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Introduction
Referral reward programs (RRPs) are customer acquisition tools that incentivize current customers to refer new customers (Jin and Huang, 2014; Wirtz and Lovelock, 2017, p. 269). RRPs have become ubiquitous; a recent Google search (using the search term “referral reward program”) yielded more than 12 million hits. Service firms operate RRPs because they believe such programs offer a cost-effective way to attract new customers (Wirtz and Zeithaml, 2017). The underlying assumption is that making an incentivized recommendation is akin to customers engaging in word-of-mouth (WOM; Wirtz and Chew, 2002), which is attractive, as WOM recommendations are viewed by recipients as credible (Price and Feick, 1984; Sivadas and Jindal, 2017) and trustworthy (Arndt, 1967; Glynn Mangold et al., 1999).
Academic research presents conflicting findings with regards to the effectiveness of RRPs. A number of studies show that incentives can be an effective way to motivate referral behavior because they provide an economic benefit that rewards and compensates for the time and effort recommenders spend in communicating with recommendation recipients (Ryu and Feick, 2007). In contrast, other studies find that incentives can be a barrier to referral behavior when they generate social costs and metaperception concerns, whereby potential recommendation givers worry that recipients view their recommendations as self-interested or even opportunistic (Jin and Huang, 2014; Wirtz et al., 2013).
The present study examines how customer perceptions of the economic benefits and social costs (i.e. favorability of metaperception) associated with referral rewards jointly influence the likelihood to participate in an RRP. We aim with this simultaneous examination to help reconcile the conflicting findings in the literature. In particular, our study shows that incentives activate two opposing psychological mechanisms. First, a positive effect via perceived attractiveness of the incentive on referral likelihood, and second, a negative effect via the favorability of metaperception of the recommendation. Thus, the net impact of incentives on recommendation behavior depends on the relative strengths of these two opposing forces.
The present research also demonstrates that these two processes are independent of one another by showing that two moderators each operate exclusively only on one of the mediating effects. First, the perceived usefulness of the incentive moderates the effect of incentive size on incentive attractiveness and subsequent likelihood to recommend. For example,...