Referral Marketing Software: 101 Guide

Referral Marketing Software 101 Guide
 
If you’re thinking about your first referral program and wondering what referral marketing software you should choose, this guide acts as a quick run through the main things you should consider and the questions you should ask yourself.

If you’d like to dig deeper into any of the subjects, we have linked to more detailed information in each section, but this guide should help you get started, decide if referral is right for you and, if so, what referral marketing software you need.

In turn we’ll consider each of these:

  1. What’s Referral Marketing?
  2. Why doesn’t traditional marketing work as well anymore?
  3. Why should you consider Referral Marketing?
  4. Is Referral Marketing relevant for your business?
  5. Should you build your own Referral Marketing Software?
  6. What’s the right Referral Marketing Software for you?
  7. What are the basics you need for every referral program?
  8. What if you need more than just the basics?

 

What’s Referral Marketing?

Referral marketing is a marketing strategy that seeks to use positive word of mouth from people who had a good experience with your product or service, or heard from others who did, to get them to recommend to friends, family and colleagues that they should also consider buying from you.

In fact, word of mouth is older than marketing itself, or at least its origins date from before we knew to call it marketing and write (and print) textbooks about it. In its most basic form, it’s a flow of positive or negative information about a place, product or service between people who know each other, such as family members or people who work or socialise together. And because it’s a natural social behaviour, it happens whether or not a brand or retailer takes any steps to encourage it, and it’s almost impossible to stop.

Word of mouth marketing is a collection of strategies and tactics that brands and retailers can use to directly or indirectly leverage positive word of mouth to promote their brands and lead to positive outcomes, such as sales, visits, sign ups, downloads and free trials etc. Alongside customer reviews, user generated content and generating and amplifying social mentions, referral marketing is an essential tool in a modern word of mouth or ‘Organic Discovery’ marketing strategy.

In its most simplest form, referral marketing software provides you with:

  • A means to identify people who like or love your brand;
  • and reach out to them and ask them to tell friends, family and colleagues about you;
  • providing them with an easy and safe means by which to do so (e.g. send emails or messages direct from a mobile phone in one click);
  • where the success of the referral is accurately tracked using tracking links, codes or memorable words; and
  • where you typically offer a thank you reward to the referrer and a welcome incentive to the new customer for each verified transaction.

This is the basic mechanism that allowed brands like Uber, Dropbox, Airbnb and Tesla to scale rapidly without spending a fortune on marketing.

Why doesn’t traditional marketing work as well anymore?

Given that word of mouth predates marketing, and that your customers will talk about you whether you want them to or not, why are so many marketers looking to implement referral marketing software?

Well it’s not just that the combination of modern technology such smartphones, broadband, fiber and 5G communications networks, text and chat messaging and social networks allow you to harness and amplify the benefits of positive word far beyond the constraints of your customers’ immediate social connections, for example by getting a customer to leave a public review on Tripadvisor about a restaurant that can be seen all around the world.

It’s simply that modern marketing is getting harder and more expensive all the time, and customers are increasingly less loyal, which means that the tools a marketer used to rely on don’t work as well as they once did (that is, if they work at all any more).

The reasons behind this include:

  • Ever increasing costs of digital marketing
  •  
    As more and more marketers compete for impressions and clicks online, often using sophisticated bidding software and agencies to bid up to the point where marginal cost equals marginal revenue, it’s becoming increasingly difficult to make any profit from tools like paid search, banners and social media marketing.

    In industries close to our heart, given that we power referral marketing for many leading telecoms, utilities and financial services brands, Wordstream reported these eye-watering average category CPCs:

    • US$54.92 in gas and electricity;
    • US$54.91 in insurance; and
    • US$44.28 in loans.

     
    And those are just for clicks! It’s no wonder that a leading UK automotive insurer commented to us that they no longer make any profit on Google Adwords until a customer renews for the third time!

    We think that this is simply tipping ever more of your marketing budget into the coffers of Google and Facebook is not sustainable.

  • And digital ads might not even work (all the time!!)
  •  
    Compounding the effect of constant price rises, there seems to be growing evidence that much digital advertising is ineffective. A recent Forbes article highlighted the number of leading brands who turned off paid ads completely and saw absolutely no effect on their businesses and Starling Bank recently reported that boycotting Facebook and Instagram has had no discernible negative impact on its marketing performance.

    Advertisers turn off experiments
     

  • Free sources of marketing have been turned off
  •  
    Whereas social networks like Facebook and Twitter initially encouraged brands to invest time and money creating branded pages and getting customers to follow them, it was inevitable that these networks’ monetisation plans meant that they were going to turn off the taps. As a result, Organic Social is Dead, with organic reach on Facebook estimated to be only 2.2% of followers.

    With hindsight, it was perhaps naive to play a game where the other side has a team, owns the pitch, has the referee and writes the rule books, and can change the rules any time it wants.

  • It’s getting harder and harder to reach your customers
  •  
    While technology like ad blockers and spam filters mean that it’s harder to get your ads in front of your target audience, concepts like banner blindness mean that the audience will often ignore your ads altogether. And regulations such as the CCPA and GDPR mean that you can only use personally identifiable information, such as emails and phone numbers, for marketing if you’ve actual consent from the user for the purpose of the communication. We’ve heard stories of some brands destroying up to 80% of their email database after the implementation of GDPR due to the inability to document how and where consent was gained and for what purposes.

  • Your customers aren’t where they use to be
  •  
    Unlike the days of Mad Men, when marketing was all about getting a catchy ad on prime time TV, increasingly younger generations don’t watch as much TV as the older ones as seen in Deloitte’s Media Insights 15th edition, in fact many Millennials and Generation Z members don’t own terrestrial televisions and prefer to watch streaming services like Netflix or videogame.

    Deloitte’s Media Insights 15th edition

  • Your customers don’t trust ads or celebrity endorsements
  •  
    There’s a wealth of research that shows that customers don’t trust ads or celebrity endorsements, which shouldn’t surprise anyone!

  • And increasingly, they don’t trust influencers either
  •  
    Increasingly, it seems that consumers no longer trust online influencers as much as they used to with increasing concern over the lack of oversight over influencers and a realisation that influencers are often being paid to peddle products that they don’t use or even like.

  • And when you get a customer, they’re less loyal
  •  
    And to top it all off, there’s much evidence that suggests customers are less loyal than they used to be, in part due to the proliferation of price comparison sites and the constant price discounting seen in many industries.

So the combined effect of all these factors means that the traditional digital marketing recipes used over the past couple of decades will no longer cut it and marketers need to look for new avenues.

Why you should consider referral marketing?

Well, if the last section hasn’t depressed you enough to reach for the cocktail cabinet, or consider applying to Code Academy to train for a new career, there’s good news: referral marketing can offer a solution to all of the above problems. This is because:

  • People tend to read emails, text and chat messages from their friends and family;
  • 92% of people trust recommendations from friends and family above all other forms of advertising;
  • Research from the Keller Institute found that referral marketing works so well, because of two factors: (1) active and passive matching: active matching being the fact that your good customers often have friends and family that look like them, so a good customer is often able to recommend your brand to other good customers. Whereas, active matching is where your customers actively look among their network of friends and contacts to find people that they know or believe would be interested in your product or service, and (2) social enrichment, due to the fact that your customers know both your products and their friends very well, means they can make very precise recommendations, i.e. not just T-Mobile but this package with T-Mobile that has an attractive roaming plan;
  • And while your customers will talk about you whether you want them to or not, research from Yale University found that referral rewards play a key role in overcoming psychological barriers to referrals, so that a clever use of rewards and incentives can drive a large number of referrals;
  • And finally, research from Harvard found that friend incentives can play a key role in encouraging customers to refer their friends.

In other words, referral marketing offers the opportunity to reach the marketing nirvana of the right message to the right person at the right time, and the right referral marketing software can supercharge referrals. Done well, with the right referral marketing software, the right rewards and incentives and the right marketing efforts to support your referral program, we’ve seen clients achieve upwards of 30% of all new customers from referrals.

Is referral marketing relevant to your business?

Now before you rush headlong into referral marketing, the first thing you need to do is stop and think if referral marketing is relevant for your business. And even if it is, you need to ask if you’re ready for referrals.

As we set out in the Five Rs: The Guide to Crafting the Perfect Referral Proposition, not all businesses are suitable for referral. You need to ask if your products or services are things that people would naturally prefer to keep to themselves, such as that they needed treatment for bad breath. Or even the likelihood as to whether your customers would know others who could benefit from your offering, for example if you offer payroll management services, how likely is it that your customers will know lots of other payroll managers?

But even if your business is theoretically suitable for referral, as we discussed in our Guide to Organic Discovery, you need to investigate if you do actually deliver a world-class and unique customer service that’s worth sharing. One that merits five-star reviews, provides great photo and video opportunities, and that your brand advocates will happily recommend and refer. Because if your product or service is poor, you’re more likely to drive one-star reviews and negative word of mouth. This means, before embarking on word-of-mouth marketing, you should audit every element of your customer user journey using point of sale and mobile surveys, in-store interviews, NPS surveys, focus groups, secret shopper journeys, monitor social media comments and any other technique to get feedback. And then relentlessly seek to improve your offering and measure how your customers perceive that change by getting more feedback.

However, once you’re sure that you’ve a bank of satisfied customers that are ready to act as brand ambassadors, you can and should look to take advantage of that by establishing a referral program. What’s more, you may not be aware of all the uses referral marketing software can be put to and that, as well as customers, you can use the technology, techniques and psychology of referral to drive customer acquisition from other stakeholders such as employees, influencers, affiliates and partners.

Should you build your own referral marketing software?

One of the first questions you’ll want to ask yourself is whether you should build your own referral marketing software, or whether you should outsource to a third party, or even ask an agency to build a referral program for you.

We’ve already written in this article, why, in almost every case, you’re better off outsourcing to a best in practice provider than trying to build your own referral marketing software, and that’s because:

  • You should use your precious tech resources, time and money to focus on what you do best – making your product or service even better.
  • Outsourced referral programs scale, but inhouse ones rarely do. They often rarely get updated as the tech and product teams move on to new projects, whereas a best-in-class outsourced program will be constantly updated by the supplier and can deal with different languages (right to left writing languages, for example), currencies and legal requirements.
  • Advanced features like gamification, omnichannel and flexible reward delivery are expensive and time consuming to build and are often left out altogether from in-house programs.
  • You’re unlikely to get it right first time, and so you’ll need real time data and analytics, and A/B testing functionalities, which are often missing from in-house programs, to perfect your program.

What’s the right referral marketing software for you?

What you require from your referral marketing software will depend on who you are and what you’re looking to do. For example, your requirements will be different if you’re a start up, a small or medium sized business, a larger business or an enterprise business, particularly if you’re a multinational. What you need can also be determined by the industry you’re in and whether you’re a B2C or B2B business.

Your needs will also be materially different if your business is regulated and/or you deal with sensitive personally identifiable information, because you’ll need secure systems to protect data and meet audit requirements.

And what you need will also be determined by what you’re aiming to achieve with referrals. If you have a basic use case, you may be happy with a simple referral marketing software solution. For example, if you’re driving low value top of the funnel conversions like an email sign up, an app download or free trial, you may not need much verification of the validity of the referral beyond the sign up.

In addition, the value of the rewards you intend to give away can also affect your choice. Particularly if you’re giving low value rewards that you give away easily in other channels, a simple solution may suffice. However, that said, your needs will be very different if you’re giving away large rewards, particularly when it’s cash or cash equivalents like Amazon vouchers. At Buyapowa, we work with many enterprise businesses across telecommunications, utilities, banking, insurance, gambling and large retail, and often rewards and incentives can be worth US$100/£100/100E or more, and so verifying the validity of the referral becomes essential.

Below we’ll look at some of the things to consider when deciding which referral software is for you.

What are the basics for every referral marketing program?

 
That said, here are some basics that we think apply to every referral program, whether you outsource or build in-house, or if you just need a simple program or a more advanced program for an enterprise or regulated brand:

  • Your program should be on brand
  •  
    As outlined above, the essence of a referral is you as the brand asking a customer, employee or partner to refer your brand to a friend, colleague or family member. It’s a personal relationship between your brand and your customer and you shouldn’t let anything or anyone get in the way of that.

    That is why you should do the asking, from your website or app, directly to your customer. The whole process should look and feel legitimate and fully on-brand with your logos, copy and tone of voice. Don’t let your supplier get in the way of that personal relationship and cheapen the experience by plastering its logos and branding all over the referral journey.

  • Decide where your referral program should live
  •  
    As mentioned, ideally your referral program should be on your website, and in your app and your customer support area, and not on a supplier’s site. So you should consider how important it is to you that your program is integrated into your website, say with an object frame, or app via an SDK, or if you’d be happy to just link out to an external webpage. And in the later case, whether that should be a subdomain of your website or even a domain hosted by a supplier such as yourbrand.supplier.com.

    Most of the cheaper lower end referral programs provide a simple platform where the whole scheme is hosted on a URL like yourbrand.supplier.com, and you just need to choose the colours, fonts and upload a logo. This is typically quicker to set up, but comes at the cost of reducing the authenticity of your brand’s ask for a referral.

  • What’re you going to ask your stakeholders to do?
  •  
    You need to decide what action you want to drive from referrals and how you’re going to track it. For example, are you looking to drive sales, signups, upgrades, membership of the loyalty scheme, app downloads, demo requests etc.? Depending on what you’re looking to achieve, you’ll need to have the referral program designed for this action, with the right links to the purchase or sign up page, copy and clear terms and conditions to explain what a referrer and referred-in has to do to qualify for a reward and what’s not allowed. You’ll also have the right calls to action, reminder emails and messaging etc.

  • Who can refer your business?
  •  
    A key question to ask is who should be able to refer new customers to your business. Will you only allow actual and current customers to refer your business? What about past customers? Or will anyone be able to refer?

    Perhaps only allowing current customers to refer can make the recommendation feel more authentic, but on the other hand it’ll likely reduce the pool of potential referrers. Some common cases of restricting referrals to an identified population include where you’re looking to get customers to upgrade to a premium service and only want existing premium customers to refer, or where you want customers to join the loyalty program and only let current loyalty members refer. Alternatively, additional referral benefits may only be available to employees or VIP customers. In these cases, either the whole program can be hosted behind a private area that requires a log-in, or where the referrer will have to enter an identifier (membership number).

  • Decide what rewards you can and should give to referrers
  •  
    The rewards and incentives you offer should be enticing and encourage referrals, and particularly repeat referrals. As a general principle, you should be as generous as you can afford to be, bearing in mind the value of the referred-in customer and what you’re paying in other channels. You’ll also need to look at what your competitors are offering, as if your rewards and incentives are less generous, you may find that, in certain circumstances, they can easily switch their recommendation to the program that pays the most. However, you should remember that a referral reward should not be too generous so as to encourage unwanted behaviour from customers. The reward should only be a thank you for the work that your customer does on your behalf.

  • Your referral user journey should be seamless
  •  
    You should make the action you ask of your stakeholders as easy and simple as possible. You shouldn’t ask your customers to jump through lots of hoops to refer a friend, such as by having to fill in forms with the details of the friend that they want to refer, or having to type out a personalised referral message for each referral.

  • How will your referrers know what happened to their referrals they make?
  •  
    A key component of a referral program is to manage customer expectations and let your referrers know what happened to the referrals they made and when, and if, they will get a referral reward and what reward that’ll be. This will require communication with referrers and ideally a referrals dashboard where referrers can see the progress of their referrals in real time. Otherwise, you may find that you create dissatisfaction amongst people who were previously happy customers, because they feel cheated that they didn’t get a reward that they were due.

  • How are you going to market your referral program?
  •  
    A common misconception is that referral marketing is marketing automation and once you’ve set up a program, you don’t need to do anything else but watch the customers roll in. If only that were true.

    In fact, the main reason that referral programs fail isn’t the software or even the proposition or the rewards you offer. The main reason for failure is a lack of marketing to ensure that your customers know you’ve a referral program and can find it easily, and that it surfaces naturally at moments when your customers are thinking about your brand in a positive light and are receptive to referring. This can be broken down into activation and discovery and we’ve written a detailed guide here.

  • Think about who’s going to run your referral program
  •  
    You’ll need to have someone, or several people, involved in running your referral program. If you’ve built an in-house referral program, often this requires lots of manual work from your team to record and reconcile referrals (even in Excel!) and pay out rewards by email. And if you’re paying out rewards, such as third party vouchers, you’ll need to source those and ensure that there are enough available to pay out for successful referrals.

    As mentioned above, you’ll also need to have someone responsible for marketing your program to your users, and you’ll want someone to monitor performance and review the data and analytics that you’ve available.

  • You must comply with all laws and regulations
  •  
    This is so obvious that we almost feel embarrassed writing about it, particularly given the huge potential fines which you could be liable for under GDPR or the CCPA etc. However, despite this, we still see referral programs that, prima facie, appear to be in contravention of these regulations, for example by requiring a referrer to enter personal data about their friend for the brand to then contact that friend.

Do you need something more?

Assuming that you decide to outsource, you will find that there are several dozens of referral marketing software options available, from simple plugins in ecommerce platforms and basic options in email service provider platforms to add a link at the end of emails, through simple referral platforms up to mid-level and then enterprise level solutions.

So if you’re:

  • Happy with a solution hosted on a third party platform that isn’t fully white label and may have limited options to customize;
  • Not driving complex conversions where new customers have to pass through several steps in the user journey;
  • Paying out low value referral rewards and incentives, for example a low value voucher that can only be used to purchase from your brand, has a minimum purchase requirement, and cannot be stacked with other vouchers;
  • Not concerned with tracking actual outcomes and are happy to pay out for top of the funnel conversions or for purchases that are later cancelled or turn out to be fraudulent (maybe you consider product returns as a normal part of your business model, like some fast fashion businesses do?);
  • Not restricting participation to identified groups, or paying out different rewards based on the category of referrer or the type of product or service purchased by the referred-in friend;
  • Happy managing and marketing the referral program yourself and don’t think you need support and best practice advice;
  • Not expecting to drive a lot of referrals, so that manual tasks to reconcile referrals with referrers won’t likely be a lot of work:
  • Not collecting lots of personally identifiable information, and particularly not sensitive personally identifiable information;
  • Not an enterprise and/or regulated business that has detailed data protection and audit requirements etc.

Then you’re probably fine with one of the lower to mid level referral platforms, which in all fairness will be a lot cheaper and quicker to set up. So if you’re a smaller business with a limited budget and don’t need a complex solution, then you’ll have plenty of options.

However, if you’re an Enterprise business, and particularly if you’re regulated, you’ll almost certainly require more than the basic features listed above. These can typically include:

  • A complex conversion process that has more than one step, for example a financial service business that requires a customer speaks to an advisor before a purchase can be completed, or a B2B business that collects leads to be passed through a qualification process, demo and free trial period before a sale is confirmed;
  • As is common in industries like telecommunications, banking, insurance and utilities, you’re paying out high value rewards and incentives, often in cash or cash equivalents for, say US$100/£100/100E per referral, and you want to make sure that only fully confirmed referrals are rewarded;
  • Referred-in customers can choose to purchase or subscribe for different packages and you want to pay different rewards according to the actual value of the referred-in customer;
  • You need accurate real time data and analytics to pilot and improve your program, and want to be able to test and learn what works best with your audience;
  • You need accurate data to audit how you converted a customer and the representations that were made to a customer, say for a bank or investment product;
  • You want to integrate your referral program fully with your back end systems;
  • You’ll collect personally identifiable information, and in particular sensitive personally identifiable information and you don’t want your supplier to hold this data. In such cases, you may want your supplier to only hold hashed data, and of course your supplier will need to evidence that it has best in class information security protections and certifications like ISO;
  • You want support from your vendor to help with the set up, running and optimization of your program, being able to advise on best practices and suggest improvements:
  • You want advanced features like gamification, tiered rewards and booster campaigns to increase conversions from referrers.

Here you’ll find that, while there are many dozens of low to mid tier solutions, there are only a handful of true enterprise referral platforms on the market, and even less if you’re a regulated business that needs a fully compliant solution. That is where an enterprise platform like Buyapowa will be the right option for you.

If you’d like to discuss any of these points in more detail to discover the right referral marketing software for you, then please get in touch.

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