Your customer referral scheme is burning money. Here's what works.

moneytoburn

It's a long held secret among online retailers that customer referral schemes simply don't work. We know why, and we're going to tell you...

I read an article the other day about the three best ways to get into the fancy lounges at airports for free. Top of the list? It's ridiculously simple, but just hang around the entrance asking passing high-flyers to sign you in as their guest. Give 'em a sob story, bat a few eyelashes and... boom. Before you know it, you'll be surfing free wifi and enjoying a glass of disturbingly-cold orange juice like you're an actual, proper rich person.

Everyone's a winner.

Um... except the airlines. See, that orange juice isn't actually free. Someone has to pay for it, and for the free newspapers, and for the ever-so-slightly flirty staff. It's factored into the inflated ticket price so, if you're flying economy, they're losing money on your blag.

The same problem applies to traditional customer referral schemes, where you're incentivised to acquire business on behalf of a brand. Take Virgin Media's refer-a-friend programme, where both the referees and the new customers they bring in receive £50 off their bills. The theory? You'll dash out into the streets, screaming at your neighbours until they all ditch their Sky contracts and come running, Usain-Bolt-style, into the loving arms of Richard Branson. The reality? No one actually does that. They just wait until they hear that someone they know might be signing up, then they jump in to grab an incentive they haven’t remotely earned: “You’re joining Virgin Media? Cool, I’ve got a voucher for that.”

It’s the same kind of loophole that’s been exploited by affiliate coupon code sites, who don’t drum up business for brands but, rather, skulk on the sidelines waiting for already-converted customers to Google a code before checking out, then happily accept their 10% commission for doing little more than stealing the brand’s own customers.

We've been doing a lot of work for and with brands who want to get this stuff right because, in theory, customer-get-customer is a serious needle-pusher. Acquisition never gets easier; it always gets harder, as you penetrate deeper and deeper into any pool of potential punters. So outsourcing that work to your customers makes total sense - especially since they're much more likely to be able to persuade their chums to sign upon the dotted line than your marketing execs ever could.

What we've learned, though, is that it's not enough to offer someone an incentive after they've already purchased or joined. You've already lost them by then: they came to buy, they bought, now they're thinking about something else. Any incentive you dangle at that stage simply becomes more marketing noise which gets filtered out, either mentally (no one reads those post-checkout wine club offers), technologically (ad blocks take care of your promo banners) or... er, canine-ly (the dog ate your direct marketing).

If you really want to incentivise your customers to recruit their friends, you need to make that part of a purchase - when they're fully engaged with you. "Buy this today for £100 but, for every other person you get to buy before 5pm, we'll refund you a further £10. Now... go!" Or offer them a special reward for bringing in more other customers than anyone else within a certain timeframe: maybe their product for free, or a premium-boost for their subscription. By activating the seed customer at their moment of peak engagement and by gamifying their purchase, you're turning promotion into a pasttime. It's not a chore, it's a challenge.

This works, we're doing it, and we're thrilled with the results. By all means, carry on with the traditional ways and methods, but be aware: those incentives you're currently handing out? They're not fuelling growth at all, they're fuelling a fire - and someone's going to get burned.