Word of mouth is one of the oldest, and yet most effective channels available to reach new customers. As a modern variation, referral marketing represents a significant opportunity for most businesses to boost their customer acquisition. However, few systematically drive the channel through a dedicated referral programme. Why is this?
Sometimes a business isn’t aware the channel even exists, or of its simplicity and effectiveness. Sometimes the request to build a referral programme can sit in the technology pipeline year after year. Sometimes a referral programme is actually built, but when it doesn’t deliver on day one it is then neglected and marked down as a failed strategy before its had a chance to really prove itself.
So it’s one thing knowing that referral marketing should work, it’s another making it work. Absolutely central to success is testing, testing, testing. It’s crucial that your marketing team is comfortable with optimising the creative, messaging, user experience and promotion points.
The right referral marketing partner will then work with you to develop a proposition that will resonate with your customers within a programme that can be up and running rapidly. They will also have a robust testing and segmentation platform so that the programme can be AB tested by cohort, ensuring consistency of experience for customers and friends who have already seen an offer even if the marketing team are testing different offers.
In this piece, I'm going to apply my personal passions for the social psychology of marketing to talk the reader through the things to consider and plan for when launching a referral campaign, the steps to follow, and what sort of outcomes the brand can expect.
Setting up a referral programme
1. Start with a strong case for referral
For some businesses, referral can end up representing their largest marketing channel. Dropbox for example managed to acquire a phenomenal 60% of their customers from their referral scheme. Giffgaff, the UK mobile phone company, managed 72%. What was central to these brands’ success, was that they had included referral as a key part of their product offering from an early stage.
However for more mature online and multichannel businesses, that will be adding referral in as an incremental channel, work out the share of your traffic which is new customers, and calculate roughly 10-30% of that to estimate what referral should deliver. This should create a strong business case.
2. Understand the key success drivers
Often marketing teams fixate on the specifics of the incentives and sharing options when they start to think about referral. Whilst these are important, these are not the most influential success drivers for referral.
Social considerations play the largest part. Your customers will only share a brand with their friends if they think that their friends will value what’s being offered and that they won’t be perceived negatively for sharing the offer. The presentation of the programme, the incentives and the share options will have a big impact on how your customers perceive the social risk and social upside of sharing, and so ultimately determining the success of your programme.
3. Encourage referral at points of delight
Referral can be promoted in many different places on site, in emails, as card inserts and even via the phone. Typically businesses look to find a couple of touch points to launch with and then build out the promotion points over time. The best starting point tends to be post-purchase or post-sign up. Crucially somewhere that is close to a point of delight but that gets significant volume from engaged and happy customers.
4. Make it easy for customers to tell their friends
Ideally it’s best to give your customers all the sharing options that they might want (like email, Facebook or WhatsApp) to choose from to maximise the chance of sharing more than once. The rough rule of thumb is that the more meaningful the share the higher the conversion rate. So, when people share face-to-face the conversion rate is higher than if they are referred by email. Of course sharing channels vary in effectiveness by demographic, but in figuring out which share options are right for each of your customer segments, you’re on the right track to making referral a success.
5. Find the right incentives
Testing different types and value of rewards can have a major impact on your referral programme’s success. Whilst the rewards aren’t usually the primary driver for a referral, if you get them wrong then your customers just won’t share. There are no hard and fast rules on what should be offered but it is always worth testing extensively which rewards work best for your customers, and within each demographic.
6. Plan for the long-term
Referral should be viewed as a marketing channel rather than a product launch. As a channel it needs optimisation and engagement from you and your customers. Typically for the programme to work best, the first six months should be about testing and optimising the offers, with later phases about increasing promotion and segmenting the customer base to ensure that each one is getting the optimal offer to maximise conversion.
The hidden benefits of referral
Usually, the key objective for a referral programme is customer acquisition. However, coupled with this, is the quality of new customers that are delivered. Since these new customers are friends of your existing customers, they are a good match for your target market.
Unlike some channels which bring in purely discount hunters likely to buy only once, referred customers are usually within your target demographic with the potential to become longstanding customers. They’re also predisposed to positive brand sentiment before they’ve even made a purchase, because their friends have already been enthusing about you. As a result, your new customer will typically:
- Spend more on their first order - 15-25% more on average.
- They have a higher lifetime value, up to 2x that of customers who come in from other elements.
- They are 3x more likely to become a referrer themselves.
Like any form of marketing, you need to make sure that right from the planning stage of your campaign, your customer’s profile is front of mind - what they like, what they need, and how they like to be interacted with. The beauty of referral marketing is that all this time and planning you invest into getting to know your customers and the quality of the relationship you have with them is also useful in helping you acquire new ones.
Trust, relevance and buzz - words that highlight the power of word of mouth referral marketing. Trusting your friend’s referral, potentially for a niche exciting new brand, with a targeted offer you’ll love - the best advocacy marketing for your brand that there is.
Andy Cockburn is CEO and co-founder of Mention Me.