Referral marketing is one of the most successful techniques that companies can employ to ensure they stay on top of their market. And many iconic companies like Uber, Airbnb, Dropbox and Netflix, owe much of their incredible initial growth to supercharging natural word of mouth with a referral program. But a mistake that we think many of these titans have made, is in not realising that no brand is too big for referral marketing and, once they have become established household names, they have often failed to update and upgrade their referral marketing program to support the continued growth of their business.
An example of this is Netflix, the hugely successful and world leading streaming entertainment service with 193 million paid memberships across 190 countries. It’s probably hard to find someone who hasn’t heard of the brand, and we’d bet that many of your social chats these days involve discussing the latest series that you are watching on Netflix, or asking friends for a recommendation for a new one, now that you reached the end of your current favourite.
But depending on how old you are, you may or may not remember that Netflix began life as a mail-order DVD rental service. Back in those days, Netflix operated a a “Tell-a-friend” referral campaign, in which they gave away one month for free for a successful referred-in new customer. This boosted their audience and allowed their customers to become salespeople to help accelerate their growth. However, since then, the business relaunched as an online subscription service where members pay a flat monthly fee to access unlimited movies and series streamed over the Internet to TVs, PCs, and more. It appears that, around the time of the launch of Netflix Originals, the marketing department decided to drop offering a referral reward. Whereas they previously marketed Netflix as a service, the introduction of the production studio model meant that they shifted towards a standard content marketing mode, stressing the quality of their series rather than a friend’s recommendation as the key driver.
Their referral programme still exists, however, but without any rewards or incentives. We think that this is a mistake, as recent research from Harvard Business School, Washington University and UC San Diego has reaffirmed the importance of friend incentives in referrals. In fact, referral rewards also play a significant role in helping referrers overcome the risk of losing social currency if a recommendation turns out to be bad, as recently highlighted by Yale and UC Berkeley.
What would we change?
- As mentioned above, rewards and incentives play an important role in helping grease the wheels of referral marketing. Not least by offering a small thank you for the effort involved from the referrer. We think that by testing different rewards and incentives, Netflix could substantially increase the number of customers likely to recommend the platform. But referral rewards and incentives don’t just positively affect customer acquisition, they can also improve customer retention. This is, in part, because when a customer recommends you to a friend, he or she risks some of his or her credibility with that friend. For example, if you recommend BMW to all your friends and convince them to buy a brand new BMW, and then turn up in an Audi, you will likely lose all credibility with those friends. But particularly for a business like Netflix, where there are net positive social effects of having more friends watching the content, you are likely to want to continue to watch so you can chat with your friends about the new series they found.
- There is little point having a referral program if you don’t push it across all your marketing channels, as we advise here. Because, quite simply, if your customers don’t know the program exists, or can’t find it, how can they refer friends? So we think Netflix should be constantly pushing their referral program in all emails, on its website and across every customer touch point.
- Now that Netflix is a content production powerhouse, we think that they are missing one of the best tricks in the referral marketing playbook. Given that more than 80% of all referrals are likely to be made by far less than 20% of your customers, Netflix should be galvanising their potential super-referrers with gamification to offer money can’t buy rewards to the top referrers each month, quarter or year. Can you imagine the motivation to refer your favourite series if, as a prize for being the top referrer, you could get a small walk on role in the next season? Or even signed merchandise or back stage passes to meet the cast? Being a content studio, rather than just a content channel, offers them so many options to get creative with rewards and incentives.
- As well as focusing on star referrers, Netflix should also try and encourage their typical referrer to go a little further and refer more friends. A free month might be fine as a reward at the beginning, but once you have accumulated a stack of free months, the marginal utility of an extra month is likely to decline. So why not offer tiered rewards where, say, after five referrals the referrer gets a cash reward or third party credit card? Or why not let the referrer chose from a selection of different rewards?
- Clearly a risk in offering free months is that some unscrupulous characters will try to game the system to access the service for free by self referring themselves for multiple free trials. Quite simply, to avoid this, rewards should not be paid out until the referral has been verified as being for a brand new customer and all payments have been made. This is something that we support at Buyapowa.
- Where you have a pre-condition for a successful referral, such as verifying that the referral is a new customer and that payment has been made, it is useful to provide the referrer with an account area where he or she can see the status of his/her pending, successful or unsuccessful referrals. This will remove the need to contact customer service.
- As mentioned above, we think Netflix should be constantly testing its referral program. At the time of writing, it appears that they are doing this with Netflix India. So one bonus point for Netflix!
- Finally, we think it’s pretty important that Netflix implement a social-media based recommendation program since movies are one of the most highly discussed topics among friends, family members, and contacts on social media. Why not make it easy for me to tell everyone on social right when I finish watching a great movie and automatically include the referral link in the post?
Do you run a business like Netflix? If so, and you think you could benefit from a referral program, or perhaps you think your existing program could be improved, then get in touch and we can talk you through your options.