Referral programs have become a rather popular way to acquire new customers. However, many question the effectiveness of the method and whether the referral customers are more loyal than any other. The research aims to study the referral programs and examine the effectiveness of this method. What is more, the research additionally focuses on word of mouth (WOM) method and evaluates the effectiveness of organic and firm-stimulated WOM. Finally, the research looks into the methods of referral programs and their proficiency.
The technique of referral programs has been widely used as they are considerably cheaper than any other means of promoting business, for instance, a newly opened gym or fitness center. Word of mouth or commonly known as WOM, is now widely used as an essential marketing phenomenon, and its application as a customer reward method has begun to draw renewed interest (Van den Bulte & Valente 2011). WOM does not require funding, and some say that the method guarantees more loyalty from the customers. One can distinguish between two types of WOM: firm-stimulated that is considered a referral program and the organic word of mouth. However, there are concerns that firm-stimulated WOM may be considerably less productive than organic WOM in creating relevant customers because targeted candidates may be skeptical of accelerated WOM applications and such endeavors often suggest a financial reward for the referrer, who, as a result, may seem less reliable (Trusov, Bucklin, & Pauwels 2009). Nonwothsanfing, as an alternative method of gym promotion, WOM can be used to attract more customers to the new venture.
Many managers and specialists are concerned with the effectiveness of WOM and similar referral programs as they might not bring as many customers as more traditional methods commonly do. The skepticism about the advantages of stimulated WOM in consumer procurement is frustrating for managers meeting demands to improve their marketing return on investment and contemplating whether to use this method (Schmitt et al. 2011). Notwithstanding, the study by Philipp Schmitt, Bernd Skiera, and Christophe Van den Bulte has proved that referral clients are indeed more loyal and are likely to recommend a cafe, gym, or a fitness center to their friends if seen appropriate. The speed at which referred customers churn and leave the business or in a particular case a gym is, on average, about eighteen percent lower than that of other consumers and in opposition to the eroding distinction between referred and not referred clients in the contribution margin, there is no such decay in customer maintenance (Schmitt et al. 2011). Considering the aforementioned, one can conclude that referral programs are indeed somewhat effective, yet there are certain things to note when choosing to utilize such programs.
Many employers and managers have tried to encourage the WOM method by using referral programs or CRPs. As confirmed by Helm and Garnefeld, CRPs are an efficient marketing tool as offering bonuses can, in fact, improve customers’ referral intentions (Helm 2011). However, it is essential to note that referral programs will not only influence the distributor of the WORM but the person on the receiving end as well. People tend to feel uncertain and not trustworthy if they hear that a person got paid to promote a product or a place even if they are friends of theirs. Consequently, people will undoubtedly trust fewer people who speak on the advantages of the gym if they know about the payment or other transactions. As studies on celebrity product endorsers, sales personnel, and consumers as senders have shown, recipients perceive a product less favorably if they believe that the sender has external motives such as rewards and bonuses for their positive statements about the business (gym) (Folkes 1988). Prior to using the referral program, one has to consider that the patient might cause more issues and scare off the possible customers.
One of the most effective programs that one can use is dual-sided rewards. The method is widely used by such corporations as a ride-share app Uber (Marner 2017). The idea is based on the benefits for both the distributor and the receiver making the change more productive and profitable for everyone involved. Moreover, one can refer to the idea of giving the reward with each achieved by the promoter step. For instance, the person gets a bonus for sending a link to their friend, another bonus if that friend visits the gym even for the first class, and the final bonus if that friend joins the club and buys the season ticket or the lessons with the instructor. If the company does not wish to pay with money, there is always a possibility to distribute bonuses with particular points that can be then transferred into discounts or possibly a day off. In any case, each instance can be used effectively, as proven by many major corporations.
In conclusion, word of mouth is a somewhat effective way of attracting new customers. However, referral programs may create a certain mistrust from the customer side. Nevertheless, if done correctly, one can find loyal customers that will further promote the gym or any other venture. The manager can choose between a number of variations, including points system and dual-sided rewards. All the programs are efficient and may suit a variety of firms.
Folkes, Valerie S. (1988), “Recent Attribution Research in Consumer Behavior: A Review and New Directions,” Journal of Consumer Research, 14 (4), 548-65.
Helm, Sabrina & Garnefeld, Ina & Kurze, L. & Willach, A.. (2011). Customer Referral Programs – Does Paying for Referrals Undermine the Positive Effects of Word of Mouth?.
Iyengar, Raghuram, Christophe Van den Bulte, and Thomas W. Valente (2011), “Opinion Leadership and Social Contagion in New Product Diffusion,” Marketing Science.
Marner, Kayley. “Stellar Referral Program Examples.” Influitive, 1 Mar. 2017, influitive.com/9-stellar-referral-program-examples/.
Schmitt, Philipp & Skiera, Bernd & Van den Bulte, Christophe. (2011). Referral Programs and Customer Value. Journal of Marketing. 75. 46-59. 10.2307/25764294.
Schmitt, Philipp & Skiera, Bernd & Van den Bulte, Christophe. (2013). Do Referral Programs Increase Profits?. Marketing Intelligence Review. 5. 8-11. 10.2478/gfkmir-2014-0020.
Trusov, Michael, Randolph E. Bucklin, and Koen Pauwels (2009), “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site,” Journal of Marketing, 73 (September), 90–102.