The ultimate laggards: why are some brands still not using online referral programs?

It seems crazy that, almost fully 30 years since the birth of the internet, some brands still don’t use online referral programs. Instead, they persist with old fashioned referral programs that are fully or partly offline, often requiring a potential referrer to fill in an online form (or even a paper form) with the details of the friend that they want to refer, so that the brand can then reach out to that person by telephone or email.

While these types of schemes are mostly found in financial services businesses (banking and insurance typically), some can be found here and there across other industries, such as real estate and B2B brands, in particular. This is a shame, as not only are these referral programs unlikely to be very successful at generating many referrals, they are typically cumbersome in terms of the manual efforts required to receive and reconcile referrals, and may even be illegal under many relevant data protection laws and regulations.

And we have to say that that is a shame, as when you consider how many global leading businesses were built on the back of referral, and with recent research confirming that referred-in customers are indeed more valuable than customers acquired from other sources, you would think that having a functioning referral program should be a priority. And it’s not just the return on investment you need to consider, given that 95% of people have referred someone in the past year, eight out of ten people simply expect to be able to refer their favorite brands, you should be doing all you can to make referrals easy and simple for your customer advocate to recommend you to friends.

If you are a business with a fully or partly manual referral program, here are 14 reasons why you should think about moving to a fully digitised online referral program:

• Your business looks old and antiquated

Perhaps if your customer base is heavily skewed towards older demographics, you might not think this is too important. But what kind of image does this give your brand?

When potential customers are wondering which bank or credit union to trust their money with, they will want that institution to have the latest technologies and security measures in place to protect them. But having a referral program that requires your customer to write or type their friends’ details into a form for someone to then reach out individually seems like a trip back to the 1970s, and doesn’t make you look like a technology leader.

None of the brands currently busy disrupting financial services such as Wise, Revolut, Simple, Wealthify and Wealthsimple require you to fill in your friends’ details, and instead they just let you refer your friend straight from their app in a couple of clicks. Their modern, simple and easy to use referral programs fit with their overall brand proposition and messaging and clearly convey that they are technology leaders.

Hear from Katie Brooks, Product Owner at toob, why automation not only saves a lot of time for the brand but also offers a better experience for customers:

• You’re making it hard for your referrers

The most successful referral programs make it easy to refer friends: just open an email or chat application, choose a friend or friends from the address book and hit send. Alternatively, the most they require is to copy and paste a simple link into a text message and hit send. Ideally with the ability to send a short personalised message. But the key thing is it doesn’t require much effort.

Instead, if you require a referrer to fill in a form for the recipient of each and every referral communication, not only are you wasting the precious time of the referrer, but you are probably asking for information that the referrer doesn’t have or doesn’t easily have at hand, like the friend’s full name, phone, email, address, age etc. Even if a referrer can copy and paste these details into an online form, it is extra work and, by unnecessarily creating friction, you’re likely to get less referrals, as each referral requires repeating the same manual process.

“Automating wasn’t just for us. It was for customers as well. We didn’t have the ability to email customers to say that we’d collected their referral. We didn’t have the ability to email them to say your voucher’s on the way. So that was a massive draw when we found [Buyapowa] and the emails that you send out not only to do with the vouchers, but the nurture emails that we could send to people as well. So we were improving the process not only for us and saving a lot of time and work, but also giving customers a much better referral friend scheme than we could offer them.”
Katie Brooks, Product Owner – toob

• You can annoy referred-in friends

With a digital referral program, the referred friend receives an invitation by email, chat or text, and can decide whether or not to interact with the brand being recommended. This gives him or her complete control over whether he or she wants any contact from you and, if so, when that should happen, for example waiting until the evening. Whereas, if you will reach out following receipt of the friend’s details, this can often mean the referred friend receives an unwelcome phone call from you at an inconvenient time with an unwanted hardsell.

• A message from a friend is more likely to get into the inbox

The first obstacle for any email communication is to get into the recipient’s inbox. And a message from a friend, particularly from one whose emails regularly get read and clicked, is much more likely to get in the target’s inbox than an email from a brand. That’s because, even if the friend hasn’t been added to a safe list, mailbox providers like Google’s Gmail monitor how much people engage with emails from a sender to determine inbox placement.

• A message from a friend is more likely to get read

With some estimates suggesting that the average person sees between 4,000 to 10,000 marketing messages a day, it’s little wonder that human minds have evolved to block out unwanted messages. So an email from you, purporting to be on behalf of a friend, is just as likely to be ignored as the hundreds of other unsolicited emails that hit the inbox or junk folder every day.

Whereas an email actually sent by a friend is not just more likely to get into the inbox, it’s also more likely to be read when it does, as it comes from a recognised, known and trusted source. Of course, a text or chat message from a friend is even more likely to get read than an email!

• A recommendation from a friend is more credible

There is plenty of research to show that people trust recommendations from friends and family more than ads, celebrity endorsements or influencers. And that recommendation is even more credible when the friend is or was actually a customer of the product or service being recommended, as the friend is sharing an actual experience.

And, it’s even more credible when the friend personalizes the message. For example, which of these two sounds more credible to you?:

“Hi Leanne, this is the great makeup product I was telling you about. The one that doesn’t do any animal testing. They’ve got a great intro offer at the moment. I think you should definitely give it a try!”

OR

“Hi Leanne, your friend Carla Marino thought you would appreciate Acme Beauty’s new range of ethical beauty products….”

• Recommendations from friends tend to be very targeted

Research by the Keller Institute last year identified some of the reasons why referrals work so well as being because of active matching and social enrichment. Active matching is where referrers look through their networks to identify people who would appreciate the offer, and social enrichment occurs because the referrer knows both the product or service of the company and the friend very well, and can make very targeted recommendations. So not just recommending T-Mobile but a particular phone and calling package from T-Mobile with low or no roaming charges on international calls etc. So the recipient of a referral from a friend probably knows that the recommendation will likely be very relevant and is more likely to act on it. Which is not likely to be the case with a communication from an unknown brand.

• Without accurate tracking, a referrer is less likely to believe that rewards will be paid out

Particularly when there is a longer time between the referral and the qualifying action, such as with a B2B referral, the lack of online tracking and an easy to consult dashboard to show the progress of referrals in real time, means a referrer is less likely to trust that a reward will ever be paid out. This means that a potential referrer is less likely to engage in the first place. Of course, if no reward is actually paid out, then a referrer is unlikely to refer ever again, so you need to pay attention to how you’re going to deliver rewards that have been legitimately earned.

• You waste time with manual processes

One of the main benefits of an online referral program is when it can be integrated with your back end systems to ensure that rewards are only paid out for legitimate referrals, or that referral rewards can be paid according to the value of the contract e.g. paying our more for a two or three year contract than for a one year contract. But if you are recording referrals manually, whether in Excel or by typing into a CRM, and manually confirming the result of the referral and sending an email to each referrer, this is unlikely to be efficient and the total cost of running your program, when considering the time required, is probably very expensive. By switching to an online referral program, your total cost of ownership is likely to be much less and your employees can focus on other valued added tasks that help your business.

• You risk getting inaccurate data

If you are manually entering data from paper forms, or even online forms, into an excel spreadsheet or a CRM, you risk getting wrong data in the system due to not being able to read the handwriting on a manual form or from manual data entry input errors. Also, as mentioned above, the referrer may not have accurate data for the friend, and may input wrong data. Whereas, if a referred-in friend is required to voluntarily type in their own information into your data capture point (check out process or registration form), not only is this information likely to be correct, but you can capture the necessary consents to store and use the friend’s information.

• Your referral program doesn’t scale

If your referral program has lots of manual processes to receive details of a referred-in friend, send out emails or call the friend, record the friend’s actions and match the referrer to a conversion and then check that the conversion is not cancelled, and finally then manually send a reward, then your referral program will simply not scale.

This may be bearable for a proof of concept, or if you only intend to generate only a tiny number of referrals, but the minute your program grows the administration is likely to become a headache, particularly if you want to launch across several products or internationally.

And, if your referral program does become a huge success, you will also need to make sure that the online touch points you do have, such as your website for the form and database are built to scale and won’t fall over at peak trading times.

• You likely don’t have access to advanced features

Having powered advocacy and referral marketing programs for over a hundred and fifty leading brands and retailers, we know that what really makes a referral program effective are advanced features such as gamification, access to accurate data and analytics and being able to test and learn. If you have a traditional partly or fully offline referral program, it is unlikely that you will be able to benefit from any of these advanced features. In particular, when more than 80% of your referrals are likely to come from less than 20% of referrers, the inability to drive repeat referrals with gamification, tiered rewards and booster campaigns will restrict the success of your program.

• You risk paying out for worthless referrals

As mentioned above, trying to manually reconcile conversions with referrals and ensure that the conversions are not fraudulent, self referral or simply cancelled within a cooling off period is a lot of work. The difficulty, as well as the time and cost, involved in doing this means that with many partly or fully offline referral programs, the default action is simply to not do this at all and just pay out rewards for the simplest conversion action (sign up or purchase). This means that you will inevitably pay out rewards and incentives for fraudulent or worthless conversions, whereas an integrated online program achieves all of this seamlessly and can ensure only valuable conversions are rewarded.

• You’re probably breaking the law

Perhaps the most important aspect is that, with the advent of GDPR and the CCPA and other similar regulations, you can no longer hold personal data without consent from the data subject him or herself, and you can only hold such data for the purposes for which you obtained that consent. This means that collecting data from a customer about a friend may be illegal unless you can show that the friend has actually consented to you doing so. Hopefully you have taken legal advice, but with the extent of the fines under GDPR and the CCPA, we think you shouldn’t take any risks at all.

By using an online referral program, you can avoid the risk by having the customer contact his or her friends on your behalf and let the friend decide if he or she wants to interact with you and give you his or her personal data and give actual consent.

So, having seen how using a wholly or partly manual referral program can result in less referrals, reduce the effectiveness of each recommendation, create unnecessary manual work, leave you open to fraud, cause problems with scaling and potentially break the law, perhaps it’s time to rethink your current solution? We would be happy to talk with you about how to upgrade your current referral program and overcome these issues. Please get in touch and we’ll find some time for a chat.