Referral marketing is one of the most powerful tools in marketing. However, marketers can often miss that word of mouth advertising doesn’t always happen completely organically. That is where referral programs come into play. Referral programs have the ability to amplify the existing word of mouth marketing that your store already receives. Referral programs encourage customers to spread the word about your business systematically.
The Benefits of a Formal Referral Program
Why should you focus on referrals over leads? Aren’t leads the lifeblood of any business that needs to make direct sales? Mark Zuckerberg says it best in the following quote:
“People influence people. Nothing influences people more than a recommendation from a trusted friend. A trusted referral influences people more than the best broadcast message. A trusted referral is the Holy Grail of advertising.” – Mark Zuckerberg, CEO
Referrals from friends and family are still considered the most trusted source of advertising, according to a Nielsen study, as 84 percent of respondents across 58 countries cited this source as the most trustworthy.
Second, referral programs help with lead generation as the advocates do the work for you. Referral programs are a great way to generate not just any leads, but highly qualified, niche-specific leads that will likely result in sales.
Researchers from the Harvard Business Review looked at some 10,000 accounts at a German bank over the course of three years and discovered that “customers obtained through referrals are both more loyal and valuable than other customers.” In their study, referred customers were 18% more likely to stay with the bank, earning 16% more in profits thanks to the referral program. The bank that was studied earned 60% more profit from their initial referral investment. Shouldn’t you consider a marketing method that can get trusting, loyal customers to generate a 60% profit on your marketing dollar?
Referral programs can be extremely helpful when it comes to analyzing your brand as well. Online businesses that have referral programs can track their brand advocates, incentivize happy customers to promote their products and increase the customer acquisition and retention.
Getting Started with a Referral Program
Referral programs rely on happy, existing customers or advocates that help to extend your reach. There is no magical measure that will tell you when it is time to start your referral program for your e-commerce business. However, there are some key things to consider if you are seriously contemplating a referral program. Consider the following two variables:
- Are you already receiving organic word of mouth referrals?
- How many sales per month is your store making?
Your store should already have at least 100-200 monthly transactions per month to be confident about the potential success of your referral program. This indicates that your customer base has grown to a reasonable size. It is important to note that not every customer will be willing to make a referral. Many customers intend on making referrals and forget, or simply fail to recognize referral opportunities.
Decide on Your Offer
When it comes to referral programs, you have to offer something to your advocates to inspire them to promote your brand. You’ll have to decide on an offer that works for your brand.
Put yourself in your customer’s shoes. What do your customers want? What will help to solve their problems? What incentives will actually motivate them to showing off your product to a friend or family member? Some businesses create contests and others simply announce that if a customer refers a friend, they’ll receive a flat payment. You need to think clearly about what is the most meaningful to your customers.
One big question to answer is: Should you use a cash incentive or a discount coupon?
This will depend on whether you expect the advocates to return to your store for future purchases. For a product that is infrequently purchased, such as a mattress, a cash incentive is better. Your customers won’t have any use for five “15% off your next mattress” coupons.
When it comes to regular purchases, such as tea, coffee, makeup, and razors. A discount coupon will mean that your referrals will likely lead to two new sales. It creates a win-win for the referring partner and the person who is referred.
Let’s take a look at an example. Greats brand shoes have an offer that allows its advocates to give their friends $25 off and receive $25 when their friends make a purchase.
The goal of a referral program is to incentivize more deliberate word of mouth from the people who already are casually talking about your store.
Promoting Your Referral Program
Creating a referral program isn’t enough. You have to get the word out about the referral program before you can expect that anyone will participate. One of the most common ways to get the word out is through targeted time-based email campaigns. A post-purchase notification is a great way to capture your customer when they’re feeling good about their purchase and want to spread the word.
One example of a failed referral program is Airbnb’s first referral program. It failed because no one knew about it. The referral program wasn’t even known about by the Airbnb employees. It simply was not adequately promoted. Make sure that you don’t make the same mistake. It would be tragic to take the time and energy to design a referral program that customers simply ignore.
Following are several steps that you can take to ensure that your customer base knows about your referral program.
1. Email Your Customer List
Example from Shopify customer ZOOSHOO.
Many store owners who have been running businesses for years express that they wish they would have created and run referral programs sooner. They may have a hint of regret about missing out on acquiring new customers. However, with a list of existing customers to email, they can easily get started.
Mature e-commerce stores often get much more out of their referral programs compared to brand new stores. They have the opportunity to send out email campaigns to a much larger email list of past customers. This means that they can utilize this strategy much better. The customer base is very established and it makes getting the ball rolling for a new referral program much simpler and easier.
2. Feature Referral Calls to Action
Source: Oola Tea
It is amazing how easily people can get distracted. They often have multiple things on their mind – now more than ever. It is always worth taking the extra effort to remind them of your offers every single step of the way. In fact, upon visiting some online stores that had referral programs, it was surprising how difficult some of them were to find. Here are some great places to ensure your store’s visitors find out about your referral program:
- Header (“Earn $20”)
- Hero Image Carousel
- Pop-up Widgets (use sparingly!)
- FAQ Page
3. Prompt Customers After They Purchase
Quite possibly the best time to ask your customers for a referral is after they have purchased your product. This is due to the fact that they’ve just made a decision to buy from you. They are extra receptive to taking action. They may also be incentivized by a monetary reward simply by telling their friends.
During the post-purchase time, it is important to get your sales copyright. Since your customers have just purchased, they’re excited about getting what they want. You want them to do a favor for you, but make sure it doesn’t sound like a burden or chore.
To do this, you’ll want to emphasize that your customer will feel great when their friend enjoys the product that you referred to them.
4. Add Referral Marketing to Existing Channels
Example from Boxed.
Your referral program doesn’t need to stay in one particular place, such as on your website or follow-up emails. You should remind your customers about your referral program across all marketing channels. Some customers don’t read their emails and others don’t bother with social media. Make sure that you are trying to reach customers who are on all the channels.
Be tasteful about getting your referral program out there. Even though a referral program offers benefits, it is still a marketing tactic. Your messages should be spaced out within the context of a more comprehensive social media strategy.
5. Send Email Reminders
It is very easy to overestimate how many customers have heard or paid attention to any of your campaigns. Most people live very busy lives and are very forgetful.
It can take multiple reminders before customers will realize that your business even has a referral program. After that, it could take a few extra reminders for them to get started with referring. Keep in mind that your customers will also have to think of a friend who would be a perfect fit for the product. Therefore, it is worthwhile to send multiple reminders of your referral program.
You may be tempted to send referral reminders every week. However, it is likely that you’re already sending them lots of other emails, such as discount coupons, new arrival announcements, etc. Therefore, you don’t want them to feel inundated and stop opening up your emails. Make sure that you mix in the referral reminders with the other existing emails.
Another tactic is to insert mentions of your referral program in your existing marketing emails! Most importantly, you’ll want to pay attention to your customers’ experience and ensure that it is a positive and pleasant one.
Reach Your Next Best Customer
Referral programs are a lot of work. However, they do work! The people who participate in your referral program are doing you a huge favor. They’re incentivized to think about which friends, colleagues or followers would most likely love your products. That is a majority of the marketing work done for you. That level of targeting will produce some of your best and most loyal customers.
Customer referrals are proof positive that your clients truly love your product. If you are selling something that produces a positive impact on your customers’ lives, the customer referral program will encourage them to share their experiences with their friends and family. More importantly, you’ll get a good sense of the scale and scope that a successful referral program requires. This can help you to better plan and execute your referral program.