So much regarding Word of Mouth or marketing seems opinion-based or focused just on B2C, that it was good to find real data support about referrals in the October 2007 Harvard Business Review article by Kumar, Petersen, and Leone.
Their study found the true value of referrals to be higher than you think. A referring customer’s value beats the lifetime spending by a typical customer. This happens in part because some new customers from those referrals make valuable referrals themselves.
Some of their other takes I find compelling include:
1. Referrals should definitely be encouraged, by giving thanks and rewards, but also by asking other good customers to begin making referrals.
2. Consider new segmentation that gives status and attention to your biggest advocates. The point here is recognizing and supporting customers whose value as a good reference warrants special attention, even when they don’t spend at strategic account levels.
3. Watch how to measure referral-making. Since not all customers saying they will refer actually do so, a better metric for counting and classifying customers comes after the fact — noting who actually gives referrals. In counting the value of a referral-giver, remember as well that not all prospects actually become customers …unfortunately!