Research On Referral Program Design:"Help And Haggle" For Free Products

With the help of an innovative marketing referral reward program "Help and Haggle",the e-commerce platform Pinduoduo has risen rapidly and has become one of the largest social e-commerce platforms in China during the past serval years.In the "Help and Haggle" program,consumers choose their wanted products and share product links generated by Pinduoduo with friends through social media.When a friend clicks on the link(or downloads the Pinduoduo app),it helps the participant make a "haggle"(which triggers a randomized price discount on the product price).Once a participant reduces the product price to 0 yuan within 24 hours in the program,the participant can receive the product for free.Otherwise,the consumer fails in the haggling program and has to purchase at full price if he or she still wants to get the product.This entertaining "Help and Haggle" program not only provides consumers with the opportunity to receive free products but also dramatically stimulates their enthusiasm for spontaneously sharing Pinduoduo platform and its products on social media,creating massive new customers with an advantageous customer acquisition cost for Pinduoduo.At present"Help and Haggle" has been adopted by many platforms and has been a widely used innovative marketing strategy.In this marketing activity,retailers also play an essential participatory role besides the platform and consumers by cooperating with the platform and providing free products.These three roles coexist on the same platform,and each interacts with the other to maximize their interests.For example,consumers obtain products for free by deciding how much social effort they put in;the platform obtains as much advertising revenue as possible by optimizing its referral reward mechanism;and joining retailers obtain as much advertising revenue as possible by using free product bait.In this context,this dissertation focuses on the "Help and Haggle" referral reward program,studying their respectively optimal decision-making problems from various perspectives of the Pinduoduo platform,consumers,and joining retailers who provide free goods.Specifically,this dissertation focuses on the following three aspects of research.Study one,from the perspective of the Pinduoduo platform,investigates how the platform should design or set the price discount in the "Help and Haggle" referral reward program.The platform’s core target is to encourage users to complete the haggle,thereby realizing the social fission of consumers’ referrals.Aiming at this core issue,study one,based on the dynamic game theory model,explored the platform’s three important problems in the "Help and Haggle" referral reward mechanism design,including(ⅰ)whether the platform should adopt randomized price discounts or deterministic price discounts;(ⅱ)whether the platform should use adaptive price discounts or commitment price discounts;and(ⅲ)whether the platform should adopt "all-or-nothing" price discounts or "reward-per-referral" price discount.Our results show that the "Help and Haggle" referral reward program should have three key features:randomness,adaptiveness,and all-or-nothing.Specifically,(ⅰ)compared with deterministic price discount,the randomized price discount in this "Help and Haggle" referral program enables the platform to achieve three-fold benefits at the same time,namely:more social reach,lower referral costs,and more product sales;(ⅱ)compared with the commitment price discount,the ability to adaptively set price discount may hurt the interest of the platform;and(ⅲ)compared to the "reward-per-referral" scheme,an "all-or-nothing" scheme is more cost-effective in social reach.Study two,from the perspective of customers,explores the impact of the "sunk cost fallacy" on consumer participation in "Help and Haggle." Under this context,consumers should make the following decisions:(ⅰ)in the first stage of the "Help and Haggle" program,they decide whether to participate it or not;(ⅱ)once a consumer has already joined the "Help and Haggle" program,the consumer will then decide whether to continue referring new customers in the second stage of "Help and Haggle" program.During the process of "Help and Haggle" program,consumers need to spend time and their social currency in referring other consumers.In the haggling process,compared with the later stages,participants are more likely to obtain more significant price discounts in the early stages of haggling.For consumers,although the cost invested in referring new users(new users)in the first stage is a "sunk cost",due to the existence of the "sunk cost fallacy," it will affect the probability of consumers insisting on referring new users in the later stage.This dissertation adopts the method of non-perfect memory in game theory to demonstrate how consumers have the "sunk cost fallacy".This dissertation finds that when the expected utility and the cost of the referral in the first stage are independent,a higher sunk cost will lead to a higher probability for participants completing the second stage of referring new customers.Study three,from the perspective of retailers,investigates how the retailers should make the trade-off between the cost of free goods provided and the advertising revenue obtained by encouraging consumers to participate in a haggling campaign.On the one hand,when retailers provide more free products in the "Help and Haggle" program,it will directly increase consumers’ probability of getting free products,thereby increasing consumers’ enthusiasm for participation.On the other hand,fewer free products can increase competition among participants and boost consumers’ efforts in referring new customers.That is,given the number of free products offered by retailers,consumers will strategically exert referral efforts,affecting the retailers’ advertising revenue.This dissertation finds that when the competition among consumers qualified for the free products becomes more intense:(ⅰ)only those consumers with a higher referral conversion rate will exert referral efforts to win the free products;(ⅱ)the overall referral effort levels of all consumers will decrease;and(ⅲ)when the referral conversion rate is high,consumers are more motivated to put in a higher level of referral effort.To sum up,by focusing on the innovative "Help and Haggle" referral reward program,this dissertation studies the main factors that affect the behaviors of the platform,consumers,and retailers.The main contributions of this dissertation are as follows.First,this dissertation explores and analyzes an innovative referral program that uses the availability of free goods instead of money as a reward.Second,this dissertation studies the effects of consumers’ psychological factors on consumer behavior decisions in the referral reward program,which further enriches the relevant theories on consumer referral reward programs.Third,this dissertation,for the first time,investigates the retailer’s optimal number when cooperating with the platform by providing free products and finds that the retailer’s profit does not have a linear relationship with the referral conversion rate of the consumers.This result gives retailers a reference value for providing free products effectively.