Referral Programs and Customer Value

Philipp Schmitt, Bernd Skiera, Christophe Van den Bulte

Journal of Marketing · 2011 · Volume 75 · Issue 1

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.

Keywords

customer referral programs, customer loyalty, customer value, customer management, word of mouth, social networks

Enable JavaScript for citation tools and additional paper interactions.