Abstract
Purpose – Our study analyzes the non-linear effect of customer lifetime value (CLV), which accounts for the revenue accumulated over the lifetime of a customer relationship, calculated using a discount rate, on customer referral value (CRV), which accounts for the value created by customers converted to the firm. Design/methodology/approach – We collected data from customers of a financial institution that provides retirement plan products. A random sample of 768 customers provided the full names of individuals to whom they made a recommendation. After these names were elicited, respondents and referrals were identified in the firm’s records, and we calculated the CLV and CRV values. Findings – The results show the existence of a U-shaped effect of CLV on CRV, and a negative linear effect of CLV on recommendation intention. Originality/value – Our study contributes to the body of literature on word of mouth by focusing on a product and business segment with low perceived brand differentiation and low customer involvement. We contribute to the marketing literature by showing a U-shape relationship between CLV and word of mouth activity, represented by CRV.
Highlights
Previous research has found evidence suggesting that relationship marketing is a successful strategy for firms
The results show the existence of a U-shaped effect of Customer Lifetime Value (CLV) on Customer Referral Value (CRV), and a negative linear effect of CLV on recommendation intention
Our study aims to analyze the impact at the individual customer level of customer lifetime value (CLV), which accounts for the revenue accumulated over the lifetime of a customer relationship, calculated using a discount rate, on customer referral value (CRV), which accounts for the value created by customers converted to the firm
Summary
Previous research has found evidence suggesting that relationship marketing is a successful strategy for firms. The marketing relationship generates positive word of mouth, in which customers play the role of referring other potential customers to a company. Any individual in the firm can play the customer referral role and boost word of mouth to promote and share experiences. Word of mouth affects most purchasing decisions and has been the focus of more and more research in recent years. Word of mouth is even stronger where there is more intense exchange through digital channels, such as the internet and social media. Efforts by firms include intensifying campaigns in digital channels to influence and monitor word of mouth activity (Kozinets, Valck, Wojnicki, & Wilner, 2010). Maintaining word of mouth depends less on how interesting the products are and more on how accessible they are in the consumer’s mind (Kumar, Petersen, & Leone, 2010)
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