Customers are doing their research before buying, and increasingly they are relying on other people for the information they want. They consider online reviews, social media recommendations and word of mouth, searching for non-commercial, unbiased advice. Marketing scholars have started to study this behavior, but only lately have looked at customer groups and the differing ways they engage in referral.
A study in the Journal of Service Research was in the vanguard of this research, specifically in the subscription services space. Would “switchers,” customers who have switched from one service provider to another, behave in a similar manner to “stayers,” those who have never switched providers?
The “zone of tolerance” is the territory between the level of service a customer hopes to receive, and the minimum level of service the customer will accept. An experience that falls short of the zone will produce frustration and poor reviews, while an experience that tops out will please the customer. The researchers wanted to find out how switchers and stayers react to improvements service quality and perceived value.
Data used was collected by a leading Australian internet service provider (ISP), including account information and the results from an online customer survey where users were asked to evaluate the ISP’s service quality and value. Researchers were able to isolate two groups from the data to represent switchers and stayers. They expected to find different levels of expectations between the groups, because switchers have experienced subpar service from their previous providers, and therefore expect less from their new one. Researchers figured that switchers would have a wider range of tolerance than the less experienced stayers, and would be more likely to be delighted.
Their hypothesis turned out to be true: they learned that “a positive change in service quality leads to stronger positive changes in perceived value for switches than for stayers.” Those positive changes in service quality and perceived value also affected referral habits of the switchers more than the stayers. “Switchers … engage in considerably more positive behavior toward the provider, such as customer referral.”
How to respond
Customer referral is a cost-effective tool for the acquisition of new customers, so managers should continuously seek ways to increase referrals from their customer base. For maximum benefit, researchers recommend focusing on the switchers.
“It is important for managers to identify and target newly acquired customers (who have switched from a different service provider) with service offerings that signify “service quality” and “value” at an early stage … to foster customer referrals.” The return from those referrals will grow into the future, the research showed, because new customers acquired through referrals are more profitable and loyal.
For the full study, see the Journal of Service Research. (A fee may apply.)