Saturday, July 27, 2013

Cultivate Referred Customers

Your customers who are loyal to your store become more likely to refer others to you. But it’s valuable to realize it also works the other way around: Customers who participate in a referral program become more loyal because of making the referrals.
     That’s the conclusion from research at University of Arizona, University of Victoria, University of Wuppertal, and University of Paderborn. The data came from customers of a global cellular telecommunications provider. The effect of program participation on customer loyalty was highest for newer customers.
     The researchers defined customer loyalty as praising the retailer and as renewing the contract with the retailer. When rewards for making referrals were relatively large, both signals of loyalty were increased by the act of referring. With relatively small rewards for referrals, defection rates went down, but degree of praise for the retailer did not change significantly.
     Another set of studies about customer referrals, these 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.
  • Across all customer segments, the revenue value from a referred customer averaged about 16% higher than that from a non-referred customer. 
  • Compared to customers who came without a referral, customers coming via a referral were more likely to return repeatedly. 
  • At the start, referred customers spent more than did non-referred customers. However, this difference faded over the months. 
     Cultivate referred customers to maintain high shopping cart totals.
  • Encourage referred customers to come with those 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 visit your store 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. 
  • Grab on with weak links. Beyond saying to customers, “Please recommend us to your friends,” say, “Please recommend those friends talk about us to their friends.” 
Click below for more: 
Go Beyond Retention with Referred Customers 
Grab On with Weak Connections

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