Riding the Referral Express: Examining the Impact of Referral Reward Programs on Digital Transportation Platforms

Abstract

This paper examines the effectiveness of referral reward programs (RRP) in sustaining network effects in digital transportation platforms (DTP). Using data of 119,130 users, the study assesses differences between referred and non-referred users in terms of revenue, retention, and engagement. Results show that referred users spend 5.77% more on average, have 11.66% less likelihood to defect and refer seven times more than non-referred users. However, the positive effects of RRPs do not significantly affect revenue of younger users and increases risk of defection in older generations over time. The study recommends firms to balance the referral and organic word-of-mouth effects of RRPs as one-size does not fit all.