This is a viewpoint from Geoffrey Ryskamp, principal of hospitality, travel, and leisure at Medallia.

Word-of-mouth. If the hospitality industry could invent a perpetual motion machine, this would be its fuel.

According to Nielsen, 92 percent of customers trust referrals from friends, and people are four times more likely to buy a product when they are referred to it.

Word-of-mouth keeps business moving forward, with both new referrals and past customers coming back over and over.

It’s easy to imagine why in the travel and leisure industry: Knowing the ins and outs of a new travel destination sets peoples’ minds at ease during a time they want to destress. So how can businesses capitalize on this high rate of return?

The key is personalization. Businesses can’t rely on customers to happen to discuss their brand. They must create opportunities for people to tell their friends.

And when these encounters feel like personal incentives, they are not only an effective way to drive in new business via referrals — when done well, they keep your existing customers engaged too.

In a recent study conducted in collaboration with the Stanford Graduate School of Business, Medallia looked at what companies can do to increase referral rates. Each option has positive results, but the personalized campaign was most effective.

Option one: refer a friend

For the study, a local business—in this case an athletic club—ran an experiment with 13,000 of its customers.

As a control group, customers were asked to refer friends by providing the business the names and email addresses of other potential patrons.

While this basic method indeed drove results, they were modest at 0.4 percent of customers providing at least one referral.

Option two: incentivized referrals

In this group, the business sent out requests for referrals, and they sweetened the deal: Referrers could get three free passes to share by providing friends’ names and email addresses. By offering the original customer a perk, referrals went up to 1.9 percent.

This is probably one of the most common methods of referral used by businesses now, especially by transaction-based brands. At Uber, for instance, every time a customer refers the company’s service and a new customer uses a personalized referral code, the original rider gets a credit to their account.

This option is especially popular with millennial buyers, two-thirds of whom have used a referral code shared by a friend on social media in a typical month.

Option three: earned referrals

In the final group, customers were offered the same incentive: three free passes to share with friends. But the referral request was personalized; it told customers exactly how often they had visited the athletic club in the past month, and that they had earned the passes based on those visits.

Even though the resulting offer in this group was identical to group two, the results were very different. When patrons got the personalized option, nearly 5 percent made a referral. That represents 2.5 times the referral rate of group two and 12 times that of group one.

Perhaps more important than just uptick in referrals, this method kept current customers the most engaged as well.

In this study, patrons that made a referral used the business’ services more often the next month compared to customers that did not make a referral.

This results in a virtuous cycle, which brings in new customers and strengthens a brand’s relationship with its existing clientele.

A great referral program is much more than a method to get some fresh marketing and sales opportunities. By giving current customers a personalized incentive to spread the word, businesses are communicating to customers how much they mean to the company.

Hospitality brands that want an effective word-of-mouth program should align referral programs with a broader strategy to create customer value for everyone — both prospects and patrons.

This is a viewpoint from Geoffrey Ryskamp, principal of hospitality, travel and leisure at Medallia.Opinions and views expressed by all guest contributors do not necessarily reflect those of tnooz, its writers, or its partners.

Photo by Adam Jang on Unsplash.