Referral marketing is considered one of, if not the best method of customer acquisition and 'growth hacking'. If done well, it creates a chain-reaction of quality interactions between people who like, trust and listen to each other. It works because it offers a win-win situation for all concerned. Brands that run referral programs typically experience between 10 to 30% increase in customer acquisition.
Uses & Benefits of Referral Marketing
- Referral marketing is a high level of targeted marketing that you are unlikely to achieve on your own. After all, your evangelists have more intimate knowledge of their friends and family and can likely target them much better than you can.
- The use of influencers is a form of referral program. It allows you to give your product or service extensive targeted marketing. These influencers may include YouTubers and other similar sources.
- Your target market already trusts the influencer more than you. A Nielson survey on trust and advertising suggests that referral marketing scored the highest across every single consumer demographic (and even B2B customers). Also, the digital natives show very little trust in conventional advertising.
- When marketers combine the approval of one's social circle with a reward, they maximize the potential power of referral programs.
- B2B referrals have a 70% higher conversion rate and 69% faster close time on sales (Nielson survey).
- Referral marketing can easily make your brand become viral within short periods of time, especially when using social media.
Rewards
Rewards vary from rewards points in a loyalty / rewards program to a free portion of the inventory (products or service), early access (a scarce resource), exclusively available products, discounts, cash, branded swag, content and so on. However, the arguably most exciting rewards are those that involve 2-way incentives, ie that reward both the advocate and recipient / referred individual.
Referral Program Case Studies
Case Study: Drop Box has one of the most famous referral marketing programs (as well as one of the best examples of 'growth hacking'). The company offers online storage. Their referral program was based on the 2-way incentive / 'give-&-get' design. Specifically, they offered the advocate (ie the pre-existing referring customer) and the referred both a reward of 500 MB of free storage. The company saw massive increases in signups, that multiplied many times over every several months. They suggested the referral proposal immediately, ie during the customer onboarding process. One very commendable aspect of this case is the expansion of an expandable user-type product that is already the key product. This resulted in very happy customers. Examples of other expandable products may include extra services, extra access to a facility.
Case Study: Robinhood offers a free mobile app for stock trading. Their referral program is a good case example of growth hacking from the pre-launch stages as they amassed an impressive 1 million plus subscribers within 1 year during the pre-launch period of the beta version of a new software product. Today, they continue adding roughly 140,000 new users every month. ... Their Referral Priority Program (ie ranking) used the power of scarcity and exclusivity marketing and gamification. Many people were eager to try the product. However, Robinhood limited the number of applicants who would be able to access the early version. This is how it worked. You join Robinhood’s waiting list and start off at the end of the line. However, if you invite a friend to also join the waiting list behind you, you automatically get moved up in line a few spots. In short, you move further up in line the more people you referred to join the waiting list. This program continued even after launch. This referral program used the powerful psychological motivation to advance. Apart from the use of one's references, there was no cost for winning something of perceived value; a better position. Some have likened this to pulling the lever of a slot machine. After the launch, the program continued but, since the product had been launched, the reward was stocks. Happy users who won stocks became evangelists. Specifically, even though the gifted stocks were not the most valuable or prestigious, they happily went onto other platforms to discuss the benefits of earning stocks and, in turn, motivated other pre-existing users to continue referring and to remain firmly loyal within the relationship end of the sales funnel.This approach has a high success rate, especially for pre-launch campaigns.
Case Study: AirBNB's 2-way incentive design offers another case of growth hacking from the use of referral marketing. Within a few years, they grew from under 50,000 to over 80 million guests. Using a referral program was arguably necessary for their long term success because it would have been an otherwise arguably hard sell concept of allowing traveling strangers to stay in one's private residence or staying in a stranger's home. Consequently, references helped tremendously with the abovementioned element of trust that referral programs provide. The way in which it worked was that, both the advocate and guest got a $25 credit for successfully completing an upcoming trip. Furthermore, if the recipient / referral person listed their property, you could earn $75.
Case study: FreeAgent offers accounting software for a price that is charged at intervals. The design of their referral program has a special in-built anti-attrition / anti-churn feature that goes above and beyond many other brands. Specifically, it encourages advocates to not only find referrals but to more carefully recruit and select referrals most likely to remain subscribed to the brand. It accomplished this by providing 10% free use of the software for as long as both the advocate and referrer remained as as active users. In fact, the program even allows advocates to stack rewards, ie to add up all the 10% discounts to have free use of the product after 10 successful referrals. Furthermore, in addition to enjoying free use of the product, advocates can even earn money; a 20% share of new referral subscriptions. This approach is a good fit when products and services are used and paid for on an ongoing / continuous basis.
Case Study: A personal care brand offered levels or tiers of rewards. For 5 successful rewards, a company gave away a free jar of their product. For 10, they gave something a little more expensive, for 25, they gave a premium product. For 50, they gave free personal care equipment for 1 year.
DOs & DON'Ts
- Ensure that all stakeholders perceive value, ie the advocate, referee and the marketer's brand. Consider the case of DropBox that gave people precisely what they wanted, space, ie not 10% something else or points leading up eventually to what they wanted but immediate access to the actual product. Outside of this, they then offered real-time collaboration tools (similar to Google Docs) because they knew their market sufficiently well to know that that would be of particular interest to them.
- Introduce the referral program at a stage in the customer - brand relationship that is appropriate evangelism. In some cases like Robinhood which likely has a target market of very competent customers who already understand what they will get and can hit the ground running with your product, incorporate the referral program as early as into your customer onboarding program as they tend to gain lots of traction when introduced at that point. This may likely apply for pre-existing customers for a special edition of a brand with which your customers are already accustomed. Otherwise, there are some circumstances in which new customers will want to feel more competent with the product before referring to others. In such cases, wait until that customer has already begun to settle in.
- Design your program to generate only high quality and trustworthy advocacy (ie over hard sales pitching that lacks true interest or understanding of the product).
- Implement a customer review system and facility for handing complaints (which I call 'reverse referrals'). The psychology of influence / persuasion shows that social proof is very influential (because leads believe much less about claims otherwise). Consequently, these systems provide trustworthy social proof.
- Remove the burden of sales from most advocates. Offer to send the invitation to their contact on their behalf. This ensures that the advocate does not have a difficult time. Research shows that only a small percentage, often as low as 3% of the average person is not a competent sales person, even for a brand they like. However, when you observe members of your 3% hyper-social and influential person, pay special attention to him or her. If (s)he is not on YouTube already, you may need to groom him or her accordingly, along with rewards. Otherwise, this 3% within your industry may include social media influencers. Seek them out when you sufficiently established to deal with the potential influx of orders.
- Simplify the process as much as possible for all. Make the referral program as easy to share as possible (for advocates) and the entry barriers as low as possible (for referees). One way of achieving this is providing different social media options for sharing.
- Improve the quality of referrals with an intelligently designed referral program. Consider the FreeAgent case above in which advocates can potentially earn 10% discount if their referee remains subscribed. The implication this is that advocates are likely to consider who they will refer more seriously than otherwise.
- Integrate your referral program into your loyalty / rewards program. While a business needs to retain customers (which is the raison d'etre of loyalty rewards programs and can be likened to blocking the holes of a leaky bucket whose outflowing water represents churn), referral programs help on the front end , ie to acquire new customers (like water being poured into the bucket). After all, even the best businesses generally lose 10% of its customer base yearly.
- Emotional marketing, especially as it relates to deeply personal emotional marketing, is particularly suitable for referral programs. Stress human social ideals of togetherness, sharing, friendship, intimacy and so on.
Example: Starbucks used 2 cups in the header of their referral part of their rewards program to emphasize the idea of a shared experience and suggests a sense of friendship one may gain from the experience.
Example: Klova dovetailed the concepts of sleeping soundly with and the idea of togetherness to show a very intimate scene of a happy couple waking up together.
- Cater to the human desire for (higher) status. In some cases, that may look like the Robinhood case above. In others, it may be more like Starbucks' attractive header with gold trim to lend an air of prestige and elegance to the program. Every element, including the frosted gold against black and font contribute to the sense of prestige. Marketers continue to notice that people care a lot about status, even more than money.
- Previously, I discussed explainer pages as they relate to loyalty rewards programs. However, use very digestible explainer pages for referral programs which may or may not be part of your loyalty rewards program. Present the program as simply as possible. This may require you to ensure that the program is truly simple. If there are too many complicated moving parts, you can too easily lose people and their interest. If you absolutely must have a complex program, focus your message on the most important aspect to sell the idea and drip feed useful options at relevant stages.
- Tell the advocate how he or she will benefit. To this end, use taglines and emphasize how far the rewards goes within the context of your program. This might involve including links to your rewards catalog or other list(s) of rewards.
Case: Klova's 'Make money in your sleep' is an attractive proposition.
- When you analyze the success of your loyalty rewards program, use the AOV for creating future success. For instance, if you can afford it, consider using the AOV as the basis for establishing the value of rewards / reward points to offer advocating customers for referring friends. Ideally however, offer this reward to new referred customers only AFTER they have made purchases to ensure that you break even. In other words, the AOV will not only be the reward but also the minimum purchase value required of a new customer for earning the reward.
Immediately after a positive shopping experience, encourage customers to refer others. 83% of customers are willing to refer after a positive shopping experience. Apart from after feeling positive about purchases, I wonder whether those positive experiences include winning rewards,
Place a CTA on your post-purchase page. Customers are 16 times more likely to share at this point.
Integrate the refer / share CTA into current customer experiences (like the post purchase page) and NOT tucked away on other landing pages. This is when customers are four times more likely to share.
- Integrate referral marketing throughout your organization. Tell staff and all stakeholders how it works. Education and re-education at all turns is very important to ensure success.
- Psychology suggests that customers are more likely to repeat a spontaneous action (of referring new customers) if you reward them as a surprise, ie over when you reward them as motivated and advertised beforehand. In that case, also give surprise rewards for informal referrals that are not already part of your program and or to persons who you may wish to invite into the program. Another approach is to surprise the unsuspecting new customer by telling them that you have credited their account because their friend referred them. Encourage that new customer to thank the advocate, which may inspire both of them further in the way of making referrals as they see that your system truly works.
- Absolutely do NOT forget to give promised rewards. Set up your system so that the customer is credited as soon as their referee converts.
- Encourage customers to share referral links over social media like Twitter. Example: After Starbucks did this, apparently thousands of customers their shared referral links.
- In whatever way possible, incorporate an element of prestige. Marketers are finding that prestige is more appealing (than money) to leads.
- Get your customer experience CRX in order beforehand running a referral program. The ill fate of inviting guests to your home while you are building or otherwise ill-prepared to treat them well also applies to any referral program.
- Design onboarding and thank you correspondence that simply reiterates how the program works. Ensure all parties are clear on what they should expect re what they will get, how and when. As per usual, include a call to action (for advocates to invite more referrals).
Here is Starbucks' response to advocates.
Here is Starbucks' response to referrals of the same program.
- Offer several options for your customers to reach out to their circle of influence that may include submitting a friend's email address, sending a social media or Whatsapp link to the friend. The links carry codes that are embedded with ways of identifying the advocate.
- Analyze and adjust your program's performance. This includes paying attention to your analytics, managerial statistics, product reviews, surveys and so on.
CONTENT RELATED TO REFERRAL MARKETING
- Why the old 'earn and burn' loyalty program model is failing and a new approach for modern consumers.
- Tiered loyalty programs
- Use spend-based loyalty rewards programs to give greater rewards to customers with the highest customer lifetime value (CLV) ... and reduce costs while you are at it.
- A great loyalty rewards program can not help your business if customers can not understand it sufficiently well to sign up. Create a loyalty rewards program explainer page.
- Brief overview of loyalty and evangelism as they relate to the sales funnel.
- Analyze how well your rewards catalog has been curated.
- Gift card programs may be designed to be stand alone or an integrated component of your current referral program.
- The psychology of influence / persuasion suggests that using the principle of social proof is particularly useful when attempting customer acquisition.
- One way of acquiring new customers is to shout-out strategic alliances, ie other businesses with non-competing offerings but the same market. You may use tools like Instagram @tags.
- Using brand storytelling for evangelism
- Case studies
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