It’s not uncommon for referral programs to be lumped into the same category as more traditional customer loyalty. In fact, these two types of programs do belong to the same category: both are rewards programs. However, there are also fundamental differences between referral programs and traditional loyalty programs. For instance, while loyalty programs are designed to reward customers who make frequent purchases (and are therefore focused primarily on customer retention), referral programs seek to leverage existing customers to bring new customers into the fold.
You can read more about the fundamental differences between traditional customer loyalty programs and referral programs in this blog post. However, while it is important to recognize these differences—particularly if you are considering the implementation of either of these types of programs—it’s also important to realize that they have similarities. Key among these shared characteristics is the fact that, while referral programs are not aimed specifically at customer loyalty, they still often have the side benefit of driving increased loyalty.
The Three Loyalty Benefits of Referral Programs
In the case of a traditional loyalty program, brands offer special discounts and sales to their most frequent shoppers. Ordinarily, the value of these rewards is relatively low, but is still enough to prevent customers from shopping elsewhere. Customer retention is the core benefit—and sometimes the only one.
Referral programs work differently, but still often deliver the same benefit as loyalty programs—among other benefits. Here are the three main “loyalty” benefits of referral programs:
You are getting extra perks out of your loyal customers
It’s not difficult to see how a brand might interpret a referral program as a type of loyalty program. In the simplest of terms, referral programs are driven by a brand’s decision to reward their customers for loyal behavior. The difference is that, while loyalty programs reward customers for shopping with a brand frequently, referral programs ask something else of shoppers. The loyal behavior that brands are trying to push with a referral program isn’t just regular purchases; rather, it’s the referral of a friend.
With a referral program, you are asking your customers to do more than you are with a traditional loyalty program. In a loyalty program, the loyal behavior is more of a passive thing. Your brand is essentially saying “if you keep shopping with us, we will reward you with consistent discounts.” In a referral program, you are saying to your customers: “if you go out of your way to tell your friends and family about our brand, we will reward you for your referrals.”
This commitment is beneficial because it means that you get perks out of your loyal customers that you wouldn’t get out of a standard loyalty program. Your best customers are bringing new, high-value prospects to you. In other words, they are doing your marketing for you. Typically, to encourage this “above and beyond” behavior from your customers, you have to give them a bit more than you would in a standard loyalty program. As such, the discounts or sales you are offering to your referral program members tend to have a significantly higher value than the rewards in a loyalty program. However, since you are getting extra benefits from the program, the added investment is worthwhile.
You communicate and engage with your customers more directly
One of the biggest and least-discussed advantages of referral programs is that they give retailers a novel reason to communicate and engage with their customers. With a loyalty program, you are just offering your existing customers deals and discounts. As we mentioned above, this arrangement is relatively passive for the customer. As long as the customers keep shopping with you, they will keep getting decent discounts and sales. What’s important to realize, though, is that this arrangement is also quite passive for the brand. You aren’t communicating much with your customers—at least not in a direct and personal way.
In a loyalty program, communication and engagement are more frequent. You have to interact with your customers to get them signed up for the referral program, track their referrals, and make sure that they are getting the necessary rewards for those referrals. You might share conversations about these topics via email, or thank customers on social media when they bring in new customers. This communication helps customers feel more valued. Moreover, the very setup of referral programs is more active than standard loyalty programs, which pushes greater customer engagement.
You can extend monetary offers without discounting products directly
Some businesses simply aren’t able to provide regular deals and discounts to existing customers, whether because they have small margins or are just getting started. Other e-commerce brands choose not to offer deals on a regular basis. Brands like Apple have shown that it’s possible to survive and thrive without providing regular sales—particularly if you have a marquee or luxury brand.
However, even if you aren’t offering sales to all of your shoppers, it’s still pleasing to extend the odd monetary offer to your best customers to show your appreciation. Referral programs give you the opportunity to offer sales, discounts, and other perks to your best customers without discounting your products directly. The exclusivity of this arrangement helps encourage customers to become brand advocates and promote your products to their friends.
Referral programs are all about obtaining new customers at a low cost. The thing about them, though, is that they don’t work if you don’t have happy, loyal customers who are willing to steer friends, family, and social followers to your brand. As such, loyalty is a major part of the referral marketing equation—even if customer loyalty isn’t the core goal of the process. In fact, as the benefits described above illuminate, referral programs can be even better for encouraging customer loyalty than traditional loyalty programs.
If you are interested in seeing what referral marketing can do for your customer loyalty, click here to get in touch with Buyapowa today.