The Impact of Consumers’ Functional Goals on Referral Effectiveness
(A2019-9221)

AUTHORS

Henning Kreis, SRH Hochschule Berlin; Till Dannewald, Wiesbaden Business School; Alexander Mafael, Freie Universität Berlin

KEYWORDS

Referral management; Word of mouth; Market share

ABSTRACT

Word-of-mouth (WOM) is one of the most powerful determinants of consumer behavior and reduces perceived risk, reinforces brand equity, and drives sales. One option for firms to influence consumer behavior through WOM is through customer referrals. We argue that consumers have different functional goals when they make purchase decisions and show that referrals need to match these goals influence future decisions. A secondary dataset from the German automotive market provides information on customer referral behavior. Matching this information to automotive sales allows us to determine the impact of functional matching on market share. We group name brands in value and premium brands to estimate the effect of matching referrals. The results show that matching referrals have a stronger positive effect on market share compared to non-matching referrals. From a managerial perspective, we show that managers should take differences in functional motivation into account when they design referral programs.