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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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Eggers, Fabian & Risselada, Hans & Niemand, Thomas & Robledo, Sebastian, 2022. "Referral campaigns for software startups: The impact of network characteristics on product adoption," Journal of Business Research, Elsevier, vol. 145(C), pages 309-324.
    3. Joseph Kolawole Abon & Rufus O. Adebayo, 2020. "The Use of Marketing as a Tool for Competitive Advantage among Potential and Professional Football Clubs in KZN, South Africa," Eurasian Journal of Business and Management, Eurasian Publications, vol. 8(4), pages 319-335.
    4. Ghouri, Arsalan Mujahid & Akhtar, Pervaiz & Haq, Mirza A. & Mani, Venkatesh & Arsenyan, Gayane & Meyer, Martin, 2021. "Real-time information sharing, customer orientation, and the exploration of intra-service industry differences: Malaysia as an emerging market," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    5. Rae Yule Kim, 2020. "The influx of skeptics: an investigation of the diffusion cycle effect on online review," Electronic Markets, Springer;IIM University of St. Gallen, vol. 30(4), pages 821-835, December.
    6. Mark Legg & Murat Hancer, 2020. "How patrons value casino promotional offers: A conjoint study," Tourism Economics, , vol. 26(4), pages 640-657, June.
    7. Kuang, Di & Ma, Baolong & Wang, Hong, 2022. "The relative impact of advertising and referral reward programs on the post-consumption evaluations in the context of service failure," Journal of Retailing and Consumer Services, Elsevier, vol. 65(C).
    8. Elias Carroni & Paolo Pin & Simone Righi, 2020. "Bring a Friend! Privately or Publicly?," Management Science, INFORMS, vol. 66(5), pages 2269-2290, May.
    9. David Gligor & Christopher Newman & Saim Kashmiri, 2021. "Does your skin color matter in buyer–seller negotiations? The implications of being a Black salesperson," Journal of the Academy of Marketing Science, Springer, vol. 49(5), pages 969-993, September.
    10. Rosa, S. & Rebelo, P. & Silva, C.M. & Alves, H. & Carvalho, P.G., 2018. "Optimal control of the customer dynamics based on marketing policy," Applied Mathematics and Computation, Elsevier, vol. 330(C), pages 42-55.
    11. Simona Cicognani & Sebastian Stein & Mirco Tonin & Michael Vlassopoulos, 2023. "Symbolic incentives and the recruitment of volunteers for citizen science projects," Oxford Economic Papers, Oxford University Press, vol. 75(4), pages 923-940.

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