Benefits of Referral Programs
A study conducted by the Goethe University Frankfurt and the University of Pennsylvania, on referral programs and customer value which followed the customer referral program of a German bank that paid customers 25 euro for bringing in a new customer, was released in July 2010. According to Professor Van den Bulte, this is the first ever study published on the financial evaluation of customer referral programs. The study found that referred customers were both more profitable and loyal than normal customers. Referred customers had a higher contribution margin, a higher retention rate and were more valuable in both the short and long run.
On whether customer referral programs are worth the cost, the study says that it records "a positive value differential, both in the short term and long term, between customers acquired through a referral program and other customers. Importantly, this value differential is larger than the referral fee. Hence, referral programs can indeed pay off."
Read more about this topic: Referral Marketing
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