New research by Rachel Gershon, Zhenling Jiang, Will Fraser, and Jitendra Gupta has unveiled the surprising power of “referral contagion.”
This phenomenon reveals that referred customers not only buy more but also refer 30-57% more new customers than those acquired through other means.
This pattern, observed across various industries, is largely driven by social factors such as the perception of referring as appropriate and the natural tendency to form connections with similar individuals.
In a simple yet revealing experiment, reminding referred customers of their referral origin increased successful referrals by 21%.
This finding underscores the potential for businesses to leverage referral psychology to enhance the effectiveness of their referral programs.
By tapping into the psychological underpinnings of referral behavior, companies can significantly boost their customer acquisition efforts.
How does the new research evaluate referral customers?
Referrals have always been valued in marketing due to the inherent trust customers place in recommendations from friends and family.
However, this new research suggests that customer referrals are even more potent than previously believed.
The increased likelihood of referred customers to make further referrals can create a powerful, self-perpetuating cycle of customer acquisition.
These findings prompt a re-evaluation of the investment businesses make in their referral programs.
The amplified potential of referred customers means that referral programs can yield exponentially greater returns than traditional marketing efforts.
By strategically reminding referred customers of their origin, companies can further enhance this effect and drive more significant growth.
However, there are potential risks associated with referral programs, such as the spread of negative perceptions.
If a customer has a poor experience and shares this with their network, it can deter potential new customers.
To mitigate these risks, businesses must maintain a balanced marketing approach, ensuring that their products and services consistently meet customer expectations.
In conclusion, the concept of referral contagion reveals the immense value of referred customers.
By understanding and leveraging the social dynamics at play, businesses can enhance their referral programs and unlock new levels of growth.
This research calls for a strategic rethinking of referral program investments, emphasizing the critical role of referred customers in driving business success.
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Source: Gershon, R. et al, Customer Referrals Are Contagious, 2024
