Acquiring customers via referral reward programs versus advertising: Who is more likely to provide future referrals?

Referral reward programs (RRPs) are an emerging method of attracting new customers. These programs are not only efficient but are also believed to attract customers of higher value. It is not known, however, whether customers who were acquired via an RRP also will use that RRP to attract friends to the program, continuing the chain. Hence, to help enterprises allocate their marketing resources in the most effective way, as well as to test the longevity of RRPs, we compared the likelihood of providing a rewarded referral between customers acquired through an RRP and those acquired through advertising. Through three scenario-based experiments, we found that customers acquired through an RRP are more likely to continue participating in the RRP than are those acquired through advertising. In addition, this effect is mediated by the customer's satisfaction with the product or service and the perceived justifiability of participating in the RRP. Further, satisfaction and justifiability act as sequential mediators between the customer acquisition method (i.e., RRP or advertising) and the likelihood of participating in an RRP. Finally, the results show that the influence of the customer acquisition method decreases as the customer's level of expertise increases. This research adds to the literature on the longevity of RRPs and the effects of different marketing methods. Our analysis also has implications for helping firms to allocate their marketing resources to sustain their RRPs.