Seminar (Dept. of Marketing)

Theme：On the Design of Referral Programmes

Speaker：Zihao Zhou（University of California）

Time：2020-10-23 09:00

Address：Room 713, Mingde Business Building

Language：Chinese/English

Abstract：

I study the design of customer referral programmes by constructing a stylized static principal-agent model with hidden actions, in which a firm designs a referral programme to incentivize an existing customer to exert costly efforts to refer the customer's friends to the firm. In the baseline model, this paper finds it optimal for the firm to pay the customer if and only if every friend of the customer is successfully referred. Overall, this paper finds it cost-effective to include threshold contracts to incentivize efforts in the baseline model as well as in several extensions that are relevant to the design of referral programmes. Additionally, this paper provides a complete ordering of different threshold contracts on cost-effectiveness with eas-ily interpretable insights. Lastly, to better relate this paper to the existing literature on hidden-action models, I provide and discuss sufficient conditions under which the result of highest-threshold optimality holds.

Short biography：

Zihao Zhou is a PhD Candidate in Marketing at the Haas School of Business, University of California, Berkeley, with the graduation expected in May 2021. His main research interest focuses on network-based marketing, in which a firm seeks to grow its customer base or to improve its profit margin from its existing customers through the customers’ social & economic network. His re-search methodologies include game-theoretic modelling (e.g., mechanism design) and structural modelling.

His job market paper investigates the question of how a firm can design its referral programme to cost-effectively incentivize an existing customer to exert costly efforts to refer the customer’s friends that are potential new customers to the firm. Through a tractable model, the paper finds that the use or inclusion of so-called threshold contracts, in which the customer gets a fixed amount of referral rewards when the number of referrals exceeds some threshold, is very cost-effective in incentivizing customer referral efforts.

Before starting the PhD programme at UC Berkeley in 2016, he obtained BSc in Mathematics/Eco-nomics and BSc in Statistics at the University of California, Los Angeles in 2015, and then MSc in Economics at the London School of Economics in 2016.