Customer Referral Behavior: Do Switchers and Stayers Differ?

Abstract

In today’s highly competitive market environment, service providers are beginning to recognize that customer referral plays an important role in enhancing firm value through cost-effective acquisition of new customers. While a significant body of research has focused on exploring customer referral, surprisingly limited research to date has addressed how customer referral may vary for different customer groups, particularly among switchers and stayers. This article examines the moderating effect of switchers and stayers on the relationships between service quality and perceived value on customer referral behavior. Actual referral data were collected from 441 customers of an Internet Service Provider in two waves for this study. The results show that the effects of positive changes in service quality and perceived value on customer referral behavior are stronger for recently acquired customers (switchers) than for long-term customers (stayers). The findings of the study suggest that investment in service quality and value improvements yield significantly higher returns (through greater customer referrals) for switchers than for stayers. Based on the findings, the authors recommend that service managers should identify and target newly acquired customers, who have switched from different service providers, right from the outset of the relationship with service offerings that signify higher quality and value in order to maximize customer referrals.