If done right, a well-run e-commerce referral marketing program will almost certainly deliver on its promises: low-cost customer acquisition, higher average order values and longer customer lifetime values. Referral may seem easy, but there are some fundamental aspects that if not done correctly, can ruin every good referral program:
- Usability
- Value
- Equality
- Immediacy
- Simplicity
- Efficiency
- Regular promotion
- Consistent engagement
- Staff education
In most cases, if a referral program fails, one or more of the above criteria have not been met. Knowing what the referral success factors are how to implement them is critical.
1. Usability – Making and receiving referrals should be easy.
Customers aren’t necessarily going to jump through hoops to create a referral. After all, they are busy people: you only have about 30 seconds of their time before they decide to give up and do something else. When you have customers who do know about your referral program, you don’t want to force them to go hunting for it on your website, filling out a million forms, or receiving a million emails just to refer a friend. That’s why simplicity is key. Collect only the information you have to, ensure the program is easy to understand and create a smooth customer flow journey.
2. Value – The rewards should be meaningful.
Deciding what to offer to your customers and their friends is tricky: how do you ensure the reward and incentive isn’t too small or too big? How do you know that they will appreciate it? How do you know they will want to continue referring or make a purchase on your site?
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.
- Do some rewards research: Understand the rewards your customers might want and what amount might be meaningful.
- Remember to determine the maximum value of rewards you want to issue to someone.
- Consider different tiers of rewards in relation to your budget. Determine how much you can reward while still driving a profit.
- Once your program is underway, ask customers how they like the rewards.
3. Equality – Both the advocate and the referee should feel appreciated.
Not everyone needs incentives to refer your brand and products to their friends and family, as some of your best customers may refer you simply for loving your brand. If they enjoy your website and product, the friends will also appreciate a good referral and a good product, possibly without the need for an incentive. But this is all very relative and differs for every client.
Our recent Reward Revolution research found 74% of people would be less likely to refer a friend if there were no reward, which extends up to 80% for Gen Zers. And almost 70% of people reported that they wouldn’t act on a referral from a friend without an incentive, a figure that rose to 100% for Gen Zers. So we think you should consider offering a reward for the referrer and an incentive for the friend. Or, least, have a very good reason for not doing so.
Deciding what reward to offer in return for a successful referral is one of the most critical issues when designing a referral program. Part of this decision is determining who you will reward (the advocate or the person they referred to you, or both), and what type of rewards you want to offer. In our breakdown of everything you need to know about rewards and incentives, we discuss all the routes you can take.
4. Immediacy – The rewards should be issued as close to the referral activity as possible.
If possible, shoot for instant gratification. The closer a reward is paid to the positive action, the more closely that reward will be associated with the action itself, providing an incentive to your advocate to repeat the behaviour. However, where the value of the referred-in customer depends on actions subsequent to completion, like paying a phone bill or insurance premium or not cancelling within the cooling off period, then we suggest that you defer payment until after those conditions have been met. Of course, you should manage the expectations of your referrers by providing them with a reward pending email and/or personal dashboard where they can see the progress of referrals and understand the timescale and conditions to be met before a reward is received.
5. Simplicity – The rules of your referral program should be easy to understand.
Keep it simple: the programs that have a million rules, especially ones that are not communicated clearly, will always confuse your customers and their friends. After all, even if they decide to make a referral, the chance is that they didn’t complete one of the poorly communicated steps or rules and all their effort has come to nothing. Make your program simple and straightforward and make the terms and conditions easily accessible.
6. Efficiency – The program should be easy for you to administrate.
One of the top reasons that referral programs fail is that they just get too complicated to administrate. 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. Tracking all of the information, interactions, and behaviours that drive a referral program is difficult for a program of any size. That’s why you should opt for an automated referral marketing platform that helps you manage, track, and scale your referral marketing program.
7. Regular promotion – The program should be promoted regularly.
Promoting your referral program regularly is the key to its success. If your customers don’t know about your referral marketing program, they will not make referrals. It is not enough to simply send out one email to your customer base announcing the availability of the program and expect the referrals to start pouring in. Brands with the most successful refer-a-friend programs,
- Send out regular, cyclic and consistent communications highlighting and promoting the program
- Ensure their referral program can be easily found when searching on Google or Bing
- Place their scheme in every corner of their web site and app: the home page, account pages, checkout pages, navigational header, footer bars and front-page carousels
- Have their social teams promote the program through all social media channels.
- Feature their programs in printed materials sent to customers and wherever customers are making purchase decisions.
Our recent Referral Codebreakers research found that typically only 25% of people will actively seek out a referral program with 75% preferring to be told about it, and most respondents want to be reminded that you have a referral program about once every two months.
8. Consistent engagement – You should engage with customer advocates on a consistent basis.
Lack of engagement can ruin any referral program. Referrals start happening, and new customers sign up as a result, but the brand chooses to not engage with their referrers to thank them for their action, or to encourage further referrals, and the friends aren’t encouraged to make referrals themselves.
Like the original reward itself, it’s just as important to reinforce the customer’s behaviour by reaching out to them to thank them for their referral, to remind them of the reward program, and to encourage follow-on behaviour.
It’s a good idea to show the customer how many rewards they have earned and how far along they are in achieving their goal during their regular interactions with your site. If you thank your successful advocates with a US$50 reward, and they have the opportunity to earn up to US$500 in a year, make sure they know that.
It’s also important to reach out to program members who have lapsed for several months to encourage them to act again.
9. Staff education – You should educate your staff so they understand the promotion.
Lastly, your referral marketing programs experience the greatest success when everyone in your organization understands the program, and your customer-facing team members are able to explain it clearly to customers. Whether it’s your social media team, your client success and customer satisfaction team, your tech support personnel or your retail sales clerks, everyone should know there’s a referral program in place, how it works, and how customers can access it. If your employees are not aware of the program or don’t understand the benefits to your customers, it can seriously undermine the performance of the program over time.
We’d love to hear about your experiences and successes with your referral marketing programs, or help you get started with your own online referral program.