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Referral marketing: Harnessing the power of your customers

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  • Berman, Barry

Abstract

The differences between traditional and referral marketing programs are so great that the two share little overlap in terms of appropriate target markets, marketing objectives, marketing organization, and overall planning and implementation strategies. Traditional marketing programs seek advocates among current employees to spread word of mouth, aim marketing efforts at high lifetime-value customers, focus on customer satisfaction, and use promotional programs that heavily rely on social media. In contrast, referral marketing relies on motivating satisfied/delighted customers as a referral base, seeking current customers that can provide referrals with a high lifetime value, using referral-based marketing programs to augment traditional promotions, and developing a compensation system for referrals based on either direct payment or increased visibility. Major advantages of referral marketing programs as compared with traditional marketing programs include greater credibility of friend/family member recommendations over paid advertisements, access to new customers that traditional marketing programs may not reach, and better matching of referred customers’ needs to a good or service. This article presents an eight-step process to develop, implement, and evaluate the success of a referral program. In addition, it discusses academic research findings and presents examples of successful referral program strategies from—among others—Dropbox, Roku, PayPal, Digitalis, and Omaha Steaks.

Suggested Citation

  • Berman, Barry, 2016. "Referral marketing: Harnessing the power of your customers," Business Horizons, Elsevier, vol. 59(1), pages 19-28.
    • Handle: RePEc:eee:bushor:v:59:y:2016:i:1:p:19-28
    DOI: 10.1016/j.bushor.2015.08.001
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    References listed on IDEAS

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    1. Kuester, Madlen & Benkenstein, Martin, 2014. "Turning dissatisfied into satisfied customers: How referral reward programs affect the referrer׳s attitude and loyalty toward the recommended service provider," Journal of Retailing and Consumer Services, Elsevier, vol. 21(6), pages 897-904.
    2. Xiao, Ping & Tang, Christopher S. & Wirtz, Jochen, 2011. "Optimizing referral reward programs under impression management considerations," European Journal of Operational Research, Elsevier, vol. 215(3), pages 730-739, December.
    3. Walsh, Gianfranco & Elsner, Ralf, 2012. "Improving referral management by quantifying market mavens’ word of mouth value," European Management Journal, Elsevier, vol. 30(1), pages 74-81.
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