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Is refer-a-friend marketing about to explode?

9th Apr 2015
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Do you remember your first steps in paid search, email and affiliate marketing?

If you started after 2009, you probably had a world-class integrated platform with an intuitive interface offering all the statistics and insights you needed to amaze your boss. Whereas real early adopters had no proper tools and, for example, probably used Hotmail and mail merge for their first email campaigns. Between these two extremes, the channel did not realise its full potential until the right tools and platforms arrived.

All new digital marketing channels seem to have followed this similar evolutionary pattern and we can see that this is happening for referral marketing, which after all is one of the oldest forms or marketing. It has just taken time to migrate online and for the right digital tools and platforms to emerge to allow it to really explode.

Refer-a-friend online

Just Google ‘referral marketing software’ and you will find a host of simple ‘refer-a-friend’ platforms that offer your customers, once they have finished the checkout process, the chance to earn a discount or some cash by getting a couple of friends or family members to buy.

While these are often simple to put in place, just requiring a few lines of code on your shopping cart, and give a glimpse of the potential power of social referrals, many companies we have spoken with have been a little disappointed at the inability of these schemes to scale and/or their tendency to fizzle out after a while.

I believe that is only because these schemes are being hamstrung by the tools and platforms being used by marketers. It's time to move beyond the referral marketing equivalent of Hotmail and mail merges....

Three stages of evolution of digital channels

Just about every major digital channel that has emerged over the last 20 years has gone through a similar three state evolution:

STAGE ONE: Hackers and fiddlers

Early adopters were often small groups of individuals ‘learning on the job’ and sharing knowledge via ‘hacker-like’ forums. These pioneers often had virtually no technology to speak of and recorded data in Excel or used server logs to count clicks. The laborious and clumsy nature of these tasks did not matter much as operations were typically small scale, low spend and there was little competition.

As mentioned, the ‘Wild West’ days of email marketing in the 1990s relied on Excel, Hotmail and mail merge. While the first affiliate deals can be traced back to Cybererotica and PC Flowers & Gifts in 1994, many were based on personal relationships between the founders of different websites. In paid search, despite the improved accuracy of Google search results at the turn of the century and the introduction of pay-per-click in 2002, many of the first practitioners worked from home and earned easy money just buying ‘branded keywords’.

STAGE TWO: The basic platforms

Once the forerunners proved the channel’s potential, the next stage saw the development of simple tools to automate tasks and provide basic statistics. These would typically get better over time but generally remained focused on one task.

As email inboxes were saturated with junk mail, the UK Data Protection Act 1998 and the US Can Spam Law 2003 and improved anti-spam technology created a demand for more professional software to improve deliverability and ensure legal compliance.

As affiliate marketing outgrew personal friendships, professional networks emerged: Linkshare and BeFree (both 1996), Commission Junction (1998) and Affiliate Window (2000). These enabled affiliates and merchants, often in different time zones, to find each other and, lacking the trust present in the early informal deals, introduced transparent and trustworthy tracking and payment systems.

In paid search, some of the first bid-management platforms, including those that were later to become industry leaders, emerged within a few years: Efficient Frontier (2002), Acquisio (2003), Marin (2006) and Kenshoo (2006). At first these only focused on bid management for search ads but progressively integrated with analytics and testing tools.

STAGE THREE: Rich enterprise platforms

As the channel became increasingly mainstream there was a rapid development of enterprise level integrated tools, capable of scaling to multi-million dollar spends, with accurate analytics and reporting.

Today’s leading email service providers don’t just focus on anti-spam compliance and deliverability but provide a host of A-B testing and browser optimisation tools, mobile responsive design templates and integrate with CRM tools.

As the affiliate industry became ever more complex with smartphone and video sourced traffic, we have seen a concentration of the industry around larger players like Affiliate Window, Linkshare and Comission Junction who are able to invest in new tracking tools and provide transparent affiliate directories like Affiliate Window’s Darwin.

Following large capital raises from 2008 to the present day, the paid search software providers mentioned above evolved to become industry leading integrated platforms for managing very large spends efficiently across search, display and social with tools like audience segmentation and predictive buying signals.

Where is refer-a-friend marketing today?

Currently, I believe refer-a-friend marketing is towards the end of the second stage where the available platforms do not yet provide all the necessary marketing tools to allow it to explode. This is because:  

  1. While social is the lifeblood of referral marketing most of today's platforms limit themselves to simple sharing buttons without any entertainment, dynamic rewards or gamification. This fails to provide the functionality required to make heroes of your best advocates and referrers and celebrate them on social.
  2. Instead of facilitating sharing opportunities across all customer touch points (digital, social, mobile and in store), most platforms only allow referral from the thank you page after purchase. At this stage a customer is more interested in checking the email confirmation than referring. 
  3. Refer-a-friend marketing today is all about one-to-one rather than one-to-many. In a world where we are connected to communities and networks of friends and work colleagues, shouldn't referral marketing take full advantage of that? Platforms should be built to maximise referrals not minimise them. Shouldn't prizes be linked to performance - the better the performance the better the prize? Easier said than done with most of today's tools.
  4. Basic refer a friend schemes, where both you and your friend get a [$10] voucher get old quickly! Platforms should engage with customers, letting them influence the rewards. Imagine receiving the same marketing email from a retailer every single day. No changes to copy, to tone, to approach. It would be terrible, and yet that's the approach most companies take to their referral marketing scheme. These are your best customers and you should listen to them - not bore them!

However, the evolutionary path taken by other digital channels makes me hopeful that referral marketing platforms will all soon reach enterprise grade, where brands will be able to emulate the next social customer get customer carried out by innovators like O2, Sony and Tesco. Soon refer-a-friend marketing will be as important to us as email and paid search, and we'll look back with humour at the basic tools we were forced to use! 

Gideon Lask is CEO & founder of Buyapowa.

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