[We’re pleased to welcome Alisha Stein and B. Ramaseshan, both of Curtin University. Drs. Stein and Ramaseshan recently collaborated on their paper recently published in Journal of Service Research entitled “Customer Referral Behavior: Do Switchers and Stayers Differ?”]
We recognized that in today’s highly competitive market environment, customer referral plays an important role in enhancing firm value through cost-effective acquisition of new customers. Service managers have to leverage the current customer base to increase referrals. To do this effectively requires an understanding of the heterogeneity among their existing customers. Such an understanding will enable service providers to develop separate customer referral strategies that are most appropriate to each of the distinct groups within the customer base. Recognizing this, we examined the customer referral behavior across two distinct customer groups – ‘switchers’ and ‘stayers’. Switchers are those who have switched to the service provider from another, while Stayers are customers who have never switched their service provider.
Our study among customers of a leading Internet Service Provider illustrated some interesting findings. Specifically, while we find that referral behavior is predominantly driven by customer evaluations of improvements in service quality and perceived value for both switchers and stayers, the effects are substantially stronger for switchers. We ascribed this to the fact that switchers enter new relationships with reduced expectations based on declining outcomes with a previous service provider, and therefore evaluate their current service provider with lower expectations than other customers, such as stayers. Also, switchers tend to be more tolerant and evaluate their current service provider less rigorously compared to other customers.
Our study suggests that investment in service quality and value improvements yield significantly higher returns (through greater customer referrals) for switchers, than for stayers. Therefore, to maximize customer referrals we recommend that service managers should identify and target newly acquired customers, who have switched from a different service provider, with offerings that signify service quality and value at the early stage of the new relationship. We also suggest that service managers should ensure that customers, in particular switchers, recognize value in the service offering, which means not only providing exceptional service quality, but also delivering value in terms of low prices, customer privileges, convenience, and loyalty programs. Such actions will not only enhance referral behavior among existing customers, but will also, in turn, translate into future sales and profits through the newly referral-acquired customers.
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Alisha Stein is a doctoral candidate, School of Marketing, Curtin University, Western Australia. Her research interests include customer experience, services marketing, marketing strategy, and relationship marketing. She won the best paper award in the Services Marketing Track at the 2013 American Marketing Association Summer Educators’ Conference.
B. Ramaseshan is a professor of Marketing, School of Marketing, Curtin University, Western Australia. His research interests include relationship marketing and marketing strategy. His research work was published in several journals including the Journal of Marketing, Marketing Science, Journal of Retailing, Journal of Service Research, and Journal of Business Research. He was the vice president (International Membership) of the Academy of Marketing Science from 2004 to 2006.