The chain from customer satisfaction via word-of-mouth referrals to new customer acquisition

As one reviewer correctly noted, it is possible for industrial decision makers to have product involvement if the purchase is related to their jobs. The industrial buying literature has so far neglected this issue. For the present context, it seems unlikely that the decision between utility providers has a strong effect on people’s careers.

We acknowledge the possibility that consumers or businesses are not switchers but are new to the market because of, for example, moving away from the parents’ home or establishing a start-up business. But this would have been revealed by their answers to the questions on their switching from their previous provider, and no such case occurred in our analysis. In any case, the proportion of such “new to the market” customers is extremely low because energy is a service everybody needs.

Because we treat the effect of WOM on switching as unobserved, it seems important to verify its effect using self-reports from the customers. Therefore, all switchers who had received a referral before switching were asked whether this referral had been their primary motivation to switch. Further, we asked all referral receivers (both switchers and non-switchers) how influential they had perceived the WOM referral to be (using five items from the “perceived influence” scale by Bansal and Voyer 2000). Results showed that switchers perceived the referral to be more influential than non-switchers (25.14 vs. 20.34, F = 64.23, p < 0.001 for the consumer and 25.28 vs. 19.09, F = 29.41, p < 0.001 for the industrial sample), suggesting that receiving a referral perceived as influential increases the likelihood to switch. Among the switchers, those who had said the referral was the primary switching motivation perceived it to be more influential than those who said the referral was not the primary switching motivation (consumer: 26.33 vs. 23.33, F = 17.33, p < 0.001; industrial: 27.00 vs. 23.31, F = 4.78, p < 0.05), suggesting varying influence of WOM on the switchers. Further, perceived importance of the referral is positively and significantly correlated with the proposed determinants of WOM effectiveness, i.e., expertise (consumer: r = .49, p < 0.01; industrial r = 0.23, p < 0.01) and similarity (consumer: r = 0.38; p < 0.01; industrial: r = 0.48, p < 0.01), which confirms the direction and pattern of the results of the binary analysis.

For confidentiality reasons, we cannot display a precise monetary referral value estimated for the utility industry, but the expected number of new recruits through referrals should be indicative of its significance.