Turning Shoppers Into Sellers: Two Experiments on Member-Get-Member Campaigns

Peeter W.J. Verlegh, Erasmus University Rotterdam
Ad Th. H. Pruyn, Twente University
Kim A. Peters, Luzac College Rotterdam
EXTENDED ABSTRACT - Marketers have a strong interest in the management of customer referrals (Buttle 1998, Biyalogorsky, Gerstner and Libai 2001). Recently, this issue has achieved even more importance, due to the increasing popularity of customer relationship management (CRM).. What appears to be lacking, however, is an understanding of the consumer psychology of customer referrals. This paper attempts to provide a first step into that direction, and focuses on member-get-member (MGM) campaigns, which are popular tools for expanding customer bases. In MGM campaigns, customers are asked to persuade others into being a customer. This is generally paired with a premium for one or both parties. In other words: the marketer offers a reward for acquiring a new customer, which is divided between the current and the new customer. We investigate consumer evaluations of MGM campaigns in two empirical studies, that are used to test a set of hypotheses based on social psychological research on equity theory and fairness in general, as well as insights obtained in experimental economics. A first experiment, in which consumers are asked to provide a preferred distribution of rewards in MGM campaigns suggests that customers prefer sharing rewards, in stead of trying to maximize their own gains. Our results differ from earlier findings in experimental economics (cf., Guth 1995), as we find that preferences for distributions are affected by the size of the reward. Furthermore, we find that preferences are differ between proself and prosocial consumers (Van Lange et al. 1997, Pruyn and Riezebos 2000). The results show a complex interaction between reward size, consumer perspective (current vs. potential member), and social value orientation.
[ to cite ]:
Peeter W.J. Verlegh, Ad Th. H. Pruyn, and Kim A. Peters (2003) ,"Turning Shoppers Into Sellers: Two Experiments on Member-Get-Member Campaigns", in NA - Advances in Consumer Research Volume 30, eds. Punam Anand Keller and Dennis W. Rook, Valdosta, GA : Association for Consumer Research, Pages: 346.

Advances in Consumer Research Volume 30, 2003     Page 346

TURNING SHOPPERS INTO SELLERS: TWO EXPERIMENTS ON MEMBER-GET-MEMBER CAMPAIGNS

Peeter W.J. Verlegh, Erasmus University Rotterdam

Ad Th. H. Pruyn, Twente University

Kim A. Peters, Luzac College Rotterdam

EXTENDED ABSTRACT -

Marketers have a strong interest in the management of customer referrals (Buttle 1998, Biyalogorsky, Gerstner and Libai 2001). Recently, this issue has achieved even more importance, due to the increasing popularity of customer relationship management (CRM).. What appears to be lacking, however, is an understanding of the consumer psychology of customer referrals. This paper attempts to provide a first step into that direction, and focuses on member-get-member (MGM) campaigns, which are popular tools for expanding customer bases. In MGM campaigns, customers are asked to persuade others into being a customer. This is generally paired with a premium for one or both parties. In other words: the marketer offers a reward for acquiring a new customer, which is divided between the current and the new customer. We investigate consumer evaluations of MGM campaigns in two empirical studies, that are used to test a set of hypotheses based on social psychological research on equity theory and fairness in general, as well as insights obtained in experimental economics. A first experiment, in which consumers are asked to provide a preferred distribution of rewards in MGM campaigns suggests that customers prefer sharing rewards, in stead of trying to maximize their own gains. Our results differ from earlier findings in experimental economics (cf., Guth 1995), as we find that preferences for distributions are affected by the size of the reward. Furthermore, we find that preferences are differ between proself and prosocial consumers (Van Lange et al. 1997, Pruyn and Riezebos 2000). The results show a complex interaction between reward size, consumer perspective (current vs. potential member), and social value orientation.

The second study more closely resembles the set-up of actual member get member campaigns, and seeks to answer two different questions, one managerial and one academic. The managerial question is whether member-get-member campaigns are most successful when the reward is given (a) to the current member, (b) to the potential member, or (c) shared between these two parties. The academic question is if and when consumers choose to refrain from profit, and prefer to share a reward rather than keep it to themselves. The results of our preliminary study suggest that consumers have a strong preference for 50/50 distributions in a setting when they can freely distribute rewards between themselves and another party. In addition, we find that consumers prefer to allocate a larger portion of the reward to current members. In MGM campaigns however, the distribution of rewards is determined by the marketer, leaving the consumer with only two options: participate or not participate.

We investigated consumers’ responses to this situation in a 3 x 2 x 2 full-factorial design. The first factor pertains to the distribution of the rewards. We set three levels for this factor, that represent extreme but commonly used alternatives: 100% to potential member, 100% to current member, 50% to each party. We examine two scenarios that differ in the type of membership that is being offered (factor 2). Both scenarios involved a one-year membership that could be terminated or extended at the end of this period. The difference between the two types, however, is that one type of membership makes but one membership and both memberships provide (financial) benefits to the consumer. They differ however in terms of membership fees, that can be either absent or present (i.e., free or paid membership). The third factor refers to the perspective taken by the participant, and has two levels: current versus potential member.

We find that potential members have favorable evaluations of MGM campaigns in which they receive higher rewards, regardless of membership type. For both types of memberships, the most attractive campaign for potential members is the one in which 100% is rewarded to themselves (although the difference with the 50/50 campaign is not significant for paid memberships). This preference is in line with the notion of profit maximization. For current members, a similar result is found for campaigns pertaining to free memberships. The intention to participate is highest for campaigns were 100% is given to the current member, and lowest for campaigns where 100 % is goes to the new member, with the 50/50 distribution falling in between. The results for paid memberships deviate from this pattern. Apparently, consumers find it inappropriate to get 100% of the reward when the other party (i.e., the potential member) has to make a substantial financial investment. For this setting, we find a clear preference for sharing rewards (64.2), and no difference between receiving 100% of the reward (48.6) and giving 100% of the reward to the potential member (48.3). This latter pattern of results is in line with the preference for 50/50 distributions that was found in our first experiment. In addition to the preferences that served as dependent variables, we analyzed several measures to capture the underlying process. These data confirm that perceived fairness of the offer was an important mediator of consumers’ likelihood to participate in the MGM campaign.

REFERENCES

Biyalogorsky, E., Eitan Gerstner, and B. Libai (2001), "Customer Referral Management: Optimal Reward Programs", Marketing Science, 20, 82-95

Buttle, Francis A., 1998. Word of mouth: Understanding and managing referral marketing. Journal of Strategic Marketing, 6, 241-254.

Gnth, Werner. (1995), "On Ultimatum Bargaining Experiments: A Personal Review", Journal of Economic Behavior and Organization, 27, 329-244

Pruyn, Ad Th. H., and Rik Riezebos, (2001), "Effects of Social Dilemmas on Advertising Budget-setting: a Scenario Study", Journal of Economic Psychology, 22, 43-6.

Van Lange, Paul A.M., Ellen M.N. De Bruin, Wilma Otten, and Jeffrey A. Joireman (1997), "Development of Prosocial, Individualistic and Competitive Orientations: Theory and Preliminary Evidence", Journal of Personality and Social Psychology, 73,733-746

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