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.
Why Referrals Spread: The Role of Social Appropriateness
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%.
Learn More: https://www.ama.org/2026/03/02/referral-contagion-capturing-the-full-roi-of-referral-programs/