The Causal Impact of Incentive Structure and Message Design on Product Diffusion: Evidence from Two Randomized Field Experiments
2017-05
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The Causal Impact of Incentive Structure and Message Design on Product Diffusion: Evidence from Two Randomized Field Experiments
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2017-05
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59% of people consult friends for advice in making purchase decisions. Not surprisingly, concomitant with the exploding growth of digital social networks, firms recognize the importance of using referral programs towards driving new business. Such schemes encourage existing customers with an incentive-laden call-to-action to engage their social networks by informing them about products and ultimately influencing and stimulating friends’ purchase decisions. While referral marketing is a widely adopted practice, the underlying science behind understanding and optimizing its various dimensions is nascent. The optimal design of referral program can be determined by three key design choices: incentive design (for both sender and recipients), call-to-action for information sharing (to the sender) and message design (to the recipient). While previous research has examined the design of message sent to the recipients, no study has investigated how firms can optimally design the incentive to the sender and receiver and message to the sender in the form of a call-to-action to engage customers. In this dissertation, I examine whether and how a firm can enhance social contagion by varying incentives (first essay) as well as the framing of the call-to-action messages (second essay) shared by customers with their friends. In collaboration with two US-based companies, I conduct two randomized field experiments to identify the causal effect of three types of difference incentive schemes, as well as three different types of call for sharing, respectively. The first experiment involves manipulations of how the monetary reward is shared between the sender and the receiver of the referral: selfish reward (sender gets all), equal reward (50-50 split), and generous reward (receiver gets all). In the second experiment, I test the effect of three different calls for referral: a) the egoistic call for sharing action, where I highlight the reward to the sender, b) the equitable based call for sharing action, where I highlight that both sender and the receiver get the reward, and c) the altruistic call for sharing action, where I highlight the reward to the receiver. The results show that the generous pro-social referral reward schemes and altruistic framing dominate selfish schemes and egoistic framing in creating word-of-mouth. Theoretically, the results together provide concrete and causal support to the hitherto under-studied role of altruism in creating social contagion. The findings of the study provide insights to companies planning to run referral programs to promote WOM based adoption of the products.
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University of Minnesota Ph.D. dissertation.May 2017. Major: Business Administration. Advisor: Ravi Bapna. 1 computer file (PDF); iv, 98 pages.
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Jung, JaeHwuen. (2017). The Causal Impact of Incentive Structure and Message Design on Product Diffusion: Evidence from Two Randomized Field Experiments. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/206652.
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