Over the last few years, referral marketing has exploded in both its popularity and effectiveness as a means of acquiring new customers and, only recently, Airbnb explained how referrals played a key part in its word-of-mouth marketing, or Organic Discovery, strategy that enabled it to get 90% of all its website traffic from unpaid sources.
And, while providing an excellent customer experience is the prerequisite to generate positive sentiment towards a brand, referral marketing is often the most effective mechanic to convert that goodwill into new customer acquisition; whether leading to a new purchase, subscription, app download or other valuable action. Put simply, it works because a referral program gives satisfied customers, employees, partners and influencers a simple and safe means to share a recommendation with friends, family, colleagues and other audiences and typically provides a reward and incentive for each successfully tracked referral.
So in seeking to maximize the number of referrals from your audiences you need to identify:
- the people most likely to refer you i.e. those with a net positive sentiment towards your brand;
- the moments when that net positive sentiment is likely to be at its highest and, therefore, willingness to refer at its greatest;
- when those audiences are most receptive to receiving a message from you;
- when they are most likely to act on a call to action to refer a friend;
- how to remove barriers to referral, whether psychological or physical; and
- the rewards and incentives most likely to lead to a successful referral
And finally, you need to think about what, even if you have all of the above in place, you should do if the referred-in friend is not yet ready or able to switch to your brand, for example, if they are locked into a contract with another supplier at the time of the referral.
This article looks at all these questions, but first, we will start with a quick recap on referrals and their value.
A referral marketing recap
Referral marketing, also known as advocacy marketing, refer-a-friend, customer-get-customer or member-get-member, is a marketing tactic that leverages word-of-mouth in order to acquire new customers and grow your business.
In other words, it’s the active (i.e. direct, personal) or passive (i.e. public, general) recommendation of a specific brand, product or service to an audience of potential customers by a customer, employee, partner, influencer or other person with a personal experience of the brand. After a successful referral, typically both the referrer and the referred-in friend receive some sort of reward, like cash, vouchers, free service or even physical prizes, and the company itself receives a shiny new customer, often at a fraction of the cost of other channels. It’s a win-win all the way around.
All told, an estimated $6 trillion of annual consumer spending is driven by word-of-mouth marketing and it brings in 5X sales than paid media. The reason that referral marketing works so well is that 92% of customers prefer recommendations from friends to traditional marketing, and 74% of customers cite word-of-mouth as a primary driver behind their purchase decisions.
How to identify potential referrers
Word-of-mouth marketing is all about generating positive sentiment towards your brand among your audiences and encouraging them to spread positive word-of-mouth about you within their influence circles (family, friends, colleagues, followers, readership, etc.). As mentioned above, referral marketing gives you the means to take that positive word-of-mouth and direct it towards generating new customers by giving potential brand ambassadors an easy, safe and trustworthy means to share a message about your brand, with a reward and incentive and a means to track or attribute each successful referral.
Obviously, brand detractors are unlikely to want to refer your brand, particularly to their trusted friends and family. However, this leads to a key point about referral rewards: they should be enough to overcome the psychological barriers to referral and should act as a ‘thank you’ to the referrer for the effort he or she undertook, but should not be so generous as to encourage unwanted behaviour, such as spamming or gaming, where even detractors push your brand to earn rewards.
So how do you find people positively disposed to your brand who can potentially become brand ambassadors? Well luckily, many people self identify as potential brand advocates by:
- Following your brand and liking your posts on social media, and even defending your brand in online forums and threads;
- Giving positive feedback in online reviews;
- Giving positive feedback in customer surveys and high NPS (Net Promoter Scores);
- Reporting satisfaction in-store, to call centre agents or in website exit pop-ups (e.g. “How happy were you with your experience today?”);
- Purchasing your product or service, particularly repeat purchases;
- Upgrading your service (e.g. subscribing for Amazon Prime, upgrading to a premium membership, taking out a new line, adding new services, etc.);
- Reaching a milestone (e.g. having been a subscriber for a year, used a service a certain amount, etc.)
All of these, and other signals relevant to your business, are either indications or direct expressions of customer satisfaction, and in the case of NPS, actually ask the question ‘how likely are you to recommend our brand to a friend?’. In some cases, you will be able to identify the person who gave this feedback and ask them to refer you. But even where the feedback is anonymous, there is scope to include a message in a pop-up requesting a referral.
While a percentage of your audience will self-identify, inevitably a large portion will not. However, you might conclude that an act, such as an upgrade or contract renewal has a high correlation with customer satisfaction and invite all customers who upgrade or renew to refer. In the recent WOM Day event, GemSeek explained how a company can analyze all company-held data to impute an NPS across all customers and use this to identify potential churn signals, as well as potential brand ambassadors.
However, assuming that you will never be able to 100% accurately identify all those in your audience, it’s wise to include a call-to-action across all your customer touchpoints, such as in prominent navigation on your website and in your app, customer areas and in newsletters links. That way happy customers can find your referral program.
You should also make your referral programme easy to find on Google and in your internal search engine – with a publicly available page with an easy-to-remember URL like www.company.com/refer.
When is the best time to ask them to referrer?
- Immediately after self-identification
Clearly, when an audience member has just self-identified as a potential brand advocate, that is the best moment to ask for a referral. So just after a customer has given a positive review, a high NPS score or told your call centre staff that they are happy with the service, then that is the ideal moment to ask. Not only is positive sentiment likely to be high but also your brand is front of mind, and you are likely to have a short window of opportunity before the challenges of daily life push your brand back to the recesses of your customer’s brain.
The opportunity here is to include a reference to the referral program in the thank you pop-up or email after completion of the review or survey, or have the call centre staff ask if it is okay to text a link to the referral program. The key is to get the referral link to the potential referrer as soon as possible after self-identification and make it very easy to refer, for example by allowing native sharing on a mobile phone and having default sharing texts available.
- Immediately post-purchase
At first glance, you might wonder why someone would refer after having just purchased and before they have had the chance to use the product or service. But as well as the self-serving motive for word-of-mouth in wanting to be the first in a group of friends to break the news of a cool new product or service, in actual fact, many purchases are actually repeat purchases. And the act of repeat purchasing is in and of itself a moment of self-identification as a potential brand advocate.
However, there is a scientific reason why it’s a good reason to contact potential referrers immediately post-purchase. This is because, between the gratification of buying and the anticipation of receiving our purchase, our brains release a happy chemical known as dopamine, the neurotransmitter closely linked to motivation and behaviour and the formation of habits. In fact, immediately after having bought, signed up or taken out a policy, the customer’s dopamine levels are often at their highest, which can make them more receptive to your messaging and more willing to refer your brand. Simply put: immediately after they shop, your customers are feeling great, which is exactly when you should be ready to ask them to refer you.
- At customer milestones
There is no coincidence in the fact that you often get asked to review a product or service 14 or 28 days after purchase. Not only does this allow you to have actually used the product or service for some time after purchase, but it is often the statutory cooling off period. This means if you haven’t returned or cancelled after 14 or 28 days, then perhaps you are happy with the product or service.
There can also be other milestones relevant to your business like paying an insurance premium, paying your monthly mobile bill or allowing the free month’s trial to roll into premium membership. Other milestones can be upgrades or renewals, which can correlate to use and satisfaction.
Of course, anniversaries and customer events like birthdays can be a good excuse to ask for a referral, particularly if there is another offer included. For example:
To say thanks for being a loyal customer over the past year, we have given you a month’s complimentary upgrade to our premium streaming access, where you can see all our exclusive sports content. And as a reminder, for each friend you convince to sign up for our streaming package, you will get another month’s premium access free.
And to celebrate your anniversary, each new customer you refer this month will earn you two months premium instead of one.”
Finally, and subject to privacy and other applicable laws, you could reward the referrer again when their referred-in friend renews or upgrades, as this will remind the referrer that their friend did get value from the referral.
- When a customer has just successfully referred someone to you
This is an obvious point, but when someone has successfully referred a new customer to you and earned a referral reward, not only should you notify them, thank them and explain how they will get their reward, but you should ask them to refer again.
In our experience, too many commercial and in-house built referral programs are content with getting an average of one referral from each referring customer. But your customer has just referred, has seen that your program works and they have just received the dopamine hit of getting a reward in their hands, so it’s the perfect time to ask them to do it again. Particularly, when you mix in smart psychology with gamification, tiered rewards and booster campaigns designed to get referrers referring again and again.
- When a customer is about to lose their right to refer
Some referral programs like the one belonging to London-based fintech Revolut, actually restrict the number of friends you can invite and/or limit the period in which you can invite. This is to create the fear of missing out (or FOMO, as it’s more commonly referred to), and Revolut will email you, send you in-app messages and place a message in your app notifying you of the time remaining, creating an immediacy.
When will your audience listen to you?
Estimates vary, but we are estimated to be exposed to between 4,000 to 10,000 ads every day and there is a limit to how many times a day, week or month a customer will want to hear from your brand. Opinions vary greatly on how often a brand should communicate, and the answer will depend not only on the demographic involved but also the type of brand. For instance, we might assume that a member of Generation Z would be willing to hear more often from a fashion or music brand they like than from his or her insurance company or bank.
But as well as the frequency at which we might want or expect communication from a brand, there will be moments when a potential brand ambassador is more willing to listen, these include:
- Just after purchase – a customer will be actively looking out for the post-purchase email or text with details of the purchase and delivery dates.
- Account and billing enquiries – many consumers attention is highest when they see a payment has been taken from their bank account and want to check their account
- Customer support via call centres, chat and FAQ pages – where the customer is looking for help with the use of the product they will be attentive
- Renewal periods – assuming you communicate that renewal is due, will auto-renew or send a post renewal thank you
On all of these occasions, you have or should have high customer attention levels. However, it is important not to interfere with the original purpose of the communication, For example, don’t make someone who logs into your account area first go through your referral program. However, this is a chance to add a message about your referral program at the end of the journey when attention is still high.
If you have the luxury of a platform that monitors how and when each customer is most responsive to messages, you may know your audiences preferred message format (e.g. email, text message, phone call), preferred day and time, language, and so on, in order to most effectively communicate your referral program.
What stops customers from referring in the first place?
The biggest and most obvious barrier first is poor customer experience, and here we mean the holistic perception of a customer’s experience over the course of their relationship with you; the sum total of all of their interactions, from navigating your website, app or store to engaging with customer service to actually receiving and using your product or service. So if you aren’t getting a lot of business from word-of-mouth, the first action is to audit your business and your customers’ perceptions of what you offer. And if their perceptions are poor, we suggest you try and fix the issues first.
However, as mentioned above, unless you are offering over-generous referral rewards, it is likely that only customers who already have a positive perception of your brand will be willing to refer you. But there are many things that can still get in the way of referrals from happy customers.
As Dr. Aniko Oery of Yale University pointed out at the recent WOM Day, there are many psychological barriers to referral, not least of which is apathy or inertia. Quite simply you are competing for time and there are other things that a customer could do with their time like watch something on Netflix.
In her research with Yuichiro Kamada from the Haas School of Business UC Berkeley, Dr. Oery identified a barrier that stops people from talking about brands or products; namely the risk of losing social currency if that recommendation turns out to be a bad one. So that in order to motivate a referral, the referral reward and any net positive externality from the friend also using the product or service (like being able to share files in Dropbox or discuss shows viewed on Netflix) must outweigh the perceived risks of the referral. Therefore, you need to think carefully about the rewards you offer as well as the risks a referrer may perceive in referring you.
Drs. Oery and Kamada also talk about creating an opportunity cost of not referring, such as having an incentive for the referred-in friend that is not available elsewhere. And research from Cynthia Crowder of the Olin Business School, Rachel Gershon of the University of California and Leslie K. John of Harvard Business School emphasized the importance of friend incentives in motivating referrals. In an experiment, they found that referrals were highest when all the reward was given to the friend instead of being kept by the referrer, split equally or donated to charity. At WOM Day, our very own Director of Brand, Robin Bresnark, explained how the psychological principle of reciprocity can encourage referrals by being open and honest that both the referrer and referred-in friend will benefit from a successful referral.
As well as overcoming the reluctance to refer, brands will want to encourage their audiences to refer now, which, as mentioned above, is where the fear of missing out (FOMO) comes in. This can be achieved by time limiting the right to referrals or the number of referrals a customer can make. Another illustration of this is time-limited booster campaigns that give extra rewards if referrals are made within a short period.
As well as linked to rewards, FOMO is a social anxiety that stems from the belief that you are missing out on some novel experience, shared experience or a profitable investment. And, in the world of marketing, this refers to benefits, value or experiences that consumers are missing out on by not engaging with a brand, their offer or content. There’s no more clear example of this than the popularity of the HBO show Game of Thrones, which became a cultural phenomenon and took FOMO into the stratosphere with people working hard to be up-to-date with every single episode and its surrounding media in order to order stay completely in synch with other viewers and participate on conversations, many of which happened online.
As for your referral program, you can leverage the psychology of FOMO by carefully calibrating your program and positioning it in such a way that by not participating, your customers are missing out on something that others are experiencing.
So far we have considered referrals mostly from the point of view of the referrer, but we should also consider the position of the receiver of the referral solicitation; the friend. Obviously, a person can act quickly on an impulse purchase of a product where the price point is not too high, the value of the product or service is well known and there is little risk associated with the purchase. So if your friend recommended that you buy a banana-yellow jacket at half price, you may just act quickly on impulse, despite the obvious fashion crime.
However, that is unlikely to be the case with a considered purchase where the purchase decision is more complex and has a higher degree of financial or emotional risk and reward. A considered purchase can be anything from taking out a home insurance policy to purchasing kitchen appliances, even a selecting family internet service plan.
They also include referrals in a B2B context where the person being referred may require more guidance as part of their due diligence, such as insights into the products and services themselves, impressions of the brand and the customer experience, and any other specific requirements that they may have.
A considered purchase referral isn’t generally a single recommendation and then you’re done. The referrer often needs to repeatedly follow up with their referred friend to answer questions and provide help. And, while it may be that the recommendation is welcome and the offer tempting, the recipient may be locked into a contract with his or her current insurer or mobile phone provider for an extended period and be unable to act immediately.
In these cases, it is unlikely to be a single recommendation that leads to a purchase, and often both the referrer and the friend will need further reminders to drive the referral forward.
Ideally, you will not be manually sending these messages, but your referral program will integrate with your back-end systems (e.g. CRM) and allow messages to be automated according to the entire customer journey for each customer. This can include the post-purchase page, confirmation of purchase email, tracking information email if it’s being delivered, your request for feedback, and even your receipts, renewal notices, NPS surveys, and so on.
The main takeaways
Ultimately, the success of your referral program and your ability to recruit referrers depends on identifying your pool of potential brand ambassadors, knowing when and how to reach out to them, understanding the psychological barriers that prevent them from referring and referring now, and how to effectively overcome these.
By using smart psychology and economics you can encourage referrers to refer again and again. So by carefully designing your referral program with these in mind, you can significantly boost the number of referrers you have and turn your program into a wellspring of newly acquired customers.
If you’re interested in building and launching a referral program that’s capable of overcoming all of the barriers we mentioned above, then don’t hesitate to contact us. We’d love to chat.