Abstract In order to explore how firms can devise the referral reward program and the “viral product design” strategy and the relationship between these two strategies, this study jointly optimizes the price of the software product, network externality and the referral reward for profit maximization based on a game-theoretical model. The results show that there is a complex relationship between the two strategies. The optimal reward allocation on the market side is determined by the characteristics of both the product and the market. Either the recommender or the potential user should be rewarded under the optimal reward design; when the recommender is rewarded and the reward is nonzero, the “viral design” strategy and the recommendation reward strategy are independent from each other. In contrast, when the recommender is rewarded, two strategies are substitutable.
