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Referral programs and customer value

journal contribution
posted on 2011-01-01, 00:00 authored by P Schmitt, Bernd SkieraBernd Skiera, C Van Den Bulte
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.

History

Journal

Journal of Marketing

Volume

75

Pagination

46-59

Location

Chicago, Ill.

ISSN

0022-2429

Language

English

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2011, [American Marketing Association]

Issue

1

Publisher

AMER MARKETING ASSOC