Reward More Can Referral Better? Combined New and Current Customers

Referral reward programs are a popular word-of-mouth marketing strategy, but determining the optimal reward size remains a challenge. While larger rewards incentivize referrals, they can negatively impact new customer profitability. This study addresses this trade-off by examining the combined effect of reward size on both new and existing customer profitability. We conducted a field experiment and applied a novel DEA-PSM-OLS framework to analyze data from a digital content company. Our findings reveal that a moderate reward size outperforms both small and large rewards, suggesting that maximizing referral program effectiveness requires a balanced approach that considers the value generated by both new and existing customers.