{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,6,1]],"date-time":"2026-06-01T17:02:12Z","timestamp":1780333332280,"version":"3.54.1"},"reference-count":25,"publisher":"MIS Quarterly","issue":"2","content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"published-print":{"date-parts":[[2026,6,1]]},"abstract":"<jats:p>Referral programs are widely used for customer acquisition. Traditionally, these programs adopt a referral-reward approach, offering monetary incentives for successful referrals. However, many firms, especially in digital industries, have embraced an alternative\u2014referral-upgrade programs that reward successful referrers with product upgrades such as premium features or enhanced services. Despite their growing use, little is known about when such programs can outperform the traditional referral-reward approach. This paper develops a stylized model to compare these two referral mechanisms. We address two questions: (1) when referral-upgrade programs are more (or less) profitable than referral-reward programs, and (2) how key factors such as referral costs and referral reachability, captured by multiple referrals and the degree of overlap among referred friends, affect firms\u2019 decisions and customer behaviors. We find that referral-upgrade programs are generally more profitable than referral-reward programs, and this profit dominance remains robust to various extensions such as marginal costs or boundedly rational customers but may reverse when referral costs are correlated with customer valuations or when referral reachability expands via multiple referrals. Our findings offer managerial insights into when firms should adopt upgrade-based incentives to manage their referral programs.<\/jats:p>","DOI":"10.25300\/misq\/2025\/19540","type":"journal-article","created":{"date-parts":[[2025,10,30]],"date-time":"2025-10-30T17:50:42Z","timestamp":1761846642000},"page":"673-698","source":"Crossref","is-referenced-by-count":0,"title":["Rewards or Upgrades? Incentive Designs in Referral Programs"],"prefix":"10.25300","volume":"50","author":[{"given":"Chenguang (Allen)","family":"Wu","sequence":"first","affiliation":[{"name":"Department of Industrial Engineering and Decision Analytics, Hong Kong University of Science and Technology, Hong Kong"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Chen","family":"Jin","sequence":"additional","affiliation":[{"name":"Department of Information Systems and Analytics, School of Computing, National University of Singapore, Singapore"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Ying-Ju","family":"Chen","sequence":"additional","affiliation":[{"name":"School of Business and Management (ISOM), Hong Kong University of Science and Technology, Hong Kong"}],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"10933","published-online":{"date-parts":[[2026,6,1]]},"reference":[{"issue":"12","key":"2026060112023122900_b1-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"8933","DOI":"10.1287\/mnsc.2022.4301","article-title":"Social referral programs for freemium platforms","volume":"68","author":"Belo","year":"2022","journal-title":"Management Science"},{"issue":"5","key":"2026060112023122900_b2-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"1029","DOI":"10.1287\/mnsc.1070.0773","article-title":"Research note\u2014When is versioning optimal for information goods?","volume":"54","author":"Bhargava","year":"2008","journal-title":"Management Science"},{"issue":"1","key":"2026060112023122900_b3-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"82","DOI":"10.1287\/mksc.20.1.82.10195","article-title":"Customer referral management: Optimal reward programs","volume":"20","author":"Biyalogorsky","year":"2001","journal-title":"Marketing Science"},{"issue":"5","key":"2026060112023122900_b4-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"2164","DOI":"10.1287\/mnsc.2016.2698","article-title":"Cost drivers of versioning: Pricing and product line strategies for information goods","volume":"64","author":"Chellappa","year":"2018","journal-title":"Management Science"},{"issue":"3","key":"2026060112023122900_b5-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"265","DOI":"10.1287\/mksc.20.3.265.9767","article-title":"Quality segmentation in spatial markets: When does cannibalization affect product line design?","volume":"20","author":"Desai","year":"2001","journal-title":"Marketing Science"},{"issue":"2","key":"2026060112023122900_b6-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"698","DOI":"10.1287\/isre.2022.1138","article-title":"Evolution of referrals over customers\u2019 life cycle: Evidence from a ride-sharing platform","volume":"34","author":"Fern\u00e1ndez-Lor\u00eda","year":"2023","journal-title":"Information Systems Research"},{"issue":"3","key":"2026060112023122900_b7-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"787","DOI":"10.25300\/MISQ\/2017\/41.3.06","article-title":"On the role of fairness and social distance in designing effective social referral systems","volume":"41","author":"Hong","year":"2017","journal-title":"MIS Quarterly"},{"issue":"6","key":"2026060112023122900_b8-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"995","DOI":"10.1037\/0022-3514.79.6.995","article-title":"When choice is demotivating: Can one desire too much of a good thing?","volume":"79","author":"Iyengar","year":"2000","journal-title":"Journal of Personality and Social Psychology"},{"issue":"8","key":"2026060112023122900_b9-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"1354","DOI":"10.1287\/mnsc.1110.1366","article-title":"Group buying: A new mechanism for selling through social interactions","volume":"57","author":"Jing","year":"2011","journal-title":"Management Science"},{"issue":"1","key":"2026060112023122900_b10-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"16","DOI":"10.1287\/isre.2019.0873","article-title":"Words matter! Toward a prosocial call-to-action for online referral: Evidence from two field experiments","volume":"31","author":"Jung","year":"2020","journal-title":"Information Systems Research"},{"issue":"1","key":"2026060112023122900_b11-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"108","DOI":"10.1287\/mksc.1080.0484","article-title":"Optimal referral bonuses with asymmetric information: Firm-offered and interpersonal incentives","volume":"29","author":"Kornish","year":"2010","journal-title":"Marketing Science"},{"issue":"4","key":"2026060112023122900_b12-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"965","DOI":"10.1287\/isre.2017.0763","article-title":"Versioning and information dissemination: A new perspective","volume":"29","author":"Lahiri","year":"2018","journal-title":"Information Systems Research"},{"issue":"4","key":"2026060112023122900_b13-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"303","DOI":"10.1177\/1094670503005004003","article-title":"Setting referral fees in affiliate marketing","volume":"5","author":"Libai","year":"2003","journal-title":"Journal of Service Research"},{"issue":"10","key":"2026060112023122900_b14-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"3514","DOI":"10.1287\/mnsc.2016.2476","article-title":"Customer referral incentives and social media","volume":"63","author":"Lobel","year":"2017","journal-title":"Management Science"},{"issue":"12","key":"2026060112023122900_b15-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"2039","DOI":"10.1287\/mnsc.1080.0935","article-title":"Product-line competition: Customization vs. proliferation","volume":"54","author":"Mendelson","year":"2008","journal-title":"Management Science"},{"issue":"4","key":"2026060112023122900_b16-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"288","DOI":"10.1287\/mksc.3.4.288","article-title":"Market segmentation, self-selection, and product line design","volume":"3","author":"Moorthy","year":"1984","journal-title":"Marketing Science"},{"issue":"2","key":"2026060112023122900_b17-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"301","DOI":"10.1016\/0022-0531(78)90085-6","article-title":"Monopoly and product quality","volume":"18","author":"Mussa","year":"1978","journal-title":"Journal of Economic Theory"},{"issue":"5","key":"2026060112023122900_b18-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"2067","DOI":"10.1111\/poms.13665","article-title":"Predicting upgrade timing for successive product generations: An exponential-decay proportional hazard model","volume":"31","author":"Qu","year":"2022","journal-title":"Production and Operations Management"},{"issue":"5","key":"2026060112023122900_b19-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"1162","DOI":"10.1287\/mnsc.1120.1604","article-title":"Consumer heterogeneity, product quality, and distribution channels","volume":"59","author":"Shi","year":"2013","journal-title":"Management Science"},{"issue":"1","key":"2026060112023122900_b20-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"99","DOI":"10.2307\/1884852","article-title":"A behavioral model of rational choice","volume":"69","author":"Simon","year":"1955","journal-title":"The Quarterly Journal of Economics"},{"issue":"2","key":"2026060112023122900_b21-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"789","DOI":"10.25300\/MISQ\/2021\/15352","article-title":"Designing promotional incentives to embrace social sharing: Evidence from field and online experiments","volume":"45","author":"Sun","year":"2021","journal-title":"MIS Quarterly"},{"issue":"5","key":"2026060112023122900_b22-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"546","DOI":"10.1509\/jmr.10.0355","article-title":"Social networks, personalized advertising, and privacy controls","volume":"51","author":"Tucker","year":"2014","journal-title":"Journal of Marketing Research"},{"issue":"2","key":"2026060112023122900_b23-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"156","DOI":"10.1287\/mksc.17.2.156","article-title":"Product line design for a distribution channel","volume":"17","author":"Villas-Boas","year":"1998","journal-title":"Marketing Science"},{"issue":"3","key":"2026060112023122900_b24-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"730","DOI":"10.1016\/j.ejor.2011.05.042","article-title":"Optimizing referral reward programs under impression management considerations","volume":"215","author":"Xiao","year":"2011","journal-title":"European Journal of Operational Research"},{"issue":"5","key":"2026060112023122900_b25-10_ra_10_25300_misq_2025_19540","doi-asserted-by":"publisher","first-page":"2231","DOI":"10.1287\/mnsc.2018.3034","article-title":"Referral priority program: Leveraging social ties via operational incentives","volume":"65","author":"Yang","year":"2019","journal-title":"Management Science"}],"container-title":["MIS Quarterly"],"original-title":[],"language":"en","link":[{"URL":"https:\/\/misq.umn.edu\/misq\/article-pdf\/50\/2\/673\/20595\/10_ra_10.25300_misq_2025_19540.pdf","content-type":"application\/pdf","content-version":"vor","intended-application":"syndication"},{"URL":"https:\/\/misq.umn.edu\/misq\/article-pdf\/50\/2\/673\/20595\/10_ra_10.25300_misq_2025_19540.pdf","content-type":"unspecified","content-version":"vor","intended-application":"similarity-checking"}],"deposited":{"date-parts":[[2026,6,1]],"date-time":"2026-06-01T16:02:39Z","timestamp":1780329759000},"score":1,"resource":{"primary":{"URL":"https:\/\/misq.umn.edu\/misq\/article\/50\/2\/673\/3630\/Rewards-or-Upgrades-Incentive-Designs-in-Referral"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026,6,1]]},"references-count":25,"journal-issue":{"issue":"2","published-online":{"date-parts":[[2026,6,1]]},"published-print":{"date-parts":[[2026,6,1]]}},"URL":"https:\/\/doi.org\/10.25300\/misq\/2025\/19540","relation":{},"ISSN":["0276-7783","2162-9730"],"issn-type":[{"value":"0276-7783","type":"print"},{"value":"2162-9730","type":"electronic"}],"subject":[],"published":{"date-parts":[[2026,6,1]]}}}