Social commerce in a networked society: Considering social distance and norms in referral incentive mechanisms for online business

The referral incentive programs are one of the common incentive mechanisms to attract new customers in e-commerce websites, especially for start-ups, by leveraging existing customer's social networks. Designing an appropriate referral reward program will allow online businesses to increase customer base and enhance sales. This paper leverages the ultimatum game (sense of fairness) and construal level theory to investigate the impacts of social distance, social norm and market norm on the performance of different designs of referral reward programs. Lab experiments were conducted to test the proposed hypotheses. The results suggest that with close social distance, the success of an invitation is affected by the social norm among friends, but not monetary incentive; with far social distance, the success of an invitation is affected by division of referral bonuses. And a fair split of reward bonuses works best for friends with far social distance. The research sheds light on the appropriate design of incentives for different type of customers.