, the referring rate was higher in the disclosed condition (14%, 26/186) than in the undisclosed condition (5%, 10/185) (χ²(1, N = 371) = 7.78, p = .005, odds ratio = 2.84). We also coded the number of friends referred (a maximum of three) and found that all but one referrer invited only one friend (97%, 35/36). Thus, the positive effect of disclosing the referrer reward held for the number of friends referred (F(1, 369) = 8.23, p = .004, Cohen's d = .30).

Next, we analyzed the acceptance rate among the referees (1 = made a purchase, 0 = did not make a purchase). We did not detect a difference between the disclosed condition (22%, 6/27) and undisclosed condition (10%, 1/10) (χ²(1, N = 37) = .71, p = .399). The results are inconclusive because the sample size was small (37 referees total), and the sample was imbalanced across conditions (27 in the disclosed condition, 10 in the undisclosed condition).

Finally, we examined the conversion rate and sales, which are the two ultimate outcomes of interest to businesses. We calculated the conversation rate by multiplying the referring rate by the acceptance rate and found a marginally higher conversion rate in the disclosed condition (3%, 6/186) than in the undisclosed condition (.5%, 1/185) (χ²(1, N = 371) = 3.61, p = .057, odds ratio = 6.13). After all the orders from the referrers and referees were completed, we obtained data on sales (after the discount) from both referrers and referees. We found that the disclosed condition generated 665% more sales than the undisclosed condition ($7,238 vs. $946). Among the seven successful referrals, sales from the referrers ($4,879) exceeded sales from the referees ($3,305), which is in line with previous findings that old customers are more valuable than new customers (Garnefeld et al. 2013). Moreover, referrers in the disclosed condition spent more ($4,371) than referrers in the undisclosed condition ($508), and referees in the disclosed condition spent more ($2,867) than referees in the undisclosed condition ($438).

Study 1a lent support to our hypothesis that disclosing the referrer reward increases the referring rate. It also found a marginally positive effect of disclosure on the conversion rate and a markedly positive impact of disclosure on sales. In absolute terms, however, the referring and conversion rates were low, which is consistent with prior research (Gershon, Cryder, and John 2020) and survey results (Veerasamy 2022). In this specific context, reasons may include (1) the target product, a fish replica, is a niche market product and (2) the number of impressions of the email campaign (i.e., the number of existing customers who actually saw the referral ad) was likely less than the intended number of recipients because some emails may have been filtered or unopened. In Study 1b, we moved to a context without these two limitations to test the proposed main effect again.

Study 1b: After-School Tutoring

Study 1b was conducted with a local educational service company in China, which provides after-school tutoring to about 200 students in grades 1–9. After-school tutoring is a fast-growing business in China; in big cities, more than 60% of primary school students attend after-school classes costing 12% of the household income on average (Zhang 2019). Thus, whereas Study 1a tested our effect in a niche market, Study 1b tested our effect in a popular market.

Of note, although the actual users of the educational service are students, the decision makers are the parents. In China, most educational service companies designate a class liaison to communicate with parents about their kids’ performance on an individual basis via WeChat (a multipurpose messaging app). Thus, our referral campaign was also initiated on WeChat by the class liaison, who sent the referral ad to each parent in an individual message. Whereas Study 1a used an email campaign with unknown impressions, Study 1b used a communication channel that engaged each parent daily to guarantee the reach of the referral ad.

The referral campaign was launched in the first week of a semester. Parents received messages about the referral opportunity from their class liaison and decided whether to refer. We predicted that disclosure would produce a higher referring rate. We also obtained and analyzed data on the acceptance rate, conversion rate, and sales.

Method

Study 1b used a two-cell (referrer reward: disclosed vs. undisclosed) between-participants design. A class liaison messaged 163 parents of students in grades 1–7. The company did not wish to contact parents of students in grades 8 and 9. In each grade, we randomly assigned parents to the experimental conditions (i.e., stratified randomization).

Each parent received a referral ad via WeChat from their class liaison. The referral ad informed the parent that if they invited a friend to purchase a tutoring course, they and their friend would each get two free classes. Each parent also received a preview of the physical invitation card that they could give to their friends. In the undisclosed condition, the invitation card mentioned only the referee reward: “Hi, join me at [the company name]. Present this card, and you will get two free classes.” In the disclosed condition, the referral card mentioned both the referrer reward and the referee reward: “Hi, join me at [the company name]. Present this card, and we will both get two free classes.”

These parents also learned that they needed to pick up the physical invitation card at the tutoring center to participate. Those who decided to refer thus informed the class liaison that they would pick up the card. The class liaison recorded their names along with the corresponding experimental condition and ensured that all the parents who decided to refer received the card when dropping off or picking up their kids at the tutoring center. This way, all the parents who requested a card in WeChat got the physical card. Each invitation card had a unique identification number for tracking, and there was no limit on the number of invitation cards each parent could request.

Results and discussion

We first analyzed the referring behavior. We coded whether each existing customer requested and picked up at least one physical invitation card (1 = yes, 0 = no). Supporting our hypothesis, more customers requested the invitation card in the disclosed condition (31%, 25/80) than in the undisclosed condition (17%, 14/83) (χ²(1, N = 163) = 4.63, p = .031, odds ratio = 2.24). Because none of the customers requested more than one invitation card, we did not analyze the number of friends referred. Moreover, all the parents who requested the card gave it to their friends.

Next, we analyzed the acceptance rate. We coded whether each invitation card led to a sign-up (1 = yes, 0 = no). We found that all referees accepted the invitation and purchased the tutoring package. A 100% acceptance rate may seem surprising, but it is consistent with the recent surge in demand for after-school tutoring; middle and upper-middle class Chinese parents are investing heavily in their offspring's education (Kai 2012; Zou et al. 2013). Besides, this referral campaign was launched in the first week of a new semester when most students were available to sign up for after-school tutoring.

Finally, as in Study 1a, we examined the conversion rate and sales. Because of the 100% acceptance rate, disclosure had the same effect on the conversation rate as on the referring rate. At the end of the semester, we obtained data on sales, which were all from new customers (¥2,800 each, approximately $438) because existing customers had already paid. We found that the disclosed condition (¥70,000, approximately $10,949) generated 79% more sales than the undisclosed condition (¥39,200, approximately $6,131).

Study 1b replicated the proposed positive effect of disclosing the referrer reward on the referring rate. In absolute terms, the referring, acceptance, and conversion rates were all higher than in Study 1a, probably because the target product was in high demand and the referral campaign was launched at an optimal time.

General Discussion of Studies 1a and 1b

Together, Studies 1a and 1b demonstrate the positive effect of disclosing the referrer reward on referring, supporting our main hypothesis. They also document a positive effect of disclosure on the conversion rate and sales, which are two final outcomes that are of interest to businesses. In these two contexts, however, disclosure did not significantly influence acceptance, an intermediate outcome. In addition to the specific reasons in each context that we previously discussed, we note that this might be a feature of the field setting. In the field, referees were already screened on the basis of their preferences or needs by the referrers; in fact, a key advantage of customer referral programs is that existing customers help companies precisely target potential customers (Berman 2016; Schmitt, Skiera, and Van den Bulte 2011; Van den Bulte et al. 2018). As a result, referees may be more drawn to the product information and less sensitive to other information in the message, including the disclosure element. In Study 2b and Supplemental Study 1 (see Web Appendix C), we measured acceptance in the lab setting.

Study 2: Testing the Disclosure Effect in the Lab

Study 2 aimed to test the impact of disclosing the referrer reward on referring (Study 2a) and acceptance (Study 2b) in the lab setting to add clarity to our causal inference and complement the evidence from the two field studies.

Study 2a

Study 2a (preregistered at https://aspredicted.org/mx9st.pdf) tested the impact of disclosing the referrer reward on referring. It also measured perceived compatibility between referring and communal norms as the first mediator (about participants’ cognition) and psychological barrier (i.e., prospective customers’ feelings if they choose to refer) as the second mediator. In addition, it measured reputational benefits and explored whether reputational benefits served as an alternative account.

Method

This study employed a two-cell (referrer reward: disclosed vs. undisclosed) between-participants design. We collected data on Credamo, the Chinese equivalent of Amazon Mechanical Turk (Ding et al. 2021; Gong et al. 2020; Huang, Sengupta, and Lee 2020). We opened the study to participants in Beijing and Shanghai, two metropolitan cities in which more and more consumers are developing the habit of coffee consumption, and got 155 valid responses (107 women; M_age = 26.83 years, SD = 5.95).

Participants imagined they were reloading their membership card of a coffee shop on a mobile app and saw a pop-up ad about inviting a friend to join the membership. They learned that if the invited friend became a member and purchased ¥50 credit (approximately $7.80), they and their friend would get a ¥5 gift card. Then, participants saw the invitation message they could send to their friend, which mentioned either only the referee reward (“You will be rewarded with a ¥5 gift card!”) or both the referee reward and the referrer reward (“We will both be rewarded [a ¥5 gift card for each of us]!”).

Participants then rated the perceived compatibility between referring and communal norms. Specifically, they read about the definition of communal relationships (e.g., “In communal relationships, people genuinely care about each other's well-being and help each other”), which was based on Clark and Mills (1993), Goodwin (1996), and Mills et al. (2004). Then, they answered two questions, which we adapted from Aggarwal and Larrick (2012): (1) “I think sending this invitation message is appropriate in communal relationships” (1 = “strongly disagree,” and 7 = “strongly agree”) and (2) “I think sending this invitation message meets the expectations in communal relationships” (1 = “strongly disagree,” and 7 = “strongly agree”) (r = .84). Afterward, participants indicated their likelihood of referring: “Will you send this message to your friend(s)?” (1 = “not likely at all,” and 6 = “very likely”).

Next, participants responded to questions regarding reputational benefits and experienced psychological barrier. Scales for both constructs are from Gershon, Cryder, and John (2020). Specifically, for reputational benefits, participants answered “How would your friends view you if you send them the invitation message?” (e.g., friendly, likable, helpful; 1 = “not at all,” and 7 = “very much”; α = .97), and for psychological barrier, participants answered “How would you feel if you send them this invitation message?” (e.g., conflicted, uncomfortable, guilty; 1 = “not at all,” and 7 = “very much”; α = .93). For exploratory purposes, we also measured social imposition after psychological barrier and included the results in Web Appendix D.

Results and discussion

In support of our hypothesis, a one-way analysis of variance (ANOVA) revealed that participants were more likely to refer in the disclosed condition (M = 4.08, SD = 1.48) than in the undisclosed condition (M = 3.49, SD = 1.55; F(1, 153) = 5.92, p = .016, Cohen's d = .39).

A one-way ANOVA found that participants in the disclosed (vs. undisclosed) condition perceived the referring action as more compatible with communal norms (M_disclosed = 4.70, SD = 1.46; M_undisclosed = 4.21, SD = 1.41; F(1, 153) = 4.56, p = .034, Cohen's d = .34). In addition, participations experienced the psychological barrier less in the disclosed (M = 2.75, SD = 1.38) than undisclosed (M = 3.53, SD = 1.63; F(1, 153) = 10.46, p = .001, Cohen's d = .52) condition. We then constructed a serial mediation model (PROCESS Model 6; Hayes 2017) using perceived compatibility as the proximal mediator and psychological barrier as the distal mediator, and we found a significant indirect effect. Disclosure rendered the referring action more compatible with communal norms, thus consumers felt better about sending the invitation message and consequently referring increased (a × b = .04, SE = .02, 95% CI = [.0025, .0923]).

A one-way ANOVA did not detect a significant disclosure effect on reputational benefits (M_disclosed = 4.50, SD = 1.35; M_undisclosed = 4.35, SD = 1.34; F(1, 153) = .50, p = .482). Besides, all the previous conclusions still held after controlling for reputational benefits, suggesting that reputational benefits do not play a critical role in our proposed effect.

In summary, Study 2a replicated the positive effect of disclosing the referrer reward on referring in a controlled lab setting. It also provided direct process evidence: disclosure renders the referring action more compatible with communal norms, reduces the experienced psychological barrier, and subsequently promotes consumers’ likelihood of referring. Finally, this study did not find evidence for the reputational benefit account.

Study 2b

Study 2b (preregistered at https://aspredicted.org/9w357.pdf) had two main objectives. First, this study examined the impact of disclosing the referrer reward on referee's behavior (i.e., acceptance) in a lab setting. Second, this study explored whether disclosure works on the acceptance side because it increases perceived compatibility between the acceptance action and communal norms.

Method

Two hundred Prolific workers based in the United States (96 women; M_age = 33.67 years, SD = 13.43) completed this study and were randomly assigned to one of two (referrer reward: disclosed vs. undisclosed) between-participants conditions. Participants first imagined receiving an invitation message from a friend about becoming a member of a coffee shop. If they became a member and purchased a $20 credit for the card, they would get a reward (undisclosed condition, “You will get a reward from the store [a $5 gift card]!”) or both they and their friend would get a reward (disclosed condition, “We will both get a reward from the store [a $5 gift card for each of us!”).

Next, similar to Study 2a, participants read the definition of communal relationships and reported the extent to which they thought accepting the invitation was compatible with communal norms: “It's more appropriate to accept, rather than reject, this invitation from a communal partner” (1 = “strongly disagree,” and 7 = “strongly agree”) and “My communal partner would expect me to accept this invitation” (1 = “strongly disagree,” and 7 = “strongly agree”). Afterward, they answered, “Will you accept your friend's invitation and sign up?” (1 = “not likely at all,” and 7 = “very likely”). We also measured participants’ perceived reward amount and included the results in Web Appendix E.

Results and discussion

A one-way ANOVA found that participants in the disclosed condition were marginally more likely to accept the invitation (M = 4.54, SD = 1.80) than those in the undisclosed condition (M = 4.05, SD = 1.95; F(1, 198) = 3.40, p = .067, Cohen's d = .26).

We then averaged the two items measuring perceived compatibility (r = .56) to form a compatibility index. A one-way ANOVA found that participants in the disclosed (vs. undisclosed) condition rated accepting the invitation as more compatible with communal norms (M_disclosed = 4.71, SD = 1.28; M_undisclosed = 4.12, SD = 1.38; F(1, 198) = 9.77, p = .002, Cohen's d = .44). Furthermore, using PROCESS Model 4 (Hayes 2017) and 5,000 bootstrap samples, we found that perceived compatibility mediated disclosure's influence on the likelihood of acceptance (a × b = .27, SE = .09, 95% CI = [.0897, .4464]).

In a controlled lab setting, Study 2b demonstrated that disclosing the referrer reward in the invitation message increases the referee's acceptance intention, because it makes accepting the invitation more compatible with communal norms.

The studies so far established the basic effect that disclosing the referrer reward increases referring in both the field (Studies 1a and 1b) and the lab (Study 2a), provided process evidence for this positive effect via a mediation approach (Study 2a), and ruled out reputational benefits as an alternative explanation (Study 2a). Besides referring, we also found a positive impact of disclosure on conversion and sales in the field (Studies 1a and 1b) and on acceptance in the lab (Study 2b). To minimize the issue of reverse causality, we measured mediators before the dependent variables in Studies 2a and 2b. We note that this approach could produce a demand effect on the dependent variables. However, we were able to replicate the effect of disclosure on referring (Studies 1a, 1b, 3, 4, and 5) and acceptance (Supplemental Study 1) without the mediator measures in other studies, suggesting that the specific methodological approach in Studies 2a and 2b was not necessary for our effects to emerge. Next, we focus on referring and explore boundary conditions that are of theoretical and practical importance.

Study 3: The Impact of the Relative Reward Amount

Study 3 (preregistered at https://aspredicted.org/e8ee2.pdf) investigated the impact of the relative reward amount. According to our theory, referring should improve with disclosure only if the referrer reward is equal to or less than the referee reward. If the referrer gets more than the referee, however, the self-benefiting nature violates communal norms and disclosing it would offset the positive effect of disclosure. We thus predicted that the impact of disclosure would be attenuated (or even reversed) when the referrers get a greater (as opposed to the same or less) reward than the referee.

Method

Study 3 employed a 2 (referrer reward: disclosed vs. undisclosed) × 3 (relative reward amount: referrer less vs. equal reward vs. referrer more) between-participants design. Six hundred one Prolific workers based in the United States completed this study (297 women; M_age = 35.47 years, SD = 13.14).

Participants imagined being a satisfied user of a meal delivery service called YummyChoice. They learned that if they invited a friend to place an order, their friend would receive a $10 discount and they themselves would receive, depending on the condition, a $5 (referrer less), $10 (equal reward), or $15 (referrer more) discount. Then, participants saw an invitation email they could send to their friend(s). In the undisclosed condition, the invitation message mentioned the referee reward only (“You will get a $10 credit!”). In the disclosed condition, the invitation message also mentioned the referrer reward (“You will get a $10 credit! I will also get a $5/$10/$15 credit!”). Participants indicated their referring likelihood: “Will you send this message to your friend(s)?” (1 = “not likely at all,” and 7 = “very likely”).

Results and Discussion

A disclosure × relative reward amount ANOVA on the referring likelihood revealed a significant interaction effect (F(2, 595) = 7.38, p < .001) (see Figure 2), and the main effects of disclosure (F(1, 595) = 2.75, p = .098) and relative reward amount (F(2, 595) = 2.41, p = .091) were marginally significant. Planned contrasts showed that disclosure increased the referring likelihood in the equal-reward (M_disclosed = 4.53, SD = 1.88; M_undisclosed = 3.74, SD = 1.88; F(1, 595) = 8.42, p = .004, Cohen's d = .42) and referrer-less (M_disclosed = 4.67, SD = 1.94; M_undisclosed = 4.09, SD = 1.99; F(1, 595) = 4.49, p = .034, Cohen's d = .30) conditions, but disclosure decreased the referring likelihood in the referrer-more condition (M_disclosed = 3.66, SD = 2.06; M_undisclosed = 4.25, SD = 1.91; F(1, 595) = 4.61, p = .032, Cohen's d = .30). The 2 (referrer reward: disclosed vs. undisclosed) × 2 (relative reward amount: equal reward vs. referrer less) partial interaction was not significant (F(1, 595) = .31, p = .577), suggesting that disclosure benefited referring similarly in the equal-reward and referrer-less conditions. By contrast, the 2 (referrer reward: disclosed vs. undisclosed) × 2 (relative reward amount: equal reward vs. referrer more) partial interaction was significant (F(1, 595) = 12.75, p < .001), suggesting that disclosure has different impacts when the referrer gets a greater reward than the referee versus an equal reward.

Figure 2.
Referring Likelihood Across Conditions (Study 3).

Study 3 replicated the positive effect of disclosure on referring under the equal reward scheme. It also found a positive disclosure effect under the referrer-less scheme but a negative disclosure effect under the referrer-more scheme, supporting our theory that a self-benefiting reward scheme violates communal norms and thus offsets the proposed positive effect of disclosure on perceived compatibility between referring and communal norms.

Study 4: The Impact of the Stated Source of the Referrer Reward

Study 4 investigated the moderating effect of the stated source of the referrer reward (i.e., whether the reward was coming from the company or the referee's spending). We predicted a weaker positive effect of disclosure on referring when the referrer reward was stated to come from the referee's spending, because this setup is incompatible with communal norms and should counteract the proposed positive effect of disclosure on perceived compatibility.

Method

Study 4 used a 2 (referrer reward: disclosed vs. undisclosed) × 2 (source of the referrer reward: company vs. referee's spending) between-participants design. We predetermined a sample size of 75 participants per condition, following the recommended practice (Simmons, Nelson, and Simonsohn 2011). We informed undergraduate students in introductory marketing courses at a large public university in the United States that a coffee brand was conducting market research before opening a new store near campus, and they could participate in the study for both learning objectives and course credit. We collected 392 sign-ups to allow for some attrition, and 308 students participated (158 women; M_age = 21 years, SD = 2.47).

A research specialist first explained to each student that the purpose of this market research was to test their attitudes toward a coffee shop that was to open near campus. After filling out a short coffee consumption survey, participants viewed the coffee shop's interior design and menu, then indicated their liking of each (for the survey measures and results, see Web Appendix F).

Next, the research specialist informed participants about a referral opportunity and showed them the details on an iPad. The referral program would give a $2 credit to both the referrer and the referee, but the source of the referrer's $2 reward varied by condition: “You will also get a $2 credit from Wake Up Café. Enjoy benefits from Wake Up” (source of the referrer reward: company) or “You will get a $2 credit from your friend's first purchase. Enjoy benefits from friends” (source of the referrer reward: referee's spending). The research specialist then presented participants with an invitation email on an iPad that either disclosed or did not disclose the referrer reward. Participants who were interested wrote down their email address and the email address(es) of up to five friends. On study completion, we debriefed participants that the referral decision was hypothetical.

Results and Discussion

Referring

We coded each participant's decision to refer (1 = yes, 0 = no) by whether they provided their own email address and at least one friend's. We conducted a logistic regression with the referring decision as the dependent variable and with disclosure (disclosed = 1, undisclosed = −1), the source of the referrer reward (referee's spending = 1, company = −1), and their interaction term as the independent variables. This analysis yielded the expected interaction (β = −.40, Wald = 11.12, p < .001). There was no main effect of disclosure (β = .10, Wald = .67, p = .413), but there was a main effect of the source of the referrer reward (β = −.37, Wald = 9.70, p = .002). The referring rate was lower when the referrer reward came from the referee's spending (41%, 63/154) than when it came from the company (58%, 90/154). Planned contrasts found that when the referrer reward came from the company, the referring rate was higher in the disclosed condition (70%, 54/77) than in the undisclosed condition (47%, 36/77) (χ²(1, N = 154) = 8.66, p = .003, odds ratio = 2.67) (see Figure 3, Panel A), whereas when the referrer reward came from the referee's spending, the referring rate was marginally lower in the disclosed condition (34%, 26/77) than in the undisclosed condition (48%, 37/77) (χ²(1, N = 154) = 3.25, p = .071, odds ratio = 1.81).

Figure 3.
Referring Rate and Number of Referees Across Conditions (Study 4).

Number of referees

Because each participant could refer up to five friends, we also submitted the number of referees to a two-way ANOVA. Among the 153 participants who referred, 78 referred one friend, 46 referred two friends, 15 referred three friends, 3 referred four friends, and 11 referred five friends. As in previous analyses, we found a significant main effect of the source of the referrer reward (F(1, 304) = 12.70, p < .001), no main effect of disclosure (F(1, 304) = .46, p = .501), and the predicted interaction effect (F(1, 304) = 12.70, p < .001). When the referrer reward was stated to come from the company, participants in the disclosed (vs. undisclosed) condition listed more friends to refer (M_disclosed = 1.44, SD = 1.44; M_undisclosed = .87, SD = 1.23; F(1, 304) = 8.98, p = .003, Cohen's d = .43) (see Figure 3, Panel B). The effect reversed when the referrer reward was stated to come from the referee's spending (M_disclosed = .48, SD = .77; M_undisclosed = .87, SD = 1.20; F(1, 304) = 4.17, p = .042, Cohen's d = .39).

Study 4 replicated the positive effect of disclosing the referrer reward on the referring rate only when the referrer reward was stated to come from the company rather than from the referee's spending. This result corroborates our theory that disclosure increases referring by rendering the referring action more compatible with communal norms, because it shows that the disclosure effect diminishes when the referrer reward to be disclosed violates communal norms.

Study 5: The Impact of Referral Opportunity Framing

Study 5 tested whether framing the referral opportunity as a communal activity (vs. control/exchange activity) weakens the positive effect of disclosure. The rationale is that although our proposed intervention (i.e., disclosing the referrer reward) works by increasing the perceived compatibility between referring and communal norms, framing the referral opportunity as a communal activity can boost compatibility on its own, diminishing the (marginal) contribution of our intervention.

We note that this framing approach is better suited for some products (e.g., games with the teaming feature) than others (e.g., credit cards), so we selected two mobile games with teaming features (Angry Birds 2 and Pokémon Go). We selected these games for two reasons. First, they are among the most popular games with millions of users (Rovio Entertainment Corporation 2018; Tassi 2018), maximizing the possibility of getting an adequate sample size. Second, they are gender-neutral games, maximizing the possibility of getting a gender-balanced sample. We introduced gamers to a referral program that emphasized either the material rewards (control/exchange-activity framing condition) or the opportunity for social collaboration (communal-activity framing condition), before giving details about the referral program. Then, gamers saw a referral email that either disclosed or did not disclose their reward and indicated their willingness to refer a friend. We predicted a greater positive impact of disclosure on the willingness to refer in the control framing condition than in the communal-activity framing condition.

Method

Study 5 used a 2 (referrer reward: disclosed vs. undisclosed) × 2 (framing of the referral opportunity: communal activity vs. control) between-participants design. We recruited current U.S.-based players of Angry Birds 2 and/or Pokémon Go on Amazon Mechanical Turk (participants who played both selected their favorite). We explained that “currently playing” meant that participants had the game installed on their mobile device(s) and played it from time to time. We also informed participants that they would need to upload a screenshot of the game to qualify.

We collected data in two stages, and the second stage was preregistered (see https://aspredicted.org/gc9f6.pdf). In total, we collected 262 valid responses (126 women; M_age = 32.03 years, SD = 8.28). Our main results did not vary across the two stages (three-way interaction: p = .307), so we collapsed them for the subsequent analyses.

After uploading a screenshot of the game and completed a filler survey about their experiences with the game (for the measures in the filler survey and the results, see Web Appendix G), participants read, “Suppose today when you launch Angry Birds 2/Pokémon Go, an in-game message pops up, inviting you to refer the game to your friends.” Participants read the details of the referral program, shown as an in-game message. For example, for Angry Birds 2, in the control framing condition, the message stated, “Want to earn gems in Angry Birds 2? Invite your friends to play the game and earn rewards for yourself.” In the communal-activity framing condition, the message stated, “Angry Birds 2 is more fun with friends! Invite your friends to play the game as a clan: hold special events, unlock unique items, and battle with other clans. … Enjoy the game as a team!” All participants learned that for each friend who downloaded the game, both the participant and their friend would receive 250 gems for Angry Birds 2 players (worth about $3) or 300 Pokécoins for Pokémon Go players (worth about $3) for in-game purchases.

Participants then saw a referral email. For example, for Angry Birds 2, in the control framing condition, the message resembled the messages in our previous studies and in most real referral programs: “Hi there, I am playing Angry Birds 2 and loving it.” In the communal-activity framing condition, and consistent with the referral ad, the referral program was described as a communal activity: “Hi there, I am playing Angry Birds 2 and loving it. It will be more fun if you join! We can play as a clan: hold special events, unlock unique items, and battle with other clans. … Let's enjoy the game as a team!” Then, the message explained the referee reward, and in the disclosed condition, the referrer reward was also mentioned.

Participants indicated their referral intention: “Will you send the email above to your friends?” (1 = “definitely no,” and 7 = “definitely yes”). We reminded participants that they could not refer friends who already had an account.

Results and Discussion

Because we recruited players of two different mobile games, we first conducted a 2 (referrer reward: disclosed vs. undisclosed) × 2 (framing of the referral opportunity: communal activity vs. control) × 2 (game: Angry Birds 2 vs. Pokémon Go) ANOVA on the willingness to refer. The analysis did not yield a three-way interaction effect (F(1, 254) = .91, p = .340), so we collapsed the data by game. A disclosure × framing ANOVA on the willingness to refer yielded a significant interaction effect (F(1, 258) = 8.89, p = .003) but no main effect of disclosure (F(1, 258) = .81, p = .370) or framing (F(1, 258) = .20, p = .653). Planned contrasts showed that disclosure increased the willingness to refer in the control framing condition, replicating our main effect (M_disclosed = 4.18, SD = 2.15; M_undisclosed = 3.17, SD = 2.03; F(1, 258) = 7.27, p = .007, Cohen's d = .48) (see Figure 4), but disclosure had no effect in the communal-activity framing condition (M_disclosed = 3.52, SD = 2.08; M_undisclosed = 4.06, SD = 2.16; F(1, 258) = 2.25, p = .135).

Figure 4.
Willingness to Refer Across Conditions (Study 5).

Study 5 replicated the positive effect of disclosure on referring when the referral opportunity was framed as an exchange activity, but not when it was framed as a communal activity from the outset (i.e., a social and collaborative activity). These results support our proposed mechanism: disclosure works by increasing the compatibility between referring and communal norms. When the compatibility has already been established by the overarching framing, the (marginal) impact of our intervention is attenuated.

General Discussion

Companies desire to leverage existing customers’ social networks to acquire new customers. To motivate product recommendations among friends, companies initiate incentivized referral campaigns that reward existing customers with money, credit, discounts, or other benefits. Incentives can increase the referring rate (Ryu and Feick 2007), but only to a certain point because mixing friendship and finance can backfire. In particular, the reward contingency feature makes referring incompatible with communal norms and creates a psychological barrier that discourages existing customers from participating in referral programs. This article offers a subtle solution. Seven studies and one supplemental study that cover various contexts—including fish taxidermy, after-school tutoring, coffee, meal prep service, and mobile games—provide converging support that disclosing the referrer reward in the invitation message can increase referring. We further uncover the underlying mechanism: disclosure increases referring, mainly because it makes the referring action seem more compatible with communal norms and reduces the psychological barrier (Study 2a), not because it brings reputational benefits (Study 2a). From this theorizing, we identified three boundary conditions that are of practical importance and theoretical relevance. First, we tested two features of the referrer reward to be disclosed that can violate compatibility: the positive effect of disclosure is attenuated or reversed when (1) the referrer receives a larger reward than the referee, rather than the same reward or a smaller reward (Study 3), and (2) the referrer reward is stated to come from the referee's spending, rather than from the company (Study 4). Second, we tested an external factor that also affords compatibility: the positive effect of disclosure is attenuated when the referral opportunity is already framed as a communal activity, rather than as an exchange activity (Study 5).

In addition to examining the impact of disclosure on referring, our empirical work also covered other important marketing outcomes that follow referring. Specifically, we found a positive effect of disclosure on acceptance in the lab setting (Study 2b and Supplemental Study 1) and a directionally positive effect in the field (Study 1a). This positive effect on acceptance also happened mainly because disclosure renders the acceptance action more compatible with communal norms (Study 2b). Moreover, disclosure increased the conversion rate and sales for two small businesses (Studies 1a and 1b), suggesting its potential for boosting the overall effectiveness of referral programs in the real world. Future research could further explore the psychology and behaviors of referees (e.g., acceptance, amount of purchase) as a function of the referrer's invitation message and the dynamics in the entire referral process.

Another potentially interesting follow-up question is whether disclosure works the same way when people refer an exchange partner. For example, the buyers of coffee beans for two coffee brands may know each other through work and interact for the purpose of exchanging business information. When one buyer refers another to purchase coffee beans from a particular supplier, will the disclosure of the referrer reward help? We speculate that disclosure may influence the referrer and the referee differently. Specifically, exchange partners, by definition, interact for profit and do not expect total transparency. It follows that disclosure may matter less for referrers because they experience little psychological barrier (e.g., discomfort, conflict, guilt) to begin with, and they do not feel obligated to disclose. Yet, for referees, the unexpected transparency from disclosure may increase trust, which in turn will increase acceptance. Future research could investigate these directions.

Theoretical Contributions

Our work contributes to the existing literature on referral programs. Prior work mostly focused on the impact of objective features of the referral rewards—such as the presence, amount, and type—on referring (Biyalogorsky, Gerstner, and Libai 2001; Gershon, Cryder, and John 2020; Hinz et al. 2011; Jin and Huang 2014; Kornish and Li 2010; Ryu and Feick 2007; Wirtz and Chew 2002). Our article is the first that investigates the communication of referral rewards. We find that, holding the objective reward constant, a subtle change in communication can make a significant difference.

Our work also expands the research on information disclosure. Traditionally, this topic has been studied in the context of interpersonal communication, where self-disclosure can be a social glue that establishes trust and liking (Collins and Miller 1994; Moon 2003; Willems, Finkenauer, and Kerkhof 2020). More recently, researchers have explored the impact of disclosing personal benefits in business communications (Abendroth and Heyman 2013; John, Barasz, and Norton 2016; Kim et al. 2019; Loewenstein, Cain, and Sah 2011; Mohan, Buell, and John 2020; Sah, Fagerlin, and Ubel 2016; Trifts and Häubl 2003; Tuk et al. 2009; Verlegh et al. 2013). In this stream of research, however, the communication partners usually hold an exchange relationship (e.g., company and consumer, doctor and patient, financial advisor and advisee). Our work expands this new line of work into the realm of communal partners.

Practical Implications

Social relationship marketing (e.g., buzz marketing) has become the standard fare. Its popularity led the Federal Trade Commission to recommend that consumers disclose their material connection with brands when recommending a product (Federal Trade Commission 2017). In the context of referral programs, however, marketers tend not to set such disclosure as a default for consumers when creating invitation messages; in our survey (see Web Appendix A), only 16% (7/45) of the brands disclosed the referrer reward in the automatically generated invitation message. The most basic practical implication of our research is that marketers should adopt disclosure because, contrary to marketers’ expectations, disclosure should help, rather than hurt, campaign effectiveness, at least in the context of referral programs.

We offer a few precautions based on the setup of the referrer reward. First, disclosure has a positive effect on referring only when the referrer reward is equal to or less than the referee reward (Study 3), both of which are compatible with communal norms. This contingency is relevant because some referral programs reward the referrer more than the referee; for example, 11% (5/45) of referral programs in our survey gave larger rewards to the referrers than the referees (see Web Appendix A). Such programs should be cautious about using disclosure because it may fail to promote referring as intended. Second, managers who choose to disclose should be careful when explaining the source of the referrer reward. Because the source can be flexibly accounted, we suggest that managers state that the referrer reward comes from the company (e.g., “We will offer you a reward after your friend's purchase”) rather than the referee's spending (Study 4).

A broader implication of our work is that in social relationship marketing, marketers may consider increasing the salience of the social and communal aspect of a referral program. Although we focus on disclosure in the invitation message as a strategy for increasing the compatibility between referring and communal relationships, our results imply other strategies. For instance, Study 5 shows that framing a referral program as a communal activity can increase referring in the undisclosed condition (F(1, 258) = 5.78, p = .017, Cohen's d = .43). Accordingly, many types of referral programs could highlight joint consumption as the major benefit of inviting friends (e.g., “teaming up with friends is more fun” for games or “food tastes better when you cook together” for meal prep services). We also speculate that marketers could achieve similar results by prompting the referrers to focus on fulfilling their friends’ needs (e.g., “Your friend may find this product useful, too!” or “This service may make your friend happy, too!”), though we leave an empirical test to future research.

In conclusion, through a series of field and lab experiments, this article identifies an easy and costless behavioral method to increase the rate at which existing customers refer their friends (communal partners): disclosing the referrer reward in the invitation message. We also highlight practically relevant boundary conditions (e.g., the referrer reward should not be greater than the referee reward and should not appear to come from the referee's spending) that can maximize the effectiveness of this method.

Supplemental Material

sj-pdf-1-mrj-10.1177_00222437221117113 - Supplemental material for I Will Get a Reward, Too: When Disclosing the Referrer Reward Increases Referring

Supplemental material, sj-pdf-1-mrj-10.1177_00222437221117113 for I Will Get a Reward, Too: When Disclosing the Referrer Reward Increases Referring by Minzhe Xu, Zhihao Yu and Yanping Tu in Journal of Marketing Research

Study	Measures	Referrer Reward
Study 1a (N = 371) field, preregistered	Referring	5%	14%	p = .005, odds ratio = 2.84
Acceptance	10%	22%	p = .399
	Conversion	.5%	3%	p = .057, odds ratio = 6.13
	Sales	$946	$7,238
Main finding:	Disclosure increased referring, conversion rates, and sales in a referral program for a fish taxidermy company in the United States.
Study 1b (N = 163) field	Referring	17%	31%	p = .031, odds ratio = 2.24
Acceptance	100%	100%
	Conversion	17%	31%	p = .031, odds ratio = 2.24
	Sales	$6,131	$10,949
Main finding:	Disclosure increased referring, conversion rates, and sales in a referral program for an educational service company in China.
Study 2a (N = 155) lab, preregistered	Referring	3.49	4.08	p = .016, Cohen's d = .39
Compatibility	4.21	4.70	p = .034, Cohen's d = .34
	Psychological barrier	3.53	2.75	p = .001, Cohen's d = .52
Main finding:	The positive effect of disclosure on referring was serially mediated by higher levels of perceived compatibility and lower levels of psychological barrier.
Study 2b (N = 200) lab, preregistered	Acceptance	4.05	4.54	p = .067, Cohen's d = .26
Compatibility	4.12	4.71	p = .002, Cohen's d = .44
Main finding:	Disclosure increased acceptance. The effect was driven by perceived compatibility between the acceptance action and communal norms.
Study 3 (N = 601) lab, preregistered	Referring (equal reward)	3.74	4.53	p = .004, Cohen's d = .42
	Referring (referrer less)	4.09	4.67	p = .034, Cohen's d = .30
	Referring (referrer more)	4.25	3.66	p = .032, Cohen's d = .30
Main finding:	Disclosure increased the referring likelihood under the equal reward scheme and the referrer less scheme but decreased the referring likelihood under the referrer more scheme.
Study 4 (N = 308) lab	Referring (company)	47%	70%	p = .003, odds ratio = 2.67
	Referring (referee's spending)	48%	34%	p = .071, odds ratio = 1.81
Main finding:	Disclosure increased the referring rate when the referrer reward was described as coming from the company but not when it was described as coming from the referee's spending.
Study 5 (N = 262) lab, preregistered	Referring (control framing)	3.17	4.18	p = .007, Cohen's d = .48
	Referring (communal-activity framing)	4.06	3.52	p = .135
Main finding:	Disclosure increased the referring intention in the control/exchange-activity framing condition but not in the communal-activity framing condition in which the referral activity was already framed as compatible with communal norms.

Footnotes

Associate Editor

Katherine White

Author Contributions

The three authors contributed equally. Correspondence regarding this article can be sent to all three authors.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Yanping Tu

Notes

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Study	Measures	Referrer Reward
Study	Measures	Undisclosed	Disclosed	Statistics
Study 1a (N = 371) field, preregistered	Referring	5%	14%	p = .005, odds ratio = 2.84
Study 1a (N = 371) field, preregistered	Acceptance	10%	22%	p = .399
	Conversion	.5%	3%	p = .057, odds ratio = 6.13
	Sales	$946	$7,238
Main finding:	Disclosure increased referring, conversion rates, and sales in a referral program for a fish taxidermy company in the United States.
Study 1b (N = 163) field	Referring	17%	31%	p = .031, odds ratio = 2.24
Study 1b (N = 163) field	Acceptance	100%	100%
	Conversion	17%	31%	p = .031, odds ratio = 2.24
	Sales	$6,131	$10,949
Main finding:	Disclosure increased referring, conversion rates, and sales in a referral program for an educational service company in China.
Study 2a (N = 155) lab, preregistered	Referring	3.49	4.08	p = .016, Cohen's d = .39
Study 2a (N = 155) lab, preregistered	Compatibility	4.21	4.70	p = .034, Cohen's d = .34
	Psychological barrier	3.53	2.75	p = .001, Cohen's d = .52
Main finding:	The positive effect of disclosure on referring was serially mediated by higher levels of perceived compatibility and lower levels of psychological barrier.
Study 2b (N = 200) lab, preregistered	Acceptance	4.05	4.54	p = .067, Cohen's d = .26
Study 2b (N = 200) lab, preregistered	Compatibility	4.12	4.71	p = .002, Cohen's d = .44
Main finding:	Disclosure increased acceptance. The effect was driven by perceived compatibility between the acceptance action and communal norms.
Study 3 (N = 601) lab, preregistered	Referring (equal reward)	3.74	4.53	p = .004, Cohen's d = .42
	Referring (referrer less)	4.09	4.67	p = .034, Cohen's d = .30
	Referring (referrer more)	4.25	3.66	p = .032, Cohen's d = .30
Main finding:	Disclosure increased the referring likelihood under the equal reward scheme and the referrer less scheme but decreased the referring likelihood under the referrer more scheme.
Study 4 (N = 308) lab	Referring (company)	47%	70%	p = .003, odds ratio = 2.67
	Referring (referee's spending)	48%	34%	p = .071, odds ratio = 1.81
Main finding:	Disclosure increased the referring rate when the referrer reward was described as coming from the company but not when it was described as coming from the referee's spending.
Study 5 (N = 262) lab, preregistered	Referring (control framing)	3.17	4.18	p = .007, Cohen's d = .48
	Referring (communal-activity framing)	4.06	3.52	p = .135
Main finding:	Disclosure increased the referring intention in the control/exchange-activity framing condition but not in the communal-activity framing condition in which the referral activity was already framed as compatible with communal norms.