I recently read an article from the July 2013 Journal of Marketing issue titled, “Growing Existing Customers’ Revenue Streams Through Customer Referral Programs” authored by Ina Garnefeld, Andreas Eggert, Sabrina V. Helm, and Stephen S. Tax. The title struck me as interesting because it focused on “existing” customers and referral programs whereas I typically first think of “new customer acquisition” when evaluating referral programs.
The authors conclude that participation in a customer referral program (CRP) increases the existing customer’s loyalty and that the link between CRP participation and loyalty is stronger for shorter tenure customers relative to longer tenure customers. These are very interesting findings. In the world of customer experience, we often think of “likelihood to recommend” as an outcome of loyalty. This study might suggest that a structured referral/reward program might rather be an antecedent of loyalty, especially among shorter tenured clients.
I think for customers with a structured CRP it might be interesting to do some model testing with regard to placement on ‘likelihood to recommend’ within the Loyalty model. If a CRP can be designed not only to increase the number of new customer acquisitions, but also enhance existing customer loyalty, it is definitely something to measure, evaluate, and work to improve.
