Referral Contagion: Capturing the Full ROI of Referral Programs

Marketers have long recognized that customers acquired through referrals tend to be more loyal and valuable. What has remained underappreciated, however, is the additional value these customers may generate through their future referral behavior. In their recent Journal of Marketing Research article, Rachel Gershon (University of California, Berkeley) and Zhenling Jiang (University of Pennsylvania) uncover a “referral contagion” and show that referred customers are not just more profitable but also more likely to refer others, setting off a multiplier effect that many firms have overlooked so far.

Beyond Acquisition: The Hidden Downstream Value of Referrals

Referral programs are ubiquitous, from ride-sharing and food delivery apps to fintech platforms and online retailers. Typically, marketers have evaluated these referral programs by counting how many new customers they bring in and how much revenue those customers generate. Gershon and Jiang argue that this approach severely underestimates the true value of referral programs.

Across multiple field data sets, they show that referred customers make between 31% and 57% more referrals than those acquired through other channels. When these secondary referrals are ignored, firms end up undervaluing the total worth of a referral by 20% to 36%. The authors demonstrate this referral contagion across a wide range of industries, including finance, software, and retail.

Gershon and Jiang show that referred customers are more likely to refer others because the act of referring feels more socially appropriate to them. Drawing on insights from social psychology, they find that when people see someone else refer, they interpret the behavior as socially acceptable, reducing the fear of seeming too pushy or self-interested.

In several controlled experiments, participants who imagined joining an app through a friend’s referral rated the act of referring as more appropriate, felt lower psychological discomfort, and were significantly more likely to make referrals themselves compared to those who imagined joining through an ad. This effect was stronger when the referrer was a friend rather than an influencer, emphasizing that personal recommendations drive the norm of appropriateness more than celebrity endorsements.

The Power of a Simple Nudge: “You Were Referred In – Now Refer Your Friends!”

To translate their insights into practice, the authors conducted a large-scale field experiment with over 10 million referred customers. A simple tweak made all the difference: instead of a generic “Refer your friends!” message, half the customers received a reminder tied to their own experience: “You were referred in – now refer your friends!” The message activated the existing social norm, made referring feel more appropriate, and ultimately boosted referrals by more than 20%.

A simple tweak made all the difference: instead of a generic “Refer your friends!” message, half the customers received a reminder tied to their own experience: “You were referred in – now refer your friends!” The message activated the existing social norm, made referring feel more appropriate, and ultimately boosted referrals by more than 20%.

The study illustrates the value of industry–research collaborations. Companies gain evidence-based insights that go beyond intuition, while researchers gain access to real-world data and the opportunity to test ideas at scale. We reached out to the authors to learn more about the inspiration behind their work and what their results mean for managers. In the conversation below, Gershon and Jiang share their perspective on how referral contagion works, how firms can capture its full value, and where future opportunities lie for practitioners.

Q: What first sparked your interest in exploring the “referral contagion”?

A: The idea emerged from our observation of a robust pattern in our dataset: referred customers were substantially more likely to refer others. We found this pattern both intriguing and theoretically meaningful. When reviewing the literature, we saw that prior research had largely overlooked this downstream consequence of referral behavior, which inspired us to systematically investigate what we later termed “referral contagion.”

Q: Your research shows that referred customers don’t just buy more, they also refer more. Based on this, how should managers rethink how they measure the total value of their referral programs?

A: While prior studies have examined the direct benefits of referred customers (such as higher loyalty and spending), they have largely overlooked their indirect impact through subsequent referrals. Managers should incorporate these downstream effects into how they assess the value of referral programs, including it in metrics like customer lifetime value (CLV) and the effective ROI of referral incentives.

Q: A simple reminder to referred customers can boost referrals by about 21%. Where might this nudge stop working, and how could marketers adapt it in practice?

A: Reminding customers that they were once referred signals that referring is appropriate. Making this social norm salient increases referral behavior. We expect this nudge to be effective in scenarios where psychological barriers prevent customers from making referrals, likely extending across different product categories, tie strengths, and incentive types. Exploring how these factors shape the effectiveness of the reminder presents an interesting direction for future research.

Q: Referral contagion seems relevant beyond business, such as in public health. How might your findings inform policymakers?

A: The idea of referral contagion naturally extends beyond business contexts. For policymakers in public health systems, this means that investments in referral-based outreach could have a multiplier effect, as those who are referred become more likely to refer others. Programs could be strengthened by highlighting that referring others is common and appropriate.

Q: Your research relies on large-scale field data and company collaboration. What challenges did you face in building these partnerships and collecting real-world data at this scale?

A: We began by reaching out to a wide range of potential field partners. It’s a numbers game: we cast a wide net and had many conversations until we found organizations whose interests and data aligned with our research goals. We were fortunate to identify three enthusiastic and collaborative partners.

Q: What do marketing managers gain from working with academic researchers, and vice versa?

A: Collaborations are most valuable when both sides view them as a valuable exchange. For managers, they offer a chance to go beyond intuition and understand what drives customer behavior, grounded in careful experimentation and analysis. For researchers, they provide access to rich data and the opportunity to test ideas in real-world settings. Collaborations reveal the challenges of translating theoretical insights into practice and how organizational constraints, competing priorities, and practical considerations shape what’s possible. Working with firms often challenges our assumptions and helps us refine our theories to be more relevant and impactful.