receive commission on business they refer to others and car dealers
are permitted to take commissions from loans they send to banks.
The introduction of financial incentives raises the question as to
whether someone who is financially compensated for referring busi-
ness is a referral source or an intermediary (and thus a member of
the customer market domain). It is suggested the criterion that
should be used in deciding this is the primary motive of the person
or organization who is receiving an incentive for its referrals. If its
primary motive is driven by professional needs to help its clients
and to develop a good relationship with referral sources, and it
receives a financial incentive, it is a referral. On the other hand, if the
company receives a significant fee for referring the work and views
this as an important part of revenue generation for its business, it is
better characterized as an agent or intermediary within the cus-
tomer market domain. Here we are concerned only with the refer-
rals that fall within the first category.
Incentive-based referrals do not necessarily involve direct finan-
cial remuneration by way of a commission or finder’s fee. In some
cases a written letter of thanks, a dozen bottles of wine, or another
attractive gift may be used. Invitations to major sporting events, the
opera or ballet are typical ways in which financial service institu-
tions and professional service firms acknowledge the assistance of
referral sources. One company organized a high level management
development event with several leading business school professors
and invited the directors from the business referral sources to attend
this event free of charge.
The potential for use of incentives varies considerably across
industries. In a referral system which incorporates financial incen-
tives, an important issue is to ensure that it is managed in an ethical
manner. In some industry sectors incentives are considered unethi-
cal or may even be prohibited under the rules of a professional or
regulatory body. As a consequence, ethical considerations, regula-
tory practices, commonly accepted norms within the business sector
and commonsense should all be taken into account before a decision
is made regarding the use of incentives.
Staff referrals (from existing and former staff)
Internal staff referrals represent an important source of referral
within a number of industry sectors. The most common examples of
these are probably within professional services and financial serv-
ices but there are also many other examples of organizations which
232 Relationship Marketing