Growing Existing Customers’ Revenue Streams through Customer Referral Programs

Abstract

Customer referral programs are an effective means of customer acquisition. By assessing a large-scale customer data set from a global cellular telecommunications provider, the authors show that participation in a referral program also increases existing customers' loyalty. In a field experiment, recommenders' defection rates fell from 19% to 7% within a year, and their average monthly revenue grew by 11.4% compared with a matched control group. A negative interaction between referral program participation and customer tenure reveals that the loyalty effect of voicing a recommendation is particularly pronounced for newer customer-firm relationships. A laboratory experiment further demonstrates that referral programs with larger rewards strengthen attitudinal and behavioral loyalty, whereas smaller rewards affect only the behavioral dimension. This article contributes to our theoretical understanding of the roles played by the commitment-consistency principle and positive reinforcement theory as mechanisms underlying the effectiveness of customer referral programs.

Identifying influencers in a social network: The value of real referral data

“…As a result, marketers are in a continuous battle for attracting potential customers' attention and getting into their consideration set. Many have shifted part of their marketing efforts portfolio from directly communicating with potential customers to incentivizing existing customers to do so [16]. This is driven by the growing acceptance of the fact that people are highly influenced by information received from others [17] and that word-of-mouth (WOM) is the most influential source of information to a customer [21].…”

“…Hence, the customer acquisition process has a significant impact on customer value. Many companies have already understood this and referral programs now exist in many industries such as telecommunication, retail, energy providers and restaurants [16]. Referral programs are often used by service companies since personal referrals work particularly well for experience goods like telecommunication services or gym club membership [4].…”

Exploring How Referral Reward Program Design Affects Consumer Intent to Purchase from a Recipient Perspective

“…Previous studies have primarily focused on exploring the effectiveness of RRPs by providing referrer incentives (Witz & Chew, 2003;Ryu & Feick, 2007;Garnefeld, Helm, & Tax, 2013). Although several recent studies focus on the perspective of recipients, these studies assume that recipients don't know that referrers are rewarded by enterprises for their referrals (Ahrens, Coyle, & Strahilevitz, 2013;Jin & Huang, 2014).…”

Online Referrals Categorization and Performance of the Hospitality Industry: The Case of International Hotel Brands in Europe

“…Referral programs are suitable for three types of market/company; small establishment because of their limited marketing budgets, for niche markets and especially for the companies that sell high-risk goods and services (Berman, 2016: 20). It is known that tourists are taking highrisks while purchasing tourism services and so applying successful referral programs plays a key role for both increasing the current customers' loyalty (Garnefeld, et al, 2013) and attracting new targeted customers to the tourism companies (Schmitt, et al, 2011). Furthermore, Schmitt et.…”