Referral Marketing: Build vs Buy

Build vs Buy
 
If you’re looking to implement technology to support a new marketing initiative, you essentially have three choices (i) build it yourself (ii) get an agency to build it for you or (iii) outsource to a best in practice solution provider to give you access to a ready made solution.

In essence, this is a choice every business faces when looking to implement a new technology, but given that we’re the leading global provider of rewards and referral marketing technology, we’ll answer it in that context, although we think that the same logic applies to just about any technology.

  1. Building in-house
  2. In almost all cases, we think that for reasons of cost, speed to market and to access advanced features that are constantly updated, your best option is to outsource to a best in class provider.

    However, we must admit that, in the case of referral marketing, and as seen in our analysis of the leading referral programs, some of the most successful programs have been built in-house. That’s because brands like giffgaff, Wise and Revolut perfectly understood how rewards and referral marketing would fit with their business models, and were able to build a bespoke program that completely matched their needs. Whereas buying a ready made program always involves some compromises, as the software is typically developed for the requirements of a specific set of clients rather than for one particular client, building your own software means that you can build to the actual needs of your business.

    And, while it’s always difficult to know the extent of back end integration with a program without having access to inside information, we assume that one of the advantages of building your own software is being able to perfectly integrate with your own back end systems. For example, as we learned from Kim Faura, then CCO at giffgaff, at the CX Exchange Telecoms in 2017, the giffgaff referral program was integrated with the company’s SIM cards to record a referral when a SIM card was activated.

    While we have documented many examples of well built in-house referral programs, we would comment that, in almost all of the cases, the business was primarily a tech business and often launched its referral program from scratch when launching its main product, unencumbered by legacy systems. And, in many cases, the business was an app-first business and the referral process itself was fairly simple, i.e. get your friend to download the app.

    Clearly, not all businesses are foremost tech businesses, and many can be classed as sales and marketing led, finance led or logistics first businesses etc. And many of these businesses are constrained by legacy tech systems. Often, in such cases, to the extent that there is an in-house tech resource, it’s fully engaged in maintaining core operating technology and systems, and typically the skill sets available don’t match with the needs of building the new technology needed. So building in-house just isn’t an option.

    Even where the brand does have tech resources with the necessary skill sets, the main disadvantage of using in-house resources is the opportunity cost of removing those key resources from their day jobs. Quite simply, those resources would typically be better employed working on improving the technology of the core business than building replicas of technology that can be readily purchased off the shelf.

    Another disadvantage of building inhouse is the lost opportunity of not being able to take advantage of the marketing opportunity while waiting for the in-house team to scope, build and test the software. The benefit of speed to market alone of using an out-sourced solution that’s immediately available can often outweigh the benefit of being able to build the perfect solution in-house, if that means losing market share to a competitor.

    As we documented in our blog Stick or Twist: should you upgrade or replace your current referral program, many in-house referral programs often fail to launch, because the product team underestimated the work, time and costs involved to create a first class referral platform with advanced features like gamification, data and analytics, A/B testing and back-end integrations. And even, where all the necessary skill sets are available in-house, often unexpected bottlenecks arrive removing the availability of a critical input at a critical point.

    Even for in-house programs that do launch, having rescued or replaced dozens of self builds, we have seen that often these programs lack advanced features like A/B testing and data and analytics and don’t scale well, requiring cumbersome manual reconciliation processes. Frequently, the in-house team struggles to dedicate resources to maintaining and upgrading the program in future years, which means that the software quickly becomes outdated and performs less well over time.

    Finally, as we argued in why success requires more than just referral marketing software, implementing and running a successful referral marketing program requires much more than just good software. In fact, ironically given that most referral programs are implemented by marketing teams, the main reason most programs fail is due to a lack of marketing to promote the program. This is why, at Buyapowa, we provide a managed service to give our clients the benefit of the knowledge and expertise we’ve gained working with over 150 leading global brands and retailers.

    Before moving on, we have seen one common use of in-house built solutions in creating a very basic and quick prototype to test the concept before deciding to commit more resources to the project. This Proof of Concept (POC) is usually only a prelude to deciding whether to commit more resources, or to engage an agency or outsource. Often these are very simple and agile versions that have no integrations or advanced features and, like the famous Mechanical Turk, require a lot of manual processes. The obvious comment here is that often a POC is also available with an outsourced provider.

  3. Engaging an Agency
  4. Similar to building in-house, when you instruct an agency, an advantage is that you can have the software specifically adapted to the exact needs of your business model and tech stack.

    But perhaps the main advantage of engaging an agency is that you can get access to specialist technical and product resources that you may lack in-house, and can avoid the opportunity costs of taking your precious in-house resources off their day jobs to build and maintain the referral software. Additionally, an agency may also have specialist project management and research experts you don’t have access to.

    However, you’ll likely still need to devote significant resources to the project, including tech resources, to create a complete brief, make sure your agency has understood it, manage the project and make sure that the outcome reflects your brief. Inevitably, if you’re looking to integrate your referral program with your back end systems, your internal tech team will also be needed to provide access, documentation, test the integration and check for vulnerabilities.

    The main disadvantages of using an agency are likely to be costs and time. An agency will be looking to make a decent profit on any work done by agency staff or outsourced team members by incorporating a mark up on hourly rates. And as well as paying for the tech resources, the costs will include agency sales staff, account managers and project managers, and cyniques might question ‘agency bloat’, where meetings can be attended by a small army of people, all charging time, where it’s not clear what their involvement actually is on the project. So the costs may be several times the cost of using in-house teams.

    Unless the agency has experience of building this kind of software in the past, you may also bear the cost of ‘reinventing the wheel’ as the agency learns what to develop and how. And while there are many great agencies that deliver great work, on-time and within budget, we do hear stories of projects arriving late or never arriving and where the total cost exceeded seven figures. As with in-house builds, we have been known to rescue or replace a few agency built programs that never arrived or were scrapped due to delays.

    One disadvantage of using an agency to build software may be, particularly if the tech work is outsourced, that the team that built the product is broken up and dispersed after delivery. Whereas, with a specialist provider like Buyapowa, you can be sure that the tech and product team who built the platform remains in place to continually update and improve it.

    Similar to building in-house, the time to scope out, develop, deliver and test can also mean missing key business opportunities by being late to market. However, a good agency can also advise as to the merits of build vs buy, and often, as a result, we find that we are approached by an agency on behalf of their clients to provide an immediately available, feature rich best-in-class platform.

    Although, of course, recommending an outsourced solution doesn’t mean the end of the agency’s involvement, as there are plenty of opportunities for the agency to add value to a rewards or referral program by devising creative marketing strategies to boost engagement, providing persuasive copy, or even managing and reporting on the program for the client. In many cases, we’ve seen very good results when a client decides to involve their agency in planning marketing to promote the program.

  5. Outsourcing
  6. The main advantage of outsourcing is that you can access a proven technology that’s available here and now and can act on the marketing opportunity immediately instead of waiting for the inhouse or agency team to build and test. This is critical when speed to market can make the difference between being the market leader or a follower.

    Also, as the cost of building, maintaining and upgrading the platform has been amortised across all the clients of the provider, the total costs of ownership will typically be significantly less than either or the two previous options above.

    Similar to outsourcing to an agency, a key advantage is freeing up internal tech resources to concentrate on other tasks that improve your business’ USPs rather than replicating software that’s available off-the-shelf. In addition, as noted above, while you may have tech resources, you may not have the right tech resources available to build the platform. Whereas, a third party supplier who’s solely focused on building and delivering a rewards and referral platform will have domain experts engaged full time on the project. This means that they can build in advanced features like data and analytics, A/B testing, rewards choices and gamification. And, as they will be dedicated to constantly improving and updating the platform, it won’t get out of date.

    As we’ve mentioned above, the main advantage of building your own program, or instructing your agency to build it for you, is being able to exactly match the requirements of your business model and back end systems. However, provided you choose an enterprise level referral platform, you can achieve a high level of integration with your back end systems using APIs and SDKs. Obviously this will require some involvement from your tech team to help with the setup and integration, but will involve a lot less work than building from scratch.

    As mentioned above, an important fact that’s often overlooked is that the success of any marketing technology is dependent on more than just having good tech. In fact, it’s often only with the benefit of best practice tips and advice on how to market and promote the program, the wording, rewards and incentives to use, and how to use advanced psychological techniques to get more conversions, that you’ll see full benefits. That’s why at Buyapowa, we offer a managed service to share what we’ve learned working across 27 countries in 21 languages.

    To illustrate this, we’re aware that some of the most successful in-house programs have a team of 30-40 staff dedicated to referrals. We imagine that few brands can afford that luxury, which is why having access to expert advice can make all the difference.

Summary

As you will have seen, we think that for reasons of cost, speed to market and to access advanced features, that in most cases you’re best outsourcing to a best in class provider. But the reality for an enterprise level platform, a successful program often involves a collaboration between the best-in-class provider, the internal tech team and the agency.

If you’d like to discuss any of these points further, please feel free to reach out.

Leave a Reply

Your email address will not be published.