Many firms are now using viral marketing programs to
harness the power of word-of-mouth and referrals in
order to acquire new customers. We introduce the concept
of Customer Referral Value (CRV) which quantifies the
value of the referrals that each customer gives to the
firm. We not only demonstrate how to measure CRV, but
also illustrate how to maximize it. We show the role
that CRV plays in evaluating the importance of each
customer to the firm is critical. This is because many
of these same firms are using customer selection metrics
like CLV (Customer Lifetime Value) to identify their
“best” customers and then allocating resources to those
customers with the highest CLV. In the process, these
firms frequently alienate low and medium CLV customers
because of the lower level service provided and the
differentiated treatment. An important question is
whether these low and medium CLV customers may in fact
be of value to a firm due to their word-of-mouth and
referrals and if so, what is this value to the firm? pdf