Referral programs increase profitability and customer loyalty in banking
2010-07-30
The idea of a customer referral program is nothing new for the financial industry. But a new study has found that these programs bring measurable results in increased customer loyalty, retention and long-term profitability.

The study, conducted by researchers at the University of Pennsylvania's Wharton School of Business, examined information from 10,000 customers at a German bank that offered 25 Euros for each customer referral.

After looking at 33 months of customer activity, the study found that referred customers were 18 percent more likely to stay with the bank than others, and also generated higher margins during their time as customers. After combining those figures, researchers concluded that customers brought in via referrals were between 16 and 25 percent more valuable to banks.

"That's not only a sizable chunk of money, it also amounts to a 60 percent ROI over six years on the 25 Euros that the bank paid for every referral," Christophe Van den Bulte, a professor of marketing at Wharton, told Knowledge@Wharton, the school's business journal.

By gaining more customer referrals, banks may be able to reverse the trend of reduced customer profitability in the industry. A recent Accenture study found that the majority of FIs had seen reductions in per-customer profits since the recession - in some cases by as much as 15 percent.

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