Engineered Customer Referrals: Prevalence and Antecedents

Ina Garnefeld, Sabrina V. Helm

Research output: Chapter in Book/Report/Conference proceedingChapter

2 Scopus citations

Abstract

Customer referral programs (CRPs) are a common customer relationship management tool that many large service firms use to reward customers who recommend the firm to their friends or acquaintances. CRPs appear in an array of service industries, including online and mail-order retailers, banking, insurance companies, and fitness clubs. Service providers turn to CRPs because they provide an effective tool for new customer acquisition (Schmitt et al. 2011). As Biyalgorsky et al. (2001) further emphasize, CRPs are also efficient because the service provider only pays the reward if it actually gains the new customer. Given the growing interest in CRPs it is important to investigate their possible unintended consequences. Wirtz and Chew (2002, p. 157–158) expound that “opportunistic behavior might become an issue” for CRPs and call for a clearer understanding of “the potential dangers of design elements of (…) WOM incentive programs”; Schmitt et al. (2011, p. 46) particularly voice concern that “stimulated WOM is prone to abuse by opportunistic referrers.” Potential customers may take advantage of a CRP by engineering an artificial referral situation to obtain the reward (Wirtz and Chew 2002). This means that somebody who has already decided to become a customer of a specific firm learns that it offers a CRP; he or she then searches for a friend or acquaintance who already is a customer of the firm and asks them to “pose” as a referrer. Then, the potential customer purchases from the firm faking the referral situation which invokes a reward that can be shared between the artificial referrer and the potential customer or kept by only one of them. According to anecdotal evidence from the cellular services industry, such opportunistic use of CRPs can account for more than 50% of all referrals, implying that such programs may not be as effective as often proclaimed. Furthermore, the conclusions derived from sophisticated customer lifetime evaluations that consider referral activity (e.g., Schmitt et al. 2011) may also be inconclusive when a “fake” referrer is assigned value for his or her acquisition of a new customer.

Original languageEnglish (US)
Title of host publicationDevelopments in Marketing Science
Subtitle of host publicationProceedings of the Academy of Marketing Science
PublisherSpringer Nature
Pages1-6
Number of pages6
DOIs
StatePublished - 2016
Externally publishedYes

Publication series

NameDevelopments in Marketing Science: Proceedings of the Academy of Marketing Science
ISSN (Print)2363-6165
ISSN (Electronic)2363-6173

Keywords

  • Large Reward
  • Opportunistic Behavior
  • Potential Customer
  • Service Industry
  • Small Reward

ASJC Scopus subject areas

  • Marketing
  • Strategy and Management

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