The Key Role of Social Influence in Customer Referrals

Welcome to the first post of a series where we take a closer look at the science behind referrals. I’m Christian Jakenfelds AKA a Go-to-Network evangelist here at Commsor.

This week we are looking at a paper from 2016 by Evangelos Xevelonakis, published in Athens Journal of Business and Economics: Social Influence and Customer Referral Value.^[1]

Why this paper? Because Evangelos puts forward a few really interesting concepts:

1. “Customers with a high Customer Lifetime Value are not necessarily the same customers as those with a high Customer Referral Value. Therefore, in order to manage the customer efficiently both measures are required."
2. “It is believed that a customer’s social network has more influence on the buying decision than any other source.”

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So, what did he put forward in the paper to make the most of these insights?

Firstly, instead of segmenting customers based on just customer satisfaction (Detractors vs. Promoters) like you often see when using the Net Promoter System (NPS), instead it’s important to also understand how big the social influence is of that Promoter/Detractor. This creates a 2x2 matrix instead of just a binary outcome.

Below is the diagram taken directly from the research paper:

What does this mean? When you have a happy customer you also want to understand how influential they are. Or if you think about this another way: If you have a really influential customer then make sure you make them happy!

So… you’re already measuring customer satisfaction, but are you measuring your customer social influence?

‍Survey Results: The paper’s author also then ran a small study with pretty clear results:

• 84% of all participants trust the opinions and experiences of friends, colleagues, relatives and club mates the most,
• 24% of all participants trust in the opinions of sales clerks in shops,
• 79% of all participants would buy a product because it was recommended by friends, colleagues, relatives, club mates and so on,
• 94% of all participants share their opinions of and experiences with products and services with friends, colleagues, relatives, club mates and so on.

“Astoundingly, of those 94% almost all their opinions of experiences with products and services orally within their social network.”

‍Takeaways: Customers are not just valuable in their own right (thanks to their lifetime value) but they are also a source of referrals via their influence. Importantly, prospects WANT to be influenced by a company’s customers. It’s something they do themselves as customers of other services, and it’s the source of information they trust most.

I’ll give Evangelos the final word, because I couldn’t put it better myself: “Nevertheless, in looking at the results, it becomes clear that many companies should rethink their customer strategy and make it easier for their customers to communicate positive referrals of their products and services.”

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[1] https://www.athensjournals.gr/business/2016-2-1-1-Xevelonakis.pdf