Use direct mail to stimulate customer referrals.

A personal reference is the strongest advertising there is. So, among your marketing plans for the year, have you allocated any of your budget dollars toward generating referrals?

First, ask yourself if you are confident that your customer service is up to the level you want it to be. Then, if your products also are competitive, why not invite customers to tell their friends about you and reward them for it?

Requests for referrals can take several forms, but they can be especially effective when by direct mail. You can make them a stand-alone effort or a secondary offer in a larger campaign. Referrals fit many products, but area bit more practical on deposit products than on some loans because of restrictions on certain types of loans.

Adding a referral incentive to your mail campaign has two advantages. First, it may bring you another account, and second, it may actually increase the response.

For example, consider a campaign for a certificate of deposit. Certificates, of course, are typically used by customers in the 50-plus age range, and especially among those over age 60. This age demographic is especially receptive to advice from friends, and your older customers often will have a circle of close friends with a similar interest in certificates of deposit.

Therefore, you can boost response to your primary offer by rewarding the referring party with either a cash payment or a rate bonus on their own certificate. The same can be done with premium interest products such as money market accounts or high-rate checking products.

Certain products may be worth testing by mailing a stand-alone referral offer to current users. For example, try offering an incentive to existing online banking and online bill-pay customers who refer a friend. Online services are ideal candidates for referrals because, due to their nature, they generate security concerns among some prospects. A personal referral from a friend is the ideal solution.

You can offer customers who "refer a friend" a credit to their own account along with a bonus deposit for their friend. Reward amounts can vary, and you can test payment ranges for various products. Also be aware of any tax implications on payments.

Stand-alone offers also are appropriate for standard or premium rate checking products, money market accounts and convenience services such as debit cards.

Direct mail works well for referral marketing because you can easily target existing users, and the format allows you to produce a letter with a coupon inexpensively. You might consider adding extra coupons and product literature that the referring party can give to the prospect.

Remember to thank the referring customers for their own business, and perhaps even invite them, by survey, to tell you of any concerns they might have about your service. In effect, give your customers an opportunity to tell you if they like your service, then give them an incentive to refer their friends.

A well planned direct mail program should enable you to generate referrals from your existing customers in many product categories. And, with consistent testing, you may be able to build a referral network at a cost that is competitive with other methods of attracting new business.

Jim Turner is President of Etra Corp., Naperville, Ill. The company provides advertising and research services. He can be reaced at [phone] or at [e-mail].