Worth the Candle? An Empirical Investigation of User Effort and Referral Outcome in Crowdfunding

Referral programs have received increasing attention as a way to boost fundraising in reward-based crowdfunding markets. We shed light on this practice by examining the impact of the effort that users exert in making referrals (referral effort) on the outcome of the respective referral and by exploring factors that may affect users’ propensity to exert such effort. Using the data from a reward-based crowdfunding platform, we consider several forms of referral effort, namely, users’ effort to write the referral message, make a pledge to the project, and match the pledges that referral recipients make. We find that users’ referral effort can help improve the outcome of referrals because such effort is perceived as a positive signal of quality and thus help reduce referral recipients’ uncertainty in decision making. Users’ propensity to exert referral effort is influenced by factors such as the platform team’s recommendation, users’ past referral experience, and the timing that users participate in the project’s referral activity. Moreover, our subsequent analyses reveal that the positive impact of referral effort is weaker for projects that are launched by a large company or offer more perks. The effort of matching the recipients’ pledges, which serves as a financial incentive in the eyes of referral recipients, is not effective in encouraging recipients to pledge. We discuss the implications of our results for the design of referral programs and users’ decisions of making referrals in crowdfunding markets.