Replication Article
Referral programs, customer value, and the relevance of dyadic characteristics

https://doi.org/10.1016/j.ijresmar.2015.09.004Get rights and content

Abstract

Referral programs have become a popular tool to use the customer base for new customer acquisition. We replicate the work of Schmitt et al. (2011) who find that referred customers are more loyal and valuable than customers acquired through other channels. While our results confirm that rewarded referrals indeed reduce the risk of customer churn, we do not find that referred customers are necessarily more valuable. Analysis of the relationship between senders and receivers of referrals demonstrates that demographic similarity drives the referred customer value.

Introduction

In recent years, referral programs have gained popularity in many industries as a viable means for new customer acquisition. Likewise, referral programs have attracted considerable scholarly interest. Previous studies provide insights on, for instance, optimal reward designs (Biyalogorsky, Gerstner, & Libai, 2001), drivers of participation (Verlegh, Ryu, Tuk, & Feick, 2013), and instruments to stimulate rewarded referrals (Hinz, Skiera, Barrot, & Becker, 2011). One of the most significant contributions in that context was Schmitt, Skiera, and Van den Bulte's (2011; hereafter referred to as SSV) finding that customers from referral reward programs are more loyal and more valuable than those acquired through other marketing channels.1 The purpose of this paper is to replicate SSV by analyzing the effect of referrals on churn and customer value using similar data from a company with a different product and referral incentive structure.

Section snippets

Data

To allow for a precise comparison with SSV, the replication also focuses on the financial services sector. While SSV is based on panel data from a German bank, we use panel data from 4718 customers of a Chilean direct bank. Specifically, we have information on a cohort of 1677 referred and 1971 non-referred customers as well as 1070 referral senders.2 Similar to SSV, the data encompass information on customer

Replication analyses and results

As in the original study, we first purified the data using the DFBETA criteria and eliminated extreme data points that might excessively influence the results.3 Consequently, we deleted 140 referred and 220 non-referred customers. To replicate

Conclusion

This study contributes to literature on referral reward programs in two ways. First, we replicate Schmitt et al.’s (2011) results on the positive effect of rewarded referrals on customer loyalty and find that referred customers are indeed more loyal compared with non-referred. Second, we confirm their finding that segment-specific differences exist with respect to the customer value. The fact that our results show that referral programs do not necessarily yield more valuable customers implies

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    Referral programs are plans through which firms reward existing customers for bringing in new customers. Recent studies have documented that, as compared to marketing induced, customers acquired through referral programs tend to churn less, bring in more customers through their own contagion activities (though not in a free trial case), and in general are more valuable in the long term (Aral & Walker, 2011; Armelini, Barrot, & Becker, 2015; Datta, Foubert, & Van Heerde, 2015; Schmitt, Skiera, & Van den Bulte, 2011; Trusov, Bucklin, & Pauwels, 2009; Van den Bulte, Christophe, Skiera, & Schmitt, 2018; Villanueva, Yoo, & Hanssens, 2008). Structural characteristics were studied in only one of the papers mentioned above: A referrer's degree influenced the number of adopters acquired (Aral & Walker, 2011).

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    The benefits of referral programs are widely accepted and have been shown repeatedly in previous studies. For instance, customers who are acquired through referrals are considered more valuable than other customers because they yield a higher contribution margin than customers who are acquired through other channels (Armelini et al., 2015; Schmitt et al., 2011). Similarly, referred customers exhibit a higher willingness to refer people, thus adding to the profitability of referral programs (Gilly, Graham, Wolfinbarger, & Yale, 1998; Von Wangenheim & Bayón, 2004).

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Acknowledgement: The order of authors is alphabetical.

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