An HR services organisation used three marketing methods to generate customers: Incentive-based advertisements (get the first service free), exhibitions and direct mail. Looking at the budgets over time showed the same proportions were spent on each every year. This suggested the organisation was not learning.

When managers studied the marketing methods they learned that direct mail produced very few customers, exhibitions produced none and advertising produced moderate volumes of leads but not very many customers – meaning a lot of administrative work and sometimes providing the ‘free’ initial service that led to no further work.

But studying what was going on also revealed that they had another customer acquisition process they were unaware of: referrals from current clients. It was a revelation, and these were high-quality low-cost-of-acquisition customers. It led to some obvious questions: How many clients refer others to them? Why do they do so?

The answers led to a completely different approach to customer acquisition.