Referral Programs and Customer Value.

By Philipp Schmitt, Bernd Skiera, Christophe Van den Bulte. 2011

358 citations recorded by the source corpus.

Abstract Referral programs have become a popular way to acquire customers. Yet there is no evidence to date that customers acquired through such programs are more valuable than other customers. The authors address this gap and investigate the extent to which referred customers are more profitable and more loyal. Tracking approximately 10,000 customers of a leading German bank for almost three years, the authors find that referred customers (1) have a higher contribution margin, though this difference erodes over time; (2) have a higher retention rate, and this difference persists over time; and (3) are more valuable in both the short and the long run. The average value of a referred customer is at least 16% higher than that of a nonreferred customer with similar demographics and time of acquisition. However, the size of the value differential varies across customer segments; therefore, firms should use a selective approach for their referral programs.

Subfields: Marketing, Organizational Behavior and Human Resource Management, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/fd32dbd0149000d9dd571fb992e7448361e9e1d8

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Citations in the corpus

Word of Mouth: What We Know and What We Have Yet to Learn (2013, neutral): “While customers acquired through WOM may be more profitable, to-date we do not know why this may be the case (Schmitt, Skiera, and Van den Bulte 2011).”
Receiver responses to rewarded referrals: the motive inferences framework (2013, background): “Schmitt et al. (2011) have shown that customers acquired through referral programs on average are 16% more valuable than customers acquired through other means, and that this value is greater than the cost of the rewards used to stimulate referrals.”
Seeding Strategies for Viral Marketing: An Empirical Comparison (2011, background): “In addition, from a marketing perspective, it would be useful to intensify research regarding the effects of incentives, as we ﬁnd their impact to be quite signiﬁcant in Study 1 (e.g., Schmitt, Skiera, and van den Bulte 2011; Aral, Munchnik, and Sundararajan 2011).”
When Giving Money Does Not Work: The Differential Effects of Monetary Versus In-Kind Rewards in Referral Reward Programs (2014, neutral): “Conventional wisdom suggests that monetary rewards, because of their higher economic benefits, should be equally or more effective in motivating customer referrals than other types of rewards, as prior research (i.e., Biyalogorsky, Gerstner and Libai 2001; Ryu and Feick 2007) on RRPs has unanimously”
Effects of the intensity of use of social media on brand equity: An empirical study in a tourist destination (2018, background): “This interaction has great relevance for brands because social network users rely on the advice they receive from other users (Schmitt et al., 2011), and this communication influences the decision-making process (Hinz et al., 2011).”
Adoption Versus Adaptation, with Emphasis on Climate Change (2012, background): “Recent studies focus on the value of referrals from previous adopters (Schmitt et al. 2011) and on the effect of social networks on adoption and abandonment of customers (Goldenberg et al. 2007).”