Tag: Cynthia Cryder

Companies typically offer incentives directly to customers who refer friends. Google Apps, for instance, offers customers $15 for each new friend they recruit. And World of Warcraft, the video game, offered users a free month of gaming if they successfully influenced friends to buy a subscription.

Suppose, however, that the reward went to the friends—instead of the existing customers? New research shows marketers could win more customers because existing customers may value the boost in their reputation among friends more than a “selfish” financial incentive.

Cynthia Cryder
Cynthia Cryder

Olin’s Cynthia Cryder, associate professor of marketing, and coauthors examined how social dynamics change the outcomes of incentivized behavior.

In two field experiments and a lab experiment, they found that “prosocial” (friend-benefiting) referral incentives recruited more new customers than “selfish” (sender-benefiting) incentives. They report the findings in “Why Prosocial Referral Incentives Work: The Interplay of Reputational Benefits and Action Costs” in the Journal of Marketing Research.

The benefits that come from being generous to one’s friends substantially influence decisions in ways that are not obvious to everyone who designs incentive programs, Cryder said.

The researchers focused on customer referral programs in which companies offer incentives to customers who refer people in their social network to become new customers. To the best of their knowledge, the research is the first to investigate “anticipated reputational benefits as a driver of prosocial behavior in referral programs.”

Reputational rewards motivate people to behave generously because of their strong desire for social approval and the fundamental human need to maintain close personal relationships, Cryder said.


For one study in their research, Cryder and coauthors conducted a field experiment with the startup GiftAMeal. GiftAMeal partners with restaurants and encourages diners to take pictures of their meals and share them on social media. Then, GiftAMeal donates a meal to a food bank each time a customer shares on social media. (Andrew Glantz, BSBA ’17, founded the company while he was a student at Olin.)

The experiment tested different incentive structures on new customer conversions. GiftAMeal emailed 6,364 customers, asking them to refer their friends to download the app. The customers were randomly assigned to one of five experimental conditions:

  • control with no monetary incentive,
  • sender-benefiting (Customers received a $5 Amazon gift card for each friend who downloaded the app.),
  • recipient-benefiting (Referred friends received a $5 gift card if they downloaded the app.),
  • shared (Senders and their friends each received a $2.50 gift card if the friend downloaded the app.),
  • or donation (GiftAMeal donated $5 to the charity Feeding America for each download.).

Overall, the conversion rate was low in the study, which is typical for referral programs, the authors said.  Nevertheless, they detected significant differences between experimental conditions. The conversion rate was marginally higher in the friend-benefiting condition relative to the sender-benefiting condition. Multiple follow-up studies confirmed this pattern.

Scarcity of friend-benefiting rewards

As part of the research, a research assistant searched for about 300 referral incentive programs online and categorized them based on who received the reward. Of the 351 referral incentive programs, 40.5% offered sender-benefiting rewards, while only 2.6% offered recipient-benefiting rewards. (Fifty-five percent offered rewards that  the sender and recipient shared.)

Yet, Cryder’s research shows referrals that benefit one’s social connections are more effective than sender-benefiting referrals: Recipient-benefiting referrals offer reputational benefits to the sender while also directly incentivizing the friend to sign up.

“The preponderance of sender-benefiting referral incentives in the marketplace suggests these effects are not expected by marketers who design incentive schemes,” she said.

Cynthia Cryder

Michal Grinstein-Weiss

Michal Grinstein-Weiss

The W-2s are arriving and taxpayers are preparing to file their 2017 federal income taxes. For low- and moderate-income taxpayers, the possibility of a modest windfall looms: Will they receive a refund?

For these taxpayers, 80 percent of the time, the answer will be yes. So what happens next is key. Will taxpayers immediately absorb their tax refund into short-term expenses? Or can they be persuaded to save it for more long-term needs or as a rainy-day fund?

A research paper set for publication in the journal Behavioral Science & Policy demonstrates that by structuring the right messaging in the right way, those taxpayers can be encouraged to save their returns for long-term needs or unforeseen emergencies.

The research team—including professors from Olin Business School, the Brown School of Social Work, the University of North Carolina at Chapel Hill, and Duke University—worked with a collection of nearly 650,000 online tax filers to determine what interventions might effectively guide taxpayers to save their returns. The study was part of the Refund to Savings Initiative, a collaboration between Washington University, Duke University, and Intuit, Inc., the makers of TurboTax.

“Low income individuals usually have pressing financial needs for whatever refund they can get,” said Cynthia Cryder, associate professor of marketing at Olin. “That means it is quite a challenge to design interventions that move the needle on savings outcomes.”

Tax Time and Tax Reform

The research is particularly topical now, as taxpayers gear up to file their 2017 taxes. It also comes in the shadow of tax reform legislation recently passed in Congress and signed by President Donald Trump.

“High-income households really benefit greatly from the current tax code, where they get large subsidies for mortgage interest deductions, retirement accounts, and other benefits,” said Michal Grinstein-Weiss, a professor and associate dean for policy initiatives at the Brown School. Meanwhile, “lower-income households received very modest subsidies in the tax code.”

Through the Refund to Savings Initiative, the team partnered with Intuit over the past five years to target millions of qualified users of Intuit’s free online income tax filing program, TurboTax Freedom Edition, as they filed their taxes. In their 2015 experiment, the researchers used behavioral economics techniques and varied the messaging almost 650,000 taxpayers received when asked how their tax returns should be handled.

In some cases, the researchers varied the choice layout that taxpayers viewed for handling a tax return—the “architecture” of the choices. For some taxpayers, the “choice architecture” might have been very basic: Send a paper check, direct deposit to a bank account (which could include a savings account), or split the refund into multiple accounts.

For other taxpayers, however, the architecture mentioned savings more directly, specifically asking whether the refund should go to a savings account, or offering help to create a savings account.

In other treatments within the field experiment, researchers varied the nature of the messages taxpayers received, suggesting future uses for their returns such as retirement, emergency funds, car purchases, or education.

Positive Results

As it turns out, every intervention the researchers tested resulted in more savings versus the control group, which received no interventions. In one intervention, for example, where savings was made salient both via choice layout and messaging, taxpayers saved nearly $84 per person more on average than the control group.

“What is important about this study is that an intervention of a few seconds can lead to a large impact,” Grinstein-Weiss said.

In a second experiment, a small number of consumers considered a hypothetical $1,000 refund and offered different options, including a recommendation to save for an emergency “rainy-day” fund. The results showed taxpayers would have saved an average of $486 per person—about $307 more than the control group.

A third experiment also addressed a smaller subset of consumers with another hypothetical $1,000 tax return, testing a variety of strategies for emphasizing “saving” as an option. “Heavily emphasizing ‘saving’ or making ‘saving’ a simple one-click decision both increased savings,”the researchers wrote. “Simply making ‘saving’ explicit among (the choices) was not sufficient to increase savings deposits.”

Cryder said their research is continuing with data from 2016 tax filers and will again with people who file their 2017 taxes.

The current research “is suggestive, but not conclusive of the benefits of highlighting savings,” Cryder said. “We know that people not having short-term savings is incredibly stressful, and these interventions increased short-term savings. What we don’t know for sure is whether it actually decreased financial stress.”

The next steps in the research will look at what outside forces might influence decisions low- to moderate-income taxpayers make when dealing with their returns. “What is the best use of money for people using their tax income in terms of financial well-being and overall stress?” Cryder said. “How can we encourage them to do that with their money?”

Grinstein-Weiss agreed, noting that clearing debt may, in some cases, be the best use of tax savings—and that’s likely the key question researchers will tackle in the next tax season’s research.

“It was encouraging that you can get so many people to save at tax time,” Grinstein-Weiss said. “It makes me feel like more of these companies should do things like this and encourage people to save.”

The below post originally appeared on The Source.

Spend $200 on a great Christmas gift at the big box store and get a $50 gift card. Sounds like a great offer. It may, in fact, entice you to spend more than you normally would, warns an Olin Business School marketing expert.

Cynthia Cryder

“Price promotions that feel too good to be true are always an opportunity for consumers to take an extra moment for reflection,” said Cynthia Cryder, associate professor of marketing at Olin Business School. “Instead of thinking about how much money they are ‘saving,’ consumers might want to stop to ask themselves: How much am I actually paying for this product, and am I willing to pay that much?”

Cryder and co-author Andong Cheng, of the University of Delaware, examined the phenomenon of this “mental discounting” in a new paper, “Double Mental Discounting: When a Single Price Promotion Feels Twice as Nice,” accepted in the Journal of Marketing Research.

With certain price promotions, such as a receiving a gift card to spend in the future, consumers mentally deduct the gift card’s value from the initial purchase as well as from the second purchase when they use the gift card. Multiple mental deductions based on a single price promotion result in consumers’ perceptions that their costs feel lower than they actually are, and can increase spending, Cryder said.

“Consider a situation in which a college student purchases a $900 Macbook and receives a $100 gift card to spend in an Apple store in the future,” Cryder and Cheng wrote in the paper. “Feeling confident that she will use the gift card, the student may mentally reduce the laptop cost and think: ‘I am spending only $800 (instead of $900) on this laptop because I am receiving $100 worth of credit back in my pocket.’

“Now imagine that later, the student is back in the store purchasing a $300 iPad. At this point, she applies the $100 gift card, resulting in a final $200 charge for the iPad,” they wrote. “She may think: ‘I am spending only $200 (instead of $300) for this tablet, because my gift card covers some of the cost.’ In total, this consumer has paid $1100 for the laptop and tablet, yet, because she mentally applied the price promotion to both purchases, she may feel as if she paid substantially less.”

According to industry research, Cryder said, businesses will load $14.5 billion onto promotional credit offers in 2017, triple the amount from 10 years ago.

“These promotions create opportunities for retailers, and consumers should carefully consider these offers before taking advantage of them,” Cryder said. “Although consumers might feel like they are spending less, these offers can sometimes encourage them to spend more.”

By Neil Schoenherr, Washington University in St. Louis Public Affairs