If your hair stylist gave you $10 every time you sent one of your friends her way, you might be more tempted to tell all of your buddies what a fabulous stylist she was — or you might even try to make new friends to refer.

This clever method of customer acquisition is a form of word-of-mouth (WOM) marketing known as a referral program. While such programs have been used for decades by not-for-profit organizations like PBS, similar customer referral programs have also become increasingly popular with companies in a wide range of industries, from financial services and automobiles to newspapers and hotels. Christophe Van den Bulte, a professor of marketing at Wharton, describes customer referral programs as an effective way to attract higher quality customers. “They are an old idea that’s getting more traction these days,” he notes, “and we now have solid evidence of their financial benefits.”

via ‘Turning Social Capital into Economic Capital’: Straight Talk about Word-of-mouth Marketing – Knowledge@Wharton.