BUSI 442 Week 7 Discussion Board Forum 7 Example

Discussion Board Forum 7: Referral Programs

BUSI 442 Customer Retention Through Digital Marketing, Discussion Board Forum 7 Thread and Replies

Thread by [Student Name]

The forum prompt, the case company and the two classmates are composites; the textbook, the research and the Scripture cited are real.

Thread

The case company, a regional meal kit service with about 30,000 subscribers, spends roughly $85 to acquire each new subscriber through social ads, and only about 40 percent of new subscribers are still active after three months. The marketing team proposes a referral program offering current subscribers a $30 credit for each friend who subscribes. I think the company should launch the program, but with two conditions: the reward should go to both the referrer and the new subscriber, and the company should encourage referrals most among the customers whose referrals create the most value.

Roberts and Zahay (2018) present customer relationship development as more than keeping customers; it includes growing their value, and recommending the company to others is one of the ways customers create value. Research suggests that referred customers may be among the best a company can acquire. Schmitt et al. (2011) followed customers of a bank's referral program and learned that those who joined on a friend's recommendation produced more margin and stayed longer, so they were worth more than other new customers even after the reward was paid. The explanation is intuitive: friends tend to recommend a company to people like themselves, and the new customer arrives with realistic expectations and a social tie to the company.

For the meal kit company, this matters because its central problem is retention. A subscriber who joins because a friend raves about the recipes is more likely to stay past three months than one who clicked on a discount ad. Even if the referral costs $60 in credits for both people, it is cheaper than the $85 ad acquisition and likely brings a better customer.

The second condition comes from research on who makes valuable referrals. Kumar et al. (2010) found that a customer's worth as a referrer, the value of the new customers that person brings, varies widely and is distinct from the value of the customer's own purchases. Some modest buyers are excellent referrers, and some big spenders never recommend anyone. They also found that firms could identify customers with high referral potential and encourage them at the right time. The meal kit company could invite referrals right after a customer rates a meal highly, when enthusiasm is highest, and focus its referral promotions on customers whose past referrals stayed longest.

Finally, the program needs measurement. The company should track referred subscribers' retention against other subscribers, the cost per retained subscriber by source, and whether referral rewards change the behavior of referrers, who may themselves stay longer once they have recommended the service. If referred subscribers stay longer, as the research predicts, the program will pay for itself through retention as well as acquisition.

A last design point concerns fairness. Referral rewards should be described plainly, with no hidden limits, and the company should never pressure customers to share contact lists or pester friends. A program that respects both the referrer's relationships and the friend's freedom to decline will keep the goodwill that made the recommendation worth having in the first place.

Reply to Hailey

Hailey, your plan to email subscribers every day during the case company's two-week spring promotion would certainly keep the brand in front of them, and you are right that the promotion needs visibility. I would caution, though, that more contact can reduce sales once it passes a certain point.

Godfrey et al. (2011) studied a retailer's relational communications across several channels and found that more communication increased customer purchases only up to a threshold, beyond which additional contacts decreased purchases, with the threshold depending on the channel and the customer. Daily emails for two weeks might push many subscribers past that point, especially those who already order regularly and do not need reminders.

Zhang et al. (2017) modeled an email marketing program in which each message could raise purchases but also prompt some recipients to unsubscribe, cutting the company off from them for good, and they demonstrated that tailoring the timing and frequency of emails to each customer, instead of sending on a uniform schedule, could increase the program's profit. For the meal kit company, the lost value of an unsubscribe is high, because email is how it sends weekly menus and reorder reminders.

Proverbs advises letting one's foot be seldom in a neighbor's house, lest the neighbor grow weary and come to dislike the visitor (English Standard Version Bible, 2001/2016, Proverbs 25:17). The proverb is about neighborly visits, but its wisdom fits email well. A company welcome in the inbox once or twice a week may become unwelcome when it arrives every morning. You might consider sending daily emails only to subscribers who open most messages and two or three during the promotion to everyone else. Another option is a single reminder near the end of the promotion for subscribers who have not yet ordered, which reaches the people the promotion is meant for without crowding everyone else's inbox. Would the company's email platform let you set frequency by engagement level?

Reply to Owen

Owen, your idea of a digital stamp card that gives a free meal kit after ten orders is a good fit for the case, and I think a couple of research findings could make it work even better.

Kivetz et al. (2006) examined a café loyalty card and saw purchases speed up as customers neared their free reward, consistent with the idea that effort rises as a goal comes closer. They also found that giving customers the illusion of progress, such as a card requiring twelve stamps with two already filled in, accelerated purchases compared with a ten-stamp card starting empty, even though both required the same number of purchases. Your card could start new members with two stamps already marked, and the app could show their progress prominently each week.

I would also temper expectations. Sharp and Sharp (1997) examined a large multi-retailer loyalty program and found only modest evidence that it increased repeat-purchase loyalty for participating brands. Reward programs may encourage customers who already like the service to order a little more often without converting customers who are lukewarm. That suggests the stamp card should support the meal kit company's core retention efforts, such as recipe quality and flexible delivery, rather than substitute for them.

Hebrews assures believers that God is not unjust so as to overlook their work and the love they have shown (English Standard Version Bible, 2001/2016, Hebrews 6:10). A business is not God, but the verse describes a faithfulness worth imitating: noticing and honoring what others have done. A reward card done well tells customers that their faithfulness has been seen. Reaching ten orders also takes a typical subscriber about three months, which is exactly the period in which the case company loses most new subscribers, so the card would be working at the moment it is most needed. Could the card also include an occasional surprise reward that customers do not expect?

References

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Godfrey, A., Seiders, K., & Voss, G. B. (2011). Enough is enough! The fine line in executing multichannel relational communication. Journal of Marketing, 75(4), 94-109. https://doi.org/10.1509/jmkg.75.4.94

Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The goal-gradient hypothesis resurrected: Purchase acceleration, illusionary goal progress, and customer retention. Journal of Marketing Research, 43(1), 39-58. https://doi.org/10.1509/jmkr.43.1.39

Kumar, V., Petersen, J. A., & Leone, R. P. (2010). Driving profitability by encouraging customer referrals: Who, when, and how. Journal of Marketing, 74(5), 1-17. https://doi.org/10.1509/jmkg.74.5.001

Roberts, M. L., & Zahay, D. (2018). Internet marketing: Integrating online and offline strategies (4th ed.). Cengage Learning.

Schmitt, P., Skiera, B., & Van den Bulte, C. (2011). Referral programs and customer value. Journal of Marketing, 75(1), 46-59. https://doi.org/10.1509/jm.75.1.46

Sharp, B., & Sharp, A. (1997). Loyalty programs and their impact on repeat-purchase loyalty patterns. International Journal of Research in Marketing, 14(5), 473-486. https://doi.org/10.1016/S0167-8116(97)00022-0

Zhang, X., Kumar, V., & Cosguner, K. (2017). Dynamically managing a profitable email marketing program. Journal of Marketing Research, 54(6), 851-866. https://doi.org/10.1509/jmr.16.0210