Go Beyond Retention with Referred Customers

In what ways is a referred customer better than a customer who comes to you without having been referred? The answer to that question can help you optimize your customer referral profitability.
     To analyze the issue, researchers at Goethe University Frankfurt and University of Pennsylvania tracked the referral patterns and purchase behavior of 10,000 retail customers over a period of almost three years. Here’s what they discovered:

• The value of a referred customer is about 16% higher than that of a non-referred customer. However, the size of the value differential varies across customer segments.
• Compared to customers who come to you without a referral, customers coming via a referral are more likely to return repeatedly.
• At the start, referred customers will spend more with you than will non-referred customers. However, this difference fades over months.

     The challenge, then, is to maintain a high shopping cart total each time a referred customer comes into your store. Here are some research-based tactics to accomplish this:

• Encourage each referred customer to come shopping with the friend or friends who referred them. Give “Bring a Friend” discounts. Ask customers how they learned about you, and if they reply that a friend recommended you, give a discount coupon with the name of the referring person and the name of the customer in front of you, to be used next time the two come in together.
• Arrange product and service knowledge sessions in which couples, families, and groups of friends can participate. Wine tasting. How to plan a vacation. How to set up a model railroad. You might charge a fee to make this a direct source of profit or at least to defray expenses. Or you might offer activities at no fee in order to build referral footsteps into your store.
• Do your merchandising and selling with the expectation you’ll be having both conformists and variety seekers as shoppers. When people in a group are all buying and each person’s selection is announced in sequence to the others, there are some people who will seek out what’s different from what others are selecting. Therefore, it’s useful for you to have sufficient variety in each of the product types you carry. But other shoppers will want to buy exactly what others in the group are buying, so it’s useful for you to have enough stock of the particular items.

Click below for more:
Encourage Group Shopping
Offer Family Oriented Experiences
Expect Shopper Conformity & Variety Seeking
Provide Group Support with Customer Discomfort