Reward the inductor or inductee? The effect of the inductee's altruism on a shopping guide platform

Abstract

Purpose This study highlights the effect of an inductee's altruism on referral reward programs (RRPs) on an online shopping guide platform to determine the optimal RRP and referral reward allocation under a Cashback and Referral RRP. Design/methodology/approach The authors consider a Stackelberg game with a platform, seller, inductor and inductee, where the inductee's altruism plays a vital role in determining the optimal RRP in equilibrium. Findings The authors show that the conditions under which it is optimal to reward the inductor only or reward both inductor and inductee are equal or unequal depending on the degree of the inductee's altruism. Suppose the platform is unable to dynamically decide the commission fee. In that case, the platform may not always be involved in RRPs and will gradually reduce the rewards for inductees as the altruism increases. Research limitations/implications This study focuses on a free-to-consumers model where sellers pay membership fees. Thus, this study has limitations regarding other pricing schemes such as a model in which consumers pay a fee while sellers do not or a model in which both types of users pay fees. Practical implications This analytical work can help platforms optimize referral reward strategies and referral reward allocation considering the influence of an inductee's altruism. Originality/value In a Cashback and Referral RRP on a shopping guide platform, the authors provide applicable conditions for the platform to involve in the RRPs when rewarding an equal bonus for the inductor and inductee first. Further, the authors show the optimal referral reward strategy and referral reward allocation when giving the different bonuses to the inductor and inductee.

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