Referral programs are one of the most effective marketing programs for loyalty, lead generation, sales, and conversions.
If you want to tap into the second ring of your target audience while deepening the loyalty of your first ring, it’s time to consider a refer-a-friend program.
Below we’ll give you everything you need to know about launching a successful refer-a-friend program for your e-commerce business.
What is a referral program?
Referral marketing comes in two forms: word-of-mouth promotion and refer-a-friend programs.
Word-of-mouth marketing is when current customers build conversions through the influence of their own network. In this case, your customers are a form of social proof. Nielson has proven multiple years in a row that “friend recommendation” is the most credible form of advertising.
We see this not only among small social networks of friends and family but also with social media influencers and celebrities. If a popular celebrity shares your product on their social media, it can send your sales skyrocketing. (And if they say something negative about your business, it can send your sales plummeting.)
The second type of referral marketing is a more purposeful form of marketing. It’s what we’ll be delving into deeper in this article: refer-a-friend programs.
This utilizes the word-of-mouth idea in a more formalized way. A refer-a-friend program incentivizes current customers to refer their friends and family to your business. You’re pulling in new customers from people who already like your product.
In most cases, you would offer some sort of reward to the customer for referring another consumer who signed up or made a purchase. For example, you might offer your current customer:
“Refer a friend. After their first purchase of $5 or more, you’ll receive 10% off your next purchase.”
Or you could offer:
“If your friend signs up for a free trial, you’ll receive a luxury tote bag from our brand.”
Basically, you give your customer some sort of incentive—whether monetary or not—to encourage their friends to take the next step in your sales funnel.
A refer-a-friend program helps you create your own customer recruiting team.
What are the benefits of a referral program?
A referral program is a key tool for generating new leads, improving conversion, and enhancing customer loyalty.
You’re using customers to reach other potential customers. This generates leads based on social proof and peer-to-peer recommendations, which is one of the strongest forms of lead generation.
A prospect sees that their friend is in love with the product—so much so that the friend is willing to offer it to them. The prospect is more willing to take this recommendation or referral from their friend who has already used the product.
Even if the prospect doesn’t yet purchase, it can be a great way to boost impressions and build your email list.
Along with new leads, you’re encouraging loyalty and repeat purchases from your current customers. They’re investing time (and their own reputation) in your company when they refer a friend to you. This investment creates a deeper relationship that makes them a more loyal client.
Plus, if the incentive for referral is some sort of discount or value on your products, the customer needs to purchase more from you in order to use their reward.
The benefits of refer-a-friend programs are best proven through key success stories, including Dropbox, Uber, and Amazon Prime.
Successful Refer-a-Friend Programs
Dropbox wasn’t seeing much traction at the beginning of their services. PayPal had recently run a successful referral program, which then inspired the Dropbox team.
Dropbox’s promotion was simply that if you referred friends who signed up for Dropbox, you and each friend would get 500 MB of free storage space.
They were able to grow to over 4 million permanent users in 15 months. The promotion increased their signups by 60%. They didn’t even use any other forms of marketing during this time period.
Their success came from offering a strong referral reward paired with strong visibility and usability of the referral program.
Uber also grew to the giant you know today through referrals. In fact, referrals are still a major portion of their marketing conversion. Uber allows you to give your friends discounted first rides with a variety of coupons and discounts as a return incentive. They also offer a referral program for drivers.
Uber’s referral program was successful not because the reward is so great, but instead because they offer a clear call to action and consistently follow up with their current client list. They even add a gamification aspect so you can see how close you are to receiving discounts through your referred friends.
Amazon Prime users spend 4.6x more than other non-Prime customers. Pulling in more Prime customers was critical for Amazon’s growth of the program.
Amazon’s referral reward was small: “When your friend joins and makes a $5 purchase, we’ll give you $5 towards your next Amazon purchase.”
But this referral program was a huge success because it had a clear call to action with easy share-ability. They also made it accessible even to non-Prime users. This simplicity and reach increased their Prime signup drastically.
What are the concerns with a referral program?
Referral programs have mostly benefits… unless executed incorrectly. If the referral program isn’t accessible to consumers, you won’t get the same sort of effects that Dropbox, Uber, and Amazon had.
There are a lot of steps that go into creating a successful referral program. This means you need to make the program highly visible to current and prospective clients and utilize high-quality tracking software.
You’ll also want to be aware of cheapening the authenticity of your brand. You don’t want to offer too high a referral reward, or you could look “desperate” to some audiences.
Some marketers are concerned with the audience of referral marketing. It’s possible that your referral program ends up targeting a “lookalike audience” through friends and family, but it might not actually be a sustainable, long-term client list.
You also want to keep your margins in mind. In most cases, a referral giveaway won’t cut out your profits significantly like a deep discount might. However, your bottom line will still incur some loss that you want to take into account.
How do you run a referral program?
If you want to see immense growth for your online business, it’s time to refer-a-friend.
1. Set marketing goals.
Like any marketing campaign, you want to first consider your goals. Referral programs can do anything from boosting conversions to spreading visibility. What do you want your program to accomplish for your business/
Do you want to…
- Generate new leads?
- Create a more robust customer list?
- Improve your conversion rate?
- Make more sales?
- Deepen loyalty of current customers?
Pick one or two marketing goals that you’ll focus on. This will help you determine your audience and incentive.
2. Determine the target audience.
Who are you going to offer this program to? Are you going to blast it out to your email list every few weeks? Are you going to offer it after someone makes a purchase on your site? Are you going to make it available on your website?
Consider who will have access to the referral program. This helps determine how you will share or market the program to your audience.
3. Choose an incentive.
This is the hardest part of creating a refer-a-friend program: What incentive should you offer to your customers and their referrals?
In most cases, you want to reward both the giver and the receiver. We often recommend matching this gift for clarity purposes.
For example, “When you refer a friend, they’ll get $10 off their first purchase, and you’ll get $10 off your next purchase.” This automatically sets the precedent that the referred friend needs to make a purchase in order for the giver to get the reward as well.
The most common types of incentives include:
- Store credit (maintains margins)
- Free trial
- Free gift-with-purchase
- Gift cards
- Loyalty points (especially hospitality and travel)
There are a lot of “fun” incentives you can offer too. For example, you can have a mystery referral, where users unlock mystery gifts for every friend they refer.
When choosing an incentive, keep your audience in mind. What would “sweeten the pot” enough that they absolutely can’t pass up the opportunity to refer a friend?
For Amazon, $5 was enough. For Dropbox, which was a new company at the time, they needed to give away a chunk of free storage to encourage these referrals.
Make sure that the incentive is also realistic. Don’t require 10 signups for a customer to receive just $10 off. Customers are more likely to refer friends if the reward is larger.
Make the incentive as attractive as possible without drastically cutting into your margins.
4. Implement tracking software.
You need appropriate software in order to track and pay out referrals. This is not something your marketing team can track on their own.
We recommend Referral Candy for e-commerce stores because it’s low-cost and easy to use. They offer a variety of options for referral programs, which makes it easy to pick the perfect marketing for your audience and brand.
If you’re not sure where to start looking for referral software, contact Seller’s Choice now for a consult.
5. Clarify the program for users.
Like any promotion, you want the customer to know exactly what you’re offering. Define the reward, the qualifications, and the manner of receiving the reward.
Gather your copywriting team to create a single tagline that is succinct and clearly defined, so you can promote it to your customers without confusion.
6. Promote the program.
You want to ensure your program is highly visible and easy for users to share. In most cases, you’ll want to give the customer a specific referral code that they can share with their friends. This helps your system track which customers made which referrals, so they can be paid out properly.
So, make sure the code is clear and big.
Include an attractive image about the program that users can blast out on social media.
Offer multiple ways for the user to share the referral, like social media platforms, email, and texting. The easier you make it to share on the platforms that your audience use, the more likely you’ll get a high number of referrals.
7. Add supplemental marketing programs.
Some companies have seen success mixing and matching referral programs. For example, you could host a referral contest. Whoever refers the most friends (that make a purchase) wins a significant prize, like $1000 cash or an unlimited shopping spree.
You can also create a referral social media campaign. For example, if a customer shares your image and tags your brand with their friends, they are entered into a raffle to win a higher cash out.
The Bottom Line
Refer-a-friend programs are a strong way to gain new leads and sales while deepening the loyalty of your current client list. As you continue to build out your list and referral program, get it touch with us at Seller's Choice to see how else you can advance your marketing strategies.