Word-of-mouth Marketing Will Recruit New Clients
Clients referred by word-of-mouth recommendations will produce more profit, stay longer with the firm, and have a longer customer lifetime, according to a new study "Referral Programs and Customer Value" by marketing professor Christophe Van den Bulte of the Wharton School.
"There's a lot of talk about word-of-mouth-marketing, and marketing affiliate programs. Our first objective was to see if customer referral programs can indeed turn social capital into economic capital. Second, we wanted to come up with a methodology to assess the effectiveness of customer referral programs that was easy to implement with data and tools available to many managers."
Using information from a database of 10,000 customers acquired by the bank in 2006 -- about half of them through the institution's referral program and the other half through traditional marketing efforts such as direct mail and advertising -- the study tackled three questions:
- Do referred customers have higher margins than other customers?
- Do referred customers stay longer with the firm than other customers?
- Do referred customers have a higher customer lifetime value (CLV), the net present value of all the profits a customer generates over his or her entire association with the firm?
The answers, according to the study, are all positive.
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I agree, Larry, that referrals are still the gold standard for growing a professional services business, but I have also observed that smart business consumers these days take a minute to google referred vendors. If nothing turns up, or the information that turns up is negative, a referral can get stopped in its tracks. Attorneys will be well-served to heed your article and do what they can to be "referral-worthy" by word of mouth, but they shouldn't forget that their digital reputation precedes them and can sink a potential word-of-mouth referral. A quick google of your own name can save you and your referrers possible embarrassmant and derailed referrals.