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Impact of service pricing on referral behaviour

Impact of service pricing on referral behaviour Purpose – This study seeks to examine the effect of pricing as a marketing instrument to stimulate word‐of‐mouth (WOM) by comparing the influence of two pricing strategies (i.e. a low‐complexity vs a network‐effects tariff) on the referral behaviour. Design/methodology/approach – Using customer data from a German mobile network operator (including information on customer characteristics, referral behaviour, and service usage), the authors develop a logit model. Findings – Surprisingly, the results indicate that it is the low‐complexity tariff that increases the likelihood of referrals and leads to an overall higher referral activity. Despite the lower referral activity, however, the network‐effects tariff generates higher revenues. Research limitations/implications – The results show that companies can use pricing schemes to influence referral behaviour and strongly indicate the need of further research on manageable tools to stimulate word‐of‐mouth marketing. Practical implications – The findings show not only that pricing has an impact on customers' referral behaviour but also that it is the low‐complexity tariffs that trigger referrals. Furthermore, the results underline the importance of considering the monetary value of referrals. Originality/value – In contrast with many previously conducted studies on customer referrals, the paper explicitly analyses the impact of pricing on referral behaviour and empirically shows that firms are able to actively manage WOM among customers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png European Journal of Marketing Emerald Publishing

Impact of service pricing on referral behaviour

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
0309-0566
DOI
10.1108/03090561311324200
Publisher site
See Article on Publisher Site

Abstract

Purpose – This study seeks to examine the effect of pricing as a marketing instrument to stimulate word‐of‐mouth (WOM) by comparing the influence of two pricing strategies (i.e. a low‐complexity vs a network‐effects tariff) on the referral behaviour. Design/methodology/approach – Using customer data from a German mobile network operator (including information on customer characteristics, referral behaviour, and service usage), the authors develop a logit model. Findings – Surprisingly, the results indicate that it is the low‐complexity tariff that increases the likelihood of referrals and leads to an overall higher referral activity. Despite the lower referral activity, however, the network‐effects tariff generates higher revenues. Research limitations/implications – The results show that companies can use pricing schemes to influence referral behaviour and strongly indicate the need of further research on manageable tools to stimulate word‐of‐mouth marketing. Practical implications – The findings show not only that pricing has an impact on customers' referral behaviour but also that it is the low‐complexity tariffs that trigger referrals. Furthermore, the results underline the importance of considering the monetary value of referrals. Originality/value – In contrast with many previously conducted studies on customer referrals, the paper explicitly analyses the impact of pricing on referral behaviour and empirically shows that firms are able to actively manage WOM among customers.

Journal

European Journal of MarketingEmerald Publishing

Published: Jul 19, 2013

Keywords: Tariff models; Referrals; Services; Word‐of‐mouth; Network effects; Pricing strategies; Marketing strategy; Pricing policy; Germany; Consumer behaviour

References