1. OVERVIEW
Referrals can be one of the top three traffic drivers for any business. However, most businesses rely on haphazard strategies rather than creating a structured program. A good referral program leverages your existing user base and turns customers into brand ambassadors. It can increase your sales by an average of 15%.
Here are some stats that show why referral marketing is a MUST HAVE strategy.
- It is the most trusted channel: 84% of consumers say they trust recommendations from family and friends about products.- Nielsen
- This trust translates into high conversion rates: People are 4X more likely to buy when referred by a friend – Nielsen
- Most consumers are willing to recommend brands and products to their friends. You just need to provide them the means and motivation to do so: 76% of consumers recommended companies they trust to a friend or colleague – Edelman
There is no question that creating a referral program should be one of the highest marketing priorities. This document is a comprehensive guide on how to create a successful program and covers all aspects including choosing the right incentive structure, messaging, promotion and placement.
2. INCENTIVE STRUCTURE………………………
Incentives are key to maximizing the effectiveness of any referral program. Here are some considerations when constructing your offer.
2.1. Symmetrical Offer
Symmetrical incentives, that give a similar offer to both referrer and their friends, work best. Referrers are more likely to share because they feel they are helping their friends; and friends are more likely to make a purchase because they have an incentive. Use a symmetrical offer whenever possible.
2.2. Compelling Incentive
Create a compelling offer that is available exclusively via the referral program. This offer must be significantly more attractive compared to the generic ones available on your website or coupon sites. Unless users feel that they are getting an exclusive offer, their participation will not be as high.
2.3. Referral Requirement
Offer should be delivered to the referrer only when a desired friend conversion event such as a purchase or a form fill happens. This will allow you to create an attractive referral offer while protecting your margins.
You can also set up additional criteria such as:
- Minimum purchase: for example, friend has to make a purchase of $200 or more
- New customer: friend has to be a new customer
- Number of referral transactions: for example, three or more friends have to make a purchase. Living Social uses it very effectively with their Me+3 program
2.4. Max Offer Value
The first step is to determine your target Customer Acquisition Cost (CAC). This is amount of money you are willing to spend to acquire a new customer. It should take the customer life-time value (LTV) into account. Now divide your CAC by 2. This is your max target incentive for referrers and their friends.
For example, say your CAC is $150. You can create a referral program where you offer an incentive worth $75 to both referrer and their friends contingent on the friend making a purchase of $250+. Such an incentive can be very attractive for both the referrer and their friends, and will maximize referrals.
As with any marketing strategy, we recommend A/B testing a few offers to determine what works best for your customers. You should also consider limited time promotions (e.g. 2x referral bonus) during busy seasons to maximize the referral sales.
2.5. $$ off or % off?
We have found that $$ off promotions tend to work better than % off. A $10 offer psychologically works much better with users compared to a 10% discount even though the latter may save them more money! Used judiciously, it can create a win-win situation where it reduces your costs while boosting referrals.
This strategy can also work well for brands that do not believe in discounting. You can offer a store credit instead of % off discount.
2.6. Offering 3rd party gift cards or coupons
There are some situations where it may make sense to offer a gift certificate for a third party site. E.g.
- You are not a transactional site and are using the referral program to simply generate more traffic. In this case you can offer a gift certificate or coupon for a partner site.
- You are presenting the referral program post-purchase and your site does not have a high repeat purchase frequency, then offering a discount on next purchase will not be very attractive. E.g. if you sell mattresses that last 10 years, users won’t care about a discount on their next purchase! In this case either a cashback on current purchase (see next section) or a gift card to a third party site is a better option. For example “Refer your friends and get a $50 Amazon gift certificate when they make a purchase. Your friends will receive $50 OFF on a purchase of $250 or more”.
2.7. Cashback or discount on future purchase?
- When referral program is presented post-purchase, a cashback offer will work better than a discount on future purchase. The Living Social referral program is an extreme example of that – if three of your friends buy the deal, yours is free!
- When referral program is presented pre-purchase, either strategy can work well.
The general idea is to minimize friction for the referrer. Don’t make them jump through hoops to get their referral reward.
2.8. Offer Loyalty Points
If you have a loyalty program, you could simply offer loyalty points for referrals. This enables users to pool the points earned through referrals with other loyalty points. They can redeem loyalty points for much better offers.
If you do not have a loyalty rewards program, you should definitely consider adding one if you want to increase user engagement and repeat transactions. It can improve repeat purchases by 26% and increase the customer life-time value (LTV) by 5 times.
2.9. Generic vs. Single Use Coupons
If you are offering coupons, do not offer generic coupons because they can be leaked on to sites like Retailmenot.com. Offer single-use coupon codes.
3. MESSAGING…………………
The message must make the referrer feel enthusiastic about participating in the referral program. It should be crisp and make the referrer feel that they are helping their friends and not exploiting them to earn rewards.
3.1. Messages that work well
Clear call to action with a reciprocal/symmetric offer works well.
“Refer a friend and get $100. Your friend gets $100 OFF too.”
“Refer us to your friends and earn 500 loyalty points when your friends make a purchase. Your friends will earn 500 bonus points too.”
3.2. Messages that do not work well
Messaging that are confusing or make users jump through hoops do not work as well.
“Refer a friend and get 20% off on your next purchase when at least two of your friends make a purchase of $250 or more and are new customers”
While mathematically speaking this may be the best combination for you, it is unlikely that you will see any participation!
4. PLACEMENT………………….
Placement of the referral program plays a critical role in the success of the program. You need to catch the user at the right points of delight and offer the right incentives to increase the chances of a referral. You should embed the referral program in all of the following places:
4.1. Standalone Page
The referral program must be offered on a standalone page without any other distractions. If possible, create this page at an easy to remember URL e.g. http://www.mysite.com/referral
This page should be used as a landing page for:
- Promoting your referral program via email, social media and other outbound messages
- Permanent navigation link on the site
4.2. Order Confirmation Page
When the user has just finished making a purchase, that is a point of delight. It is the best time to ask for a referral. Embed the referral box prominently into the page to maximize participation.
4.3. Top and Bottom Navigation
You must have a top level navigation link that prompts the user to refer your website to friends. This navigation link should be sticky and always visible. A permanent placement will ensure that users will always know where to find your referral program. The last thing you want is for a user who is ready to make a referral to be looking around where to find the referral program. This navigation link should take users to the standalone page. Make the referral link stand out by using a different color.
4.4. Side Ribbon (optional)
A top navigation link is a subtle way to suggest a referral. If you want to be a little more aggressive, you can show an elegant ribbon either on the left or the right side of the page soliciting a referral. The advantage of this approach is that the ribbon can show your referral program in a pop-up without requiring users to navigating away from the current page.
4.5. Product Pages (for eCommerce sites)
A referral program link should also be embedded prominently on the product detail page. Clicking on this link should show the referral program inline (i.e. a pop-up) to ensure that users are not navigating away from this page. Product pages are a great place to highlight referral programs because often users will think of their friends who can benefit from the particular product they are looking at.
4.6. My Account page
If you have an account page for the users, you should leverage that to promote the referral program. This can be done by either embedding the referral widget on the page or adding a prominent call-to-action that shows the in-line referral window.
5.1.2. Email Newsletters
Include a referral link in every newsletter that you send to existing customers. The referral link should point to the standalone page.
5.1.3. Transactional Emails
Transactional emails pertaining to an order are a great place to solicit referrals. Users who have bought from you recently are more likely to refer their friends to you.
5.1.3.1. Order Confirmation Email
5.1.3.2. Shipment Notification
5.1.3.3. Post-delivery Notification
7 days after the delivery, send a message to customers requesting a referral. By this time, the customer has already experienced the product. A delighted customer is likely to tell many friends. You can make it easy by reminding the customer.
5.2. On-site Promotion
See the previous section for best practices on how to embed and promote your referral program on the website.
5.3. Social Media
Post once a month on various social channels (Facebook, Twitter, Instagram etc) letting your followers know about your amazing referral program.
5.4. Flyer in Shipment
Include a flyer in the shipment requesting a referral. The flyer should include a short referral link that is easy to remember. This link should direct users to the standalone referral program page. You can also include a QR code for this purpose.
6. REFERRAL INCENTIVE PROGRAM……………….
Referral rewards are usually contingent upon a friend action. However, it may not always be possible to automatically verify that the friend has fulfilled the requirement. In such situations, a manual verification may be needed. Make sure that your referral program supports that.
7. SUMMARY…………………….
A referral program can convert your customers into brand ambassadors. It can leverage your existing customers to acquire new customers. This document describes the best practices employed by businesses worldwide to build successful referral programs. A good referral program can help you acquire an average of 15% new customers.
