As marketing and sales professionals, one of your foremost goals would be to increase customers and to ensure that your existing customers stay with you. In fact, a number of businesses combine the two goals. How? Through customer referral programs. The most significant revenue drivers of businesses are expert-rated in terms of how valuable they are to revenue generation. The question is, how to create a profitable customer referral program?
Customer retention is scored to be 52% valuable and customer acquisition to be 45% as per the above-said rating.
Customer Referral programs are no secret. They are a part of most marketing strategies and plans. However, when it comes to execution, a large number of efforts fail drastically 2. Take the example of Worldwide 101, a virtual assistant company that connects founders and executives with skilled virtual assistants. In her blog, founder Sandra Lewis shared how their referral rewards program backfired and nearly damaged their brand, in no time. The reason:
Either the programs are ambiguous, the actual request for a referral is never made to the existing loyal customers, or it leaves out the referrer (the existing loyal client who got you the new client).
Rewarding the one who referred your product/service to his/her friend can increase the performance of your refer-a-friend program. By miles!
Researchers Philipp Schmitt, Bernd Skiera Christoper, and Van den Bulte set out to explore whether customer referral programs actually benefited companies or were they just an added expense. They found promising results, as shared in the Harvard Business Review:
The researchers emphasize that customer referral programs work for multiple industries, especially for the industries where finding prospects is hard. They urge companies to ask a few simple questions:
Simple trials can help companies answer these questions and get better at converting their customers’ social capital into their own economic capital.
But what about the customer who referred? What do your existing customers (referrers) care about the most?
Shalini loves to eat at a particular continental restaurant in her neighborhood. She likes the food, service, and ambiance of the restaurant. The restaurant recently launched a customer referral program – whenever a customer referred them to a friend, the friend would get a 20% discount on their first order. This is great! Thought Shalini and thought about a few foodie friends who enjoy an experience at the restaurant. However, weeks and months passed by, but Shalini made no effort to fill in a referral form. The reason?
“I’m not that excited about this referral program.”
And why is that?
“Because what’s in it for me? Of course, I would like my friends to avail of a 20% discount at the restaurant, but this program doesn’t excite me enough. I feel like the restaurant is squeezing out of me. I would really appreciate it if I too was given something in return.”
Non-cash incentives are 24% more effective at boosting performance than cash incentives.
—The University of Chicago
This is exactly what the restaurant needs to do. Think like Shalini; put themselves in Shalini’s shoes and ask a few simple yet vital questions about why should an existing customer refer your brand to someone?
To understand this, let’s take the much-talked-about case of Air BnB’s success owing to the customer referral program. Like most small businesses, Air BnB had implemented a referral program.
But over time, it wasn’t effective and was mostly forgotten. The company revisited and reinvented the program. Their new referral program encourages existing users to invite friends by giving both the sender and the recipient $25 of travel credit once the invited user completes the first trip.
More than 50% of people are likely to give a referral if offered a direct incentive, social recognition, or access to an exclusive loyalty program.
- Software Advice
Not only did Airbnb focus on the product, but they also put enough emphasis on marketing. They sent out promotional emails that read ‘Send your friend 25$ travel credit’, which made the referrer feel more motivated and less like trying to earn from their friends.
Now, let’s look at the case of Dropbox and how they managed to increase customers to 3900% in just 15 months. The cloud storage and file hosting company based its referral approach on Paypal’s successful model. While Paypal offered referrers a cash bonus, Dropbox offered its referrers additional storage space for free; 500 MB!. This means it’s users got something that they would actually use.
What is more, instead of paying out cash, the company chose to give up space, making use of a resource that they had in abundance and made sure the users could use more of their services and products.
But have you as a marketer ever wondered, what are customers really loyal to?
A Corporate executive Board study conducted on 7000 consumers across the United States, United Kingdom, and Australia, revealed one key element that is part of a customer’s brand loyalty: shared value. “We saw that emotional attachments to brands certainly do exist, but that connection typically starts with a ‘shared value’ that consumers believe they hold in common with the brand.” – Aaron Lottonn, CEB
Learning from researchers, examples from businesses and experts, what are some of the key points to follow in order to make a profitable referral rewards program? Here are some cues:
When you make the customers feel they’ve earned the right to make a referral, your program will be more successful, research by Stanford Graduate School of Business revealed.
Rewards come in all shapes and sizes, but the best way to go about is to offer something that resonates with the consumer and at the same time goes with your brand experience. This is what Tesla did. The electric car company offered the first person to refer 20 people a free Model S or Model X. Among other referral rewards, were invitations to exclusive parties and to purchase special edition products not available to the public.
1 offline word of mouth impression drives sales at least 5x more than 1 paid.
Most companies treat all their customers as equals. Big mistake. Keeping a track of the most loyal customers and offering them incentives would only create a stronger loyalty cycle. Treating highly profitable and loyal customers as equal to regular customers could backfire. Highly profitable customers who were expecting better incentives could choose to find other brands. The example of American Express proves this. American Express conducted research on one core segment of its business - affluent business travelers. They realized that the rewards offered by competitors were one of the major reasons why customers were defecting.
Along with having a separate tab and space on your website, make sure the referral rewards program is discoverable to all your customers. Emails, blogs and other platforms must have the information clearly displayed.
Here’s what Evernote, the note-taking software does. Evernote awards points to referrers every time they make a referral, which, customers can. redeemed to use the software’s premium features. Not only do referrers get to use premium features, but chances are, they are likely to pay and sign up to the premium account if they like the features. It’s a win-win.
What to do and why to do it should be clearly outlined. The call to action should be clear, easy, and prominently shown on different platforms.
Your existing customers need to know who you’re looking for; there’s no need knocking on every door. The more specific you get, the more focused your program will get.
A study by Texas Tech University found that 83% of consumers are willing to refer a friend after they had a positive experience with a brand, but only 29% actually do refer. The best time to ask is after a customer has had a successful and positive experience with you.
When referral tools are used, companies are 3x more likely to accelerate referral generation and conversion. Yet only 22% have a tool in place to effectively scale their programs. - Heinz Marketing
An article on www.inc.com, 7 steps on how to launch your first referral program, shares these cues:
Referral programs can be found in every industry and business model because they work! But have you learned the tricks to make your program work for you?
In today’s world where your competitors are just a click away from your customers, how are you going to make sure that your customers remain loyal to you as well as help your business grow?
1. Quicksprout.com, https://www.quicksprout.com/2018/07/11/how-to-implement-a-customer-referral-program-that-drives-sales/
2. Medium.com, https://medium.com/startup-grind/from-bribing-to-delighting-how-a-referral-program-nearly-damaged-our-brand-5af257a98780