It is important for every business to think about implementing a referral program. The presence of customer referral programs brings various advantages, including the reduction of acquiring new leads’ costs, maintaining the satisfaction of valuable customers, enhancing customer retention, and acting as an effective word-of-mouth approach.
By encouraging existing individuals to influence new ones, one can effectively enhance the conversion of prospects into long-term customers.
There is no harm in saying that a trusted referral is extremely valuable in marketing. So, how can you motivate people to talk about your brand? The solution is straightforward: having a great product!
Having a product that is exceptional enough to make your consumers want to boast about it or recommend it to others is crucial. It may come as a surprise, but referrals are incredibly cost-effective in terms of acquiring new customers. They play a vital role in exponentially boosting the growth of your business.
Why a Refferal Program?
Referral programs, commonly seen in many apps with the offer of “give $5, get $5,” have gained popularity in recent years. They offer significant advantages compared to paid marketing channels because they allow you to allocate your Customer Acquisition Cost (CAC) to your users, who then use it within your product rather than giving it to Google or Facebook. These programs leverage viral marketing by utilizing your existing user network to bring in more users, thus tapping into the network effects of your product. This strategy is particularly beneficial for products targeting niche markets with high acquisition costs, such as crypto users or on-demand drivers, as these users often have connections with each other.
Adding a successful referral program to your acquisition mix can account for 20-30% of its success, working alongside other acquisition loops. Although it is not a cure-all solution, it is valuable as a supplement to other marketing endeavors.
Structure of a Referral Program
Referral programs are observed to follow similar patterns in various industries. Major companies like Airbnb, Uber, Instacart, Coinbase, and Wealthfront have implemented their own versions. While there may be slight differences, such as emphasis on monetary rewards or methods like sharing codes, links, or connecting address books to invite friends.
To structure the program, one way is to categorize all these variations by dividing them into different sections and then answering a series of questions.
- Ask
- When do you ask the user to refer?
- Why do you refer? Is it tied to a holiday, or a particular promotion?
- What’s the message?
- Target
- Which users do you target? All of them?
- How do you set referral amounts?
- Incentive
- What’s the incentive, is it extrinsic ($) or intrinsic (points, storage, etc)?
- Do you give the inviter or recipient the same reward?
- Payback
- What is the success criteria for the program?
- How do you think about cannibalization?
Best Practices for Referral Programs
Once you understand the significance of referral marketing and its ability to assist in finding qualified prospects, the next major concern becomes the effective integration of a referral program.
Before implementing the strategy for your business, it’s important to keep a few things in mind.
1. Decide what you want to offer
To obtain something, one must be willing to make sacrifices. With this in consideration, the initial step involves generating ideas and selecting which offerings are suitable for your brand.
Take a moment to put yourself in the shoes of a customer and consider what could bring them joy. What kind of motivation could prompt them to promote your products to their friends? Could it be complimentary items? Receiving cash back? Doubling the rewards points they earn? Or perhaps, significant reductions in price?
The decision on whether to create contests or simply offer a flat payment for customer referrals depends entirely on you and the nature of your business.
2. Make things easy for your customers
If you are already operating a business, you are already aware of the importance of not complicating things for your customers. This principle applies not only to purchases but also to referrals.
The aim is to ensure that the process of referring is smooth and easy for your new customers, enabling them to earn rewards promptly.
The fewer hoops your customers have to jump through, the better it is because no one will want to sign up for a referral program only to find out that there are 3-5 more steps to complete to collect their referral rewards. Quick reward redemption encourages repeat behaviour from customers.
3. Promote the referral program regularly
It is pointless to create a referral program only for it to remain inactive. People do not have the time to remember, therefore it is crucial to regularly remind your customers about your campaigns.
For any product launch, it is necessary to promote your referral campaigns in order to stimulate activity and participation. Make sure to share information about your programs on social media at least once or twice weekly. Additionally, consider sending newsletters, incorporating details into emails, distributing flyers at your physical locations, or including them in your email signature.
To capture the chance to earn discounts, prompt customers to share your referral link whenever they make a purchase by utilizing time-based or triggered email campaigns.
Importance of Social Media for Executing Successful Referral Programs
Referral marketing programs do not occur spontaneously. Similar to any other marketing initiative, even your referral campaigns require promotion through various channels, with “Social Media” being the most important one.
It cannot be denied that referrals occur through ‘word of mouth,’ but in today’s digital age, this mostly happens through social media. Social media channels are not only powerful but also serve as an easy promotional gateway.
By implementing a referral program on social media, you can cease marketing efforts on a smaller scale and tap into the extensive networks of potential customers for greater benefits.
Due to the high likelihood of people engaging and sharing content from social media, your referral programs have a great opportunity to go viral as well, thanks to the increased exposure.
