Growing Existing Customers’ Revenue Streams through Customer Referral Programs

Ina Garnefeld, University of Wuppertal
Andreas Eggert, University of Paderborn
Sabrina V. Helm, University of Arizona
Stephen S. Tax, University of Victoria

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 paper is published in Journal of Marketing Volume 77 (July 2013), 17-32