Reward Customer Referrals with Congruency

The revenue value from a referred customer averages about 16% higher than that from a non-referred customer. This statistic is in studies at University of Pennsylvania and Goethe University Frankfurt which tracked the referral patterns and purchase behavior of 10,000 retail customers over a period of almost three years.
     It does seem clear, then, that it pays to reward your current customers for sending friends and family toward your store. But researchers at University of Kaiserslautern do find that the nature of the reward makes a difference. As you’d expect, the reward should be something the recipient considers to be of clear value rather than a trivial trinket. Equally important, the researchers say, is that the reward be compatible with the brand image of your store. A coupon for a 20% discount on store merchandise would do that. So would a personal item carrying the name of your store. Tickets to attend a concert probably wouldn’t have sufficient congruity unless your retail enterprise gives concerts. Entries in a drawing would work best if your store brand image emphasizes excitement over reliability.
     Customer referrals are especially important in retail businesses with high customer turnover. Funeral homes, landscape architects, bridal shops, and baby stores must draw a continuing stream of new prospects in order to succeed. The retailer who sells houses, refrigerators, automobiles, or a trade school education might not see the same customer for the same item often if there’s a consistent record of customer satisfaction. Do satisfy customers thoroughly, then reward each of those customers for making referrals.
     Your customers who are loyal to your store become more likely to refer others to you. And it also works the other way around: Customers who participate in a referral program become more loyal because of making the referrals.
     One study with this conclusion was conducted 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.
     These 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.

For your profitability: Sell Well: What Really Moves Your Shoppers

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Cultivate Referred Customers
Minimize Customer Turnover