Driving profitability by encouraging customer referrals: Who, when, and how

V. Kumar, J. Andrew Petersen, Robert P. Leone

Research output: Contribution to journalArticle

124 Scopus citations

Abstract

Many firms are now using referral marketing campaigns to harness the power of word of mouth and to increase referrals to acquire new customers. Prior research has identified a method of computing the value of referrals using only a customer's actual past referral behavior to compute customer referral value (CRV). In this article, the authors develop and test a new four-step approach to compute CRV. In addition, they determine the behavioral drivers of CRV and then identify the most effective methods of targeting the most promising customers on the basis of their customer lifetime value (CLV) and CRV scores. The authors illustrate and test this approach through four separate field experiments with firms from two industries: financial services and retailing. They find that to maximize profitability, it is critical to manage customers in terms of both their CLV and CRV scores and that understanding the behavioral drivers of CRV can help managers better target the most profitable customers with their referral marketing campaigns.

Original languageEnglish (US)
Pages (from-to)1-17
Number of pages17
JournalJournal of Marketing
Volume74
Issue number5
DOIs
StatePublished - Sep 1 2010

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Marketing

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