Social Commerce Beyond Word of Mouth : Role of Social Distance and Social Norms in Online Referral Incentive Systems

Online social referral incentive systems help attract new customers to commercial websites by leveraging existing customers’ social networks. Designing an appropriate referral incentive system allows websites to increase their customer base and enhance sales. This study integrates ultimatum game (fairness) theory with construal level theory to investigate the impacts of social distance, social norms, and monetary incentives on the performance of different designs of online social referral incentive systems. Incentivized controlled lab experiments and randomized field experiments with an online ticketing company were conducted to test hypotheses on the effects of social distance, social norms, and the split of the referral bonus (monetary incentive) between a proposer and a responder on the performance of online social referral incentive systems. Results show that with small social distance (friends), the success of a referral is determined by the social norms between friends but not by the split of the referral bonus; with a large social distance (acquaintances), the success of the referral is determined by a fair split of the bonus between acquaintances. By studying the dynamics of social networking, our research stresses the role of social elements in e-commerce when rational economic rules can be potentially harmful