How Customer Referral Programs Turn Social Capital into Economic Capital

How Customer Referral Programs Turn Social Capital into Economic Capital

We have a few number and data nerds on the team and this is the stuff that gets them going.  The following are two short excerpts from the prologue in the study by Christophe Van den Bulte, the Gayfryd Steinberg Professor and Professor of Marketing at The Wharton School, University of Pennsylvania.  The complete research paper can be downloaded here.

1. 1. Customers acquired through a referral program have been observed to exhibit higher margins and lower churn than customers acquired through other means. Theory suggests two likely mechanisms for this phenomenon: (1) better matching between referred customers and the firm and  (2) social enrichment by the referrer.
   2. One recommendation for the managers of the firm studied is to recruit referrers among their customers who have been acquired at least six months ago, exhibit high margins, and are unlikely to churn.