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Journal of Marketing Vol. 75 No. 1 2011

Referral Programs and Customer Value

Philipp Schmitt1; Bernd Skiera2; Christophe Van den Bulte3

1 Philipp Schmitt is a doctoral student · 2 Bernd Skiera is Professor of Marketing and Member of the Board of the E-Finance Lab at the House of Finance · 3 School of Business and Economics, Goethe University Frankfurt. Christophe Van den Bulte is Associate Professor of Marketing, the Wharton School, University of Pennsylvania

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.

DOI
10.1509/jm.75.1.46
Volume
75
Issue
1
Pages
46-59
Language
en
Sources
crossref openalex

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