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Word-of-mouth marketing programs are effective in both the short and long term, showing up to a 60% return on investment, according to an academic study.
Word-of-mouth referral programs bring new customers in cheaply, and those customers prove more loyal, according to researchers from the Wharton School at the University of Pennsylvania and Goethe University in Frankfurt, Germany. The researchers studied the long-term value of customers gained by a German bank that gave customers a 25-Euro bonus for each referral. The researchers studied a database of 10,000 bank customers, half of them brought in via the referral bonus, over nearly three years.
Managers trying to boost their return on marketing investment are frustrated by doubts about the benefits of word-of-mouth programs, says the study. However, the researchers tallied the value of referred customers and found it’s higher than that of other customers, and the difference in value more than makes up for the cost of the bonus.
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