10 Tips to Encourage Customer Referrals

rewardstream-customer-referrals-2

So: You’ve tried banner ads, sponsored Facebook posts and pay-per-click ads and have been a little dismayed at the return on your investment.  Your digital marketing methods might be increasing visitors to your e-commerce site or providing a slight boost in revenue, and now you’re asking yourself: how can you grow your consumer engagement and get noticeable results?

One critical component of any customer acquisition and retention strategy is providing your customers with a means to refer their friends to your business, and (potentially) letting them be rewarded for their action. Word of mouth remains one of the most powerful agents of growth in the business world.  Turning your customers into advocates for your brand is a proven long-term strategy for acquiring new consumers at a low cost.  No matter how you enable and track referral activity, there’s a critical question to answer: how can you encourage customer referrals to shop your business?

We’ve assembled a list of 10 of the best ways to get the customer referrals you want. Combining these strategies will take your brand from zero referrals to thousands.

1. Ask for referrals at the right time

referral timing
As with every marketing method you undertake, timing is critical when it comes to asking for referrals from your customers. Therefore it is important for you to find the right moments in your customers’ journey when they are most likely to oblige you with a referral. According to Len Markidan, Head of Marketing at GrooveHQ, “if you ask your customers at the wrong time, you’ll be ignored (at best), or you’ll put them off (at worst).”

You need to catch and engage your customers at the exact moments when they are feeling the most satisfied with your brand, your company and your products. Then you can channel that satisfaction, engagement, and passion into positive action.

Travis Balinas, Product Marketing Manager at OutboundEngine, wrote in his article “How to Pinpoint the Right Time to Ask for Referrals” that “there are no absolutes when it comes to timing except this one thing: your customer must be completely satisfied with your services or product.”

Clearly, an unhappy customer is unlikely to provide a referral to your business.

You will encounter similar struggles if you approach formerly happy shoppers whose enthusiasm may have cooled after the initial dopamine thrill of their purchase has worn off. You must strike when the iron is hot – the point at which your buyer is feeling particularly fulfilled by their shopping experience.

The good news is that there isn’t just one “moment”. There are several good opportunities to ask your customers to make a referral:

Immediately following a purchase: The Social Annex, a marketing solutions company, found research that shows “customers are most excited about a product right after they purchase it”, so take this to your advantage to get them to refer. If your customers are shopping online, place a distinct reminder right after they finalize their order.

A successful method can be a pop up  that encourages and incentivizes them to make a referral. This call-to-action should direct your customers to the page on your website where you explain the perks of a referral program and present them with the opportunity to send their referral. The Social Annex, a marketing solutions company, found research that shows “customers are most excited about a product right after they purchase it”

After a positive customer social engagement: Engaging with your shoppers effectively on social media is a powerful way to boost your brand image and increase customer trust. Many of your followers and the people who are sharing your brand on social media are already demonstrating advocacy. When your followers mention or share your brand on social media, initiating an interaction and engaging with them poses an excellent opportunity to encourage them to refer their friends to you. Even simply your interaction will appear on their friends’ feeds and build your reach.

After a high NPS rating or survey: Customers who give your brand a high rating on an NPS (Net Promoter Score) survey have already demonstrated to you that they are willing to promote your brand to friends or family. This represents an excellent opportunity to prompt them for a referral:

Use a tool like promoter.io to send out a NPS survey to your customers, or build the NPS survey yourself in a tool like Survey Monkey.

When a customer responds to your NPS survey with a high rating of 8 out of 10 or higher, use survey logic to redirect that person to a landing page that explains your referral program, and invites them to refer their friends.“We’re flattered!  Thanks for the great rating.  We’d love for you to share your happiness with your friends.  In return for bringing us a new customer, we’ll give you 20% off your next purchase with us.  You can earn up to $150 in cash discounts with us each year.  Click to learn more.”

Following a positive customer service experience: If you have a customer service hotline, have your customer service agents promote your referral program at the end of positive calls. Likewise if you have a customer support chat system on your website, make sure your agents are trained to conclude the final message with information about the referral program (and links to the sign-up page) – or have it display automatically.

Communicating with loyal customers: Like the people who give you high scores on NPS surveys, many of your loyal customers are already primed to promote your brand to friends, family, and followers. Some may already be doing so without realizing you have a referral program in place.

As such, when you launch your referral program, it’s a good idea to reach out to your loyal patrons to let them know that the option is available. Sending email messages to your email lists and promoting the program on social media are good places to start.

A good rule of thumb is to remind your existing customers about your referral program by email and social media at least once a month, and shoppers on your site should be able to find your referral program very easily throughout their shopping experience.  Use banner ads, teasers during the purchase process, reminders on emailed-receipts and prominent links in your site navigation that will direct your customers to the referral program.

By catching shoppers in the right mood and at the right time, you can capitalize on their recent dopamine dump and capture new leads from their referred friends.

2. Make sure you are providing the right incentives

Not everyone needs incentives to refer your brand and products to their friends and family.  Your best customers will refer you simply for the intrinsic benefits of being considered to be a good friend, and for being seen to be helpful. For that reason, rewards aren’t necessarily everything when it comes to a referral program.

After all, we discussed above that some loyal customers are probably already referring friends and family to your brand with no incentives. With that said, though, incentives never hurt. A recent survey by Buyapowa showed that 28% of people would refer more products if there were rewards in place for doing it.

rewards-and-referrals

Providing the right incentives, meanwhile, can encourage referrals on a much higher level and a much more consistent basis than you would see otherwise.

One of the important decisions you need to make when designing any type of referral program is whether or not you will offer a reward in return for a successful referral. Part of this decision is determining who you will reward (the advocate and/or the person they referred to you), and what type of rewards you want to offer. In this post, we discussed some of the common options for program rewards—including cash equivalents, bill credits, store coupons, and loyalty points. You should decide not only which of these incentives is most likely to result in increased referrals, but also the value of each reward.

In general, you will want to follow these steps when devising your program:

Know your customer acquisition cost (CAC) and have a good sense of your customer lifetime value LTV (CLTV) before you begin. Many marketers find it challenging to understand their true CAC, but knowing this will help you determine the ROI of any marketing activity, including building a referral program and issuing rewards for successful referrals. Chase Hughes has written an excellent post on KISSmetrics that explains exactly how to calculate this for your online business. Understanding CAC and CLTV will also help you determine how much you might want to reward your advocates for successful referrals.

Do some rewards research: Understand the rewards your customers might want and what amount might be meaningful. Make sure you know your average shopping cart size, margins and existing CAC. Check to see which types of discounts and incentives have worked in the past (e.g. which ones have boosted your sales figures profitably), and test these.  Our customers regularly test out different reward values to determine what might result in more referrals from their program.

It’s important to know that there’s a direct positive correlation between reward size and the number of successful referrals that occur. The higher the reward, the more people will refer, and the more new customers you will acquire.

Remember to determine what the maximum value of rewards you want to issue to someone. As a good rule of thumb when starting out, you might want to cap your total earned rewards at ½ to ¾ of a customer’s expected lifetime value.  So, if your average gross CLTV is $375 (say, five purchases over the course of 3 years at an average purchase size of $75) you might want to set a maximum limit on the value of rewards earned of around $150 to $300.

An automated referral marketing system can keep track of these things for you automatically.  (And don’t worry, you won’t be paying out this volume of rewards to all of your customers, since not everyone will refer, and not every referrer will bring you enough new customers to hit the limit).  Statistically speaking, customers who make referrals to you will do it more than once.  A successfully run referral program can deliver more than a 100% conversion rate (meaning for every referral made, you will earn at least one new customer).

Consider different tiers of rewards in relation to your budget. Determine how much you can provide regarding rewards while still (theoretically) driving a profit.  For example:

  • Issue a “micro-reward” to advocates who send out referrals (perhaps low-value loyalty points, or a $2 Starbucks card for the first five referrals they send out).
  • Issue a higher value reward when a referral results in one of those referred friends making their first purchase with you.
  • Encourage loyalty by paying the reward out over time. For example, a $50 reward earned for bringing in a new paying customer might be paid out in 5 x  $10 discounts over a series of purchases.
  • Reward “referees” (the new customer who was referred to you) a different amount than the referrer.
  • Reward your higher LTV customers (i.e. those who have made multiple purchases with you over an extended period of time) a higher amount. Birds of a feather do flock together, and your higher LTV customers will tend to attract similar people to your brand.

Once your program is underway, ask customers how they like the rewards. Positive word of mouth about your referral program itself will drive more people to sign up, so you need to make sure that the incentives are getting a strong response.

As we mentioned earlier, another important factor is time and process efficiency. Nothing fails faster than a poorly operated referral program. You can offer the best incentives in the world—big discounts or gift cards are always hits with shoppers—but they can still fall flat if it takes forever to process the reward.

Ensure that your rewards are issued as close to the customer acquisition event as possible (meaning: the moment that a referral results in you acquiring a new customer, make sure that your new customer and the original advocate who made the referral are rewarded immediately. Shoot for instant gratification. Dopamine works!  As does basic human behavioral psychology: the closer a reward is paid to the positive action, the more closely that reward will be associated with the action itself, providing incentive to your advocate repeat the behavior.

Tip: Configure your referral program to issue virtual rewards that can be used immediately. This might be a discount coupon code for a % or $ off their next purchase, or it might be a virtual credit card or branded gift card that can be set to arrive in the recipient’s inbox immediately, and that can be claimed and used immediately. The reward should be issued as close to the referral action as possible.

3. Make referring as easy as possible

easy to refer
Writing for Shopify
, e-commerce guru Richard Lazazzera stressed the importance of making referral programs readily available to customers: “You always want to ensure you’re making it as easy as possible to share your products and refer your brand.” Richard cites a strategy employed by the MeUndies underwear brand—a company that prominently featured a “Refer” tab at the top of their page during their product launch.

Customers aren’t necessarily going to know that your company has a referral program in place. Even most frequent shoppers may not be getting your promotions, despite all of your best efforts. Don’t assume that the people shopping on your site know about your referral program, even if they are repeat visitors.

When you have customers who do know about your loyalty program, you don’t want to force them to go hunting for it on your website. Instead of burying the program info in some dark corner of your site, feature it prominently. Have a button or tab on your homepage that encourages shoppers to join your program and reap the benefits. Prominently featuring the program is key to getting customers to refer.

4. Find ways to help your customers overcome reputational risk

Reputational riskIn a 2013 blog post, Dr. Ivan Misner—the founder of BNI (Business Networking International) and holder of the title of the “Father of Modern Marketing” (at least according to CNN) distilled one of the core challenges of referral marketing in a single sentence. ” When you give a referral,” he wrote, “you give a little of your reputation away. If the business you’ve referred someone to does a good job, it helps your reputation. But if it does a poor job, your reputation may be hurt.”

This perceived “reputational risk” is one of the reasons why some customers won’t refer products and services to their friends—even if they are completely satisfied with your products. The fear of recommending something a friend or family won’t like (as explained in Misner’s quote) is just one part of reputation risk.

Another factor in this is the widespread fear of online scams. People don’t want to be associated with a promotion that turns out to be fraudulent. This fear can present barriers to engagement with any promotion that asks them to send referrals to their Facebook or Twitter friends.

There are other reasons that consumers may be wary of referral programs when first learning about them. Chief among these is the fact that consumers don’t want to be seen to be spamming their friends and followers. In the age where social media followers are a form of currency, people don’t want to risk their following by engaging in posting behavior that might turn off their followers.

All of these factors combine to make reputational risk one of the challenges your company will face in building a successful referral program. Your job, then, is to set customers at ease and convince them that they won’t risk their reputation by referring friends to your brand.

Here are four simple tips:

Make your site secure: People who are referred to your brand are probably going to start by checking out your website. Having a safe and secure website is a quick way to win their trust. If your site doesn’t have HTTPS enabled, speak to your web developer about upgrading to this more secure protocol.

Feature details about the referral campaign prominently: Another thing referred customers will be looking for is the referral program that brought them there. They will want to know that the friend or family member who referred them to your business was part of a legitimate program. Featuring easy-to-find links to your referral program from your homepage will help assuage any doubts they might have.

Keep it simple: Referral programs that required either the referrer or the referred to jump through hoops are the ones that really start to feel like scams. Make your program simple and straightforward. The referrer gets X incentive for referring a friend; the referred individual gets Y reward for making his or her first purchase. There is no need for the program to be any more complicated than that.

Be good: The best way to minimize this perceived “reputation risk” of referral programs is to promote a positive brand image and design a trustworthy, attractive referral program. If your brand has a substantial online presence and has a reputation for honesty, integrity, and excellent customer service, those qualities are going to put customers at ease when signing up for your program. If your referral program is easy to understand, easy to learn about online, and powered by attractive incentives for both the referrer and the referred, it will quickly dissolve any reservations your customers may feel about signing up.

5. Encourage referred customers to become referrers themselves

It is a fact that customers who are introduced to your brand via a referral are more open to becoming referrers themselves – marketing agency The Social Annex found in their survey that referred customers are 4 times more likely to refer customers to your brand.

These people know that your referral program is legitimate and have experienced at least some of the incentives involved. Reputational risk isn’t as much of a concern for these customers, so the barrier to getting them to sign up for your program is not quite as high.

Referred customers also just tend to be more loyal. According to a 2012 study from the University of Pennsylvania’s Wharton School of Business, clients who come from referrals have an average lifetime value that is 16% higher than customers who come from other channels. Referred consumers will typically be loyal enough to be more apt to make referrals themselves, and interested in the incentives you have to offer.

“The lifetime value of referred customers, measured over a six-year horizon, was 16 % higher, on average, than that of non-referred customers with similar demographics and time of acquisition”, the report concludes.

Target your referred customers with extra focus. If you have a subset of loyal customers who originally came from referrals, increase the retargeting / remarketing emails they receive.  Make the interaction personal: remind them that they discovered your brand through a referral and that they could now pass on the knowledge to their friends. The longer your chain of referrers, the wider the reach of your brand.  Market your refer-a-friend program to your referred customers in a timely fashion:

  • Immediately after they become a customer (“Thank you for your purchase: Don’t forget to share us with your friends, and you both can earn rewards.”)
  • Encourage their first referral no more than 30 days after they become a customer, and remind them again at the 60 day markRemind them immediately upon them making their first referral.
  • Remind them 30 days after their first referral.

6. Remind people who have referred customers in the past to refer again

Encourage re-referralsClients who have participated in your referral program in the past present ideal candidates to refer again. If previous referrers haven’t referred anyone in a while, it is important to reach out to them.  As we mentioned above, promoting your referral program regularly is key to its success.  Promoting it to customers who have referred in the past is just as important, and requires a more personal touch than promoting it to non-participants.

According to Tawd Frensley of real estate marketing company PropertyMinder, referral marketing is all about “reminding people that you exist in the way that works for them, not you.” To win back people who haven’t referred in a while, it might take nothing more than a gentle reminder that they are members of your referral program. However, you have to make sure the communication is as user-friendly as possible to see results.

In addition to using email to reach out to your program participants, Frensley recommends more personal strategies. Consider reaching out to them with a phone call (if practical) or send them a personalized card via direct mail. You might even consider texting your customer since the vast majority of texts (unlike emails) are opened and read.  Make your decision based upon the nature of your relationship with your customers.

It’s always worthwhile to re-establish that connection in a personal way. The people who have referred their friends to you already are people who have already gotten past the fear of reputational risk. They’ve already experienced the benefits of the program incentives. As such, they are top candidates to refer again.

7. Engage with your users on social media

Social media referralsOne of the most prominent methods for getting customers to refer their friends and family is to engage with them. Writing for Forbes, Kimberly A. Whitler—professor at the University of Virginia Darden School of Business—encourages companies to “give your fans the gift of you.” By talking with your customers, involving yourself in conversations about your products, answering questions, or helping to troubleshoot problems, you build an active presence not just on social media, but in the lives of your top customers.

Making yourself an active participant in the online conversations that are taking place around your brand is an invaluable strategy for building trust. Customers are far more likely to refer a friend to a brand if they feel close to that brand in a personal way, and social engagement is the perfect way to build that sense of personal connection and trust.

Most importantly, customers will be more likely to engage in conversation with you and be open to your promotions if they’ve also had natural and conversational interactions with you through social media. Health and Fitness retailer, GNC, used their social accounts to answer questions about health and GNC products and build long-term consumer relationships. By actively engaging on social, they were able to increase inbound sales by 25%.

8. Approach product reviewers and encourage them to become referrers

Social media isn’t the only place where you can engage with your customers in a meaningful fashion. If your e-commerce store asks shoppers for product reviews then you can engage with these reviewers right on your website. These engagements can be highly effective for customer service, and they can also help drive referrals. After a positive review and a high rating, make sure your site is configured to give your reviewers a “thank-you” and present them with more about your referral program.

According to a survey conducted by Zendesk, positive reviews influence buying decisions for 90% of customers. In other words, the vast majority of online shoppers are looking for confirmation that a product is worthwhile, and they are looking for it from other shoppers. Having product reviews right on your website saves your customers from having to go elsewhere to read reviews.

These reviews are also excellent opportunities to engage with customers. In the case of negative reviews, you can comment, apologize for the customer’s negative experience, and start working on ways to reverse that negative experience.

When you see positive reviews, though, you can use them to recruit customers for your referral program. A consumer who writes a glowing five-star review of one of your products is essentially already referring other customers to your brand.  These advocates are excellent candidates for your referral program.

9. Train your staff to promote the referral program

If your website is predominantly e-commerce based, you can get a lot of promotion for your referral program without even involving your employees. Placing a “Refer” button on the homepage, including referral program information in your email newsletters, or encouraging shoppers to sign up for the program after making a purchase are all things that promote your program passively.

However, active promotion still matters too. If you have a brick and mortar store, for instance, it is important that your staff are consistently promoting the program for you. If you do have a physical store location, train your cashiers to ask shoppers if they are interested in enrolling in the referral program.

If your brand is entirely online-based, make sure you involve your customer service representatives in the promotion of the program. As we discussed above, there are lots of opportunities to engage customers and promote the referral marketing program while interacting with customers online.  Your CSRs and other client success teams are the ones who are interfacing with your customers directly and are thus the ones best equipped to spread the word about your referral program on an individual basis.

Involving your staff in your referral program pays off in other areas as well. Shep Hyken, customer service expert and author of The Amazement Revolution, highlights the importance of earning referrals via great service, day-in and day-out. “Customer advocacy starts when the culture of the company is aligned with what you want the customer to experience.” says Hyken. “What’s happening on the inside of an organization is felt on the outside by the customer.”

Involving the people that have the most direct contact with customers is your best bet for creating a company culture that naturally generates referrals.

10. Build an automated referral program

automated referral marketingOne of the top reasons that referral programs fail is that they just get too complicated. Brands have trouble manually tracking which shoppers are involved with the program, who they’ve referred, whether their referrals have led to new customer acquisitions, and what rewards they are owed. With manual referral programs, it’s not uncommon for customers to wait months to receive their rewards—if they ever receive them at all.  Manual referral programs don’t scale well.  Tracking all of the information, interactions, and behaviors that drive a referral program is difficult for a program of any size.

That’s why Syed Balkhi, CEO of Optin Monster, recommends a platform that helps you manage, track, and scale your referral marketing program. “Do not try to build a referral platform in-house or use a self-hosted solution.” says Balkhi. “If you choose the right platform, you can see exactly how much new traffic and sales were generated from referral traffic.”

Automated referral marketing systems can maintain lists of people who have signed up for your program. They can monitor referrals on social media or distribute rewards to clients who have referred friends. They can also send automatic reminders to customers who haven’t referred for a while, or collect information from your patrons on their satisfaction with the program and the rewards offered. In short, an automated referral system can do most of the things discussed in this post. They are the ultimate way to encourage customers to refer.

Consider the story of Roku Inc., a company that makes video streaming devices for watching Netflix, Amazon Prime Video, Hulu Plus, and other similar services on your television.

In 2010, Roku implemented an automated referral program, offering patrons a free month of Netflix for each new customer they referred. The program was driven primarily by automated emails. Roku sent emails to all customers in order promote the program ahead of its launch, and then once a quarter when it was operational. They also tracked referrals on their site and used automated emails to confirm referrals that had been received and distribute the rewards.

In one year alone, Roku scaled their referral program to include 40,000 users. The growth can be credited both to the quality of the incentive and the seamless operation of the automated process.

Conclusion

By investing time, effort, and engagement into your company’s referral program, you will be able to reap the benefits of one of the lowest cost-per-acquisition marketing methods available to you. From increased customer trust and active conversations about your brand on social media, all the way to higher sales and revenue numbers, these benefits can be enjoyed by any e-commerce brand.

3 thoughts on “10 Tips to Encourage Customer Referrals

  1. Thank you Ann for write this article. Once I did, the traffic started coming in. I learned from here to include more hashtags, images, and certain words. This can reach more people, especially if I want to post something that I want to touch a lot of people.
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