Referral marketing: The secret weapon that should be in your arsenal

Referral marketing: The secret weapon that should be in your arsenal

It happens: you end up in the same new restaurant twice in two days. But what happens after, that’s what’s interesting. The first time, you land a great table with an awesome view of the shining city by night. Good so far! 

Both you and your friend enjoy your  meals. You order the wok-style sirloin with vegetables served over crispy fries and he orders the wok-style surf and turf over pasta. If you’re thinking this place sounds like Asian-Mexican-American fusion, that is correct. As you pay and leave satisfied, you think ‘what don’t they do here?’

The next day, you and a different friend try for a different Asian, equally new restaurant. Sadly, they’re closed. You recommend (wok in mind) the place from last night, telling this friend about how nice it was. You manage to sit at the exact same terrace-top table. It’s beef dumplings to start, then you order what your friend ordered last night. Your friend opts for the wok-style chorizo rice with basil. 

“How is it?” you ask between bites of shrimp and grilled pasta. 

“It’s…OK,” he replies. 

That’s not an endorsement coming from this friend, who’s a bit of foodie. Meanwhile, you’re happily munching away. After settling up and you’re walking out, the passing restaurant owner asks your friend:

“How was it?”

“It was OK,” repeats your friend. 

Thing is, after your friend’s assessment, you’re not sure you’ll go back. You’d been keen to share your first-time experience with him, but now … well, maybe this place isn’t a go-to after all. Before his input, it was all positive. Now it’s become ambivalent. You haven’t been back since.

This phenomenon, which I recently lived and perhaps you have too, perfectly illustrates the power of referrals on our consumer experiences. It shows how social influence from peers affects our perceptions of products or services, even those we’ve previously enjoyed. Truth is, we all deeply value our friend’s opinions and tend to shape our behavior around them.

This post will show you how to create an effective referral marketing strategy. Step-by-step we’ll walk through how to structure, design, and promote a referral program that will earn your brand positive engagement and leverage customer advocacy to drive revenues. First, we’ll outline the benefits of referral marketing. Then we’ll look how referral programs and referral program software are used by leading consumer brands to power their customer loyalty strategies forward. 

After this 11 minute read, you’ll have every piece of strategy need to craft a referral program for your brand that’s optimized for customers experience and effective at driving results. 

What is a referral marketing strategy?

“Referral marketing is the science of converting a customer’s social capital into a brand’s economic capital. “ 

— Harvard Business Review

Referral marketing strategies are a comprehensive set of processes that encourage consumer advocacy with incentives to drive revenue growth. They’re also the only marketing channel that allows your brand to leverage word-of-mouth advocacy in a measurable way. 

As a marketing channel, referral strategies sustain and promote meaningful customer experiences that are the backbone of marketing 2.0. This emphasis on happy customers is smart marketing: referral customers have a 16 percent higher lifetime value than non-referred customers, according to Wharton. Plus, they love your brand too.

Your customers will talk. As social creatures, sharing is part of our character. A study from Texas Tech University confirms this: 83 percent of users are likely to share a product or service after a good experience. Yet only 29 percent  actually do. That means that an average of 45 percent of your users who want to say something good about you – they’re just not being given the opportunity in a “happy moment.”

The core benefit of effective referral programs is the ability to consistently engage customer segments around these “happy moments” and create advocacy opportunities at scale. This benefits you by driving new referral sales while simultaneously solidifying customer loyalty and retention. 

A recent Heinz report showed that companies with formalized referral programs experienced 86 percent more revenue growth in the last two years, compared to the rest. These companies exemplify how sustainable and effective refer-a-friend programs are at driving brand awareness and creating new sales opportunities from existing customers.

The best part is: crafting a referral program is not complex. The three key components to an effective referral program are structure, design, and promotion. We’re going to talk about each of these processes now – and provide examples of strategic best practices from leading consumer brands that succeed with referral marketing programs. 

But first: what is not a referral program? A referral program is not a one-time interaction between a brand and a consumer. Nor is it marketers dangling a carrot in front of consumers, enticing them with “win big” promises. Neither is it affiliate marketing, where 3rd-party sites do the work for your marketing team and you pay them a bounty. 

Instead, referral programs are built upon genuinely enthusiastic, customer-get-customer interactions that equally rewards all parties involved. There is a science to making referral marketing programs succeed. Here are the three steps to this strategy.

Craft the program structure

To build an effective referral program, start with the program structure. If we use a restaurant metaphor, this is the chef in the kitchen, selecting ingredients and coordinating a menu that will appeal to consumers. 

Take this step to determine the incentives you’ll offer target customers, coordinate an easy to understand referral structure and determine what interactions are necessary to make your referral program succeed. To assist with defining your structure, start by answering three questions:

Who are your best customers?

Outline a program that leverages the enthusiasm of your happiest, highest-spending customers. Why? Because like follows like. This customer segment is most inclined to refer customers who will be satisfied with your offering and spend money similarly. Referral incentives are targeted at a specific group and this is what makes them effective. Target customers to get target customers.

(Source)

Airbnb knows it’s best customers are recurring travelers. This segment spends more and will also refer more friends and colleagues. In the headline and supporting headline, the company emphasizes both the immediate and lasting value of cheaper travel on those upcoming trips.

How can we target these customers and what’s the most compelling incentive we can offer?

Draw on your deepest understanding of your customers here. Only appealing offers drive shares, so select a valuable and compelling incentive specifically matched to your best customers. Double-sided rewards that deliver equal benefits to both sender and receiver have been found more effective than single-sided rewards. User altruism and the will to improve their friend’s lives is a fundamental aspect of a compelling incentive.

Here, the travel app uses actionable language to drive conversions while appealing to user altruism. “Give your friends” and get up to $100 is a persuasive way of showcasing double-sided $25 rewards. And who wouldn’t want to share the superior Airbnb experience with pals and then get paid?

What’s the goalpost to succeed?

A goalpost is what must be completed by the receiving user in order for the referring customer to achieve their reward. This might be a signup, account activation, paid signup, a purchase, or something of the like. It’s the closed loop that brings ROI home for everyone. This needs to be an easily completed task, yet one meaningful to your brand’s growth strategy

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Airbnb’s  goalpost is the first booking made by the referred user. They could have chosen friend signups or wish list additions, but this wouldn’t contribute to revenues. But once a friend has fully engaged with the brand, goes through an account registration, experiences the UX, browses, pays – the math is there. It provides marketing ROI and leads to sign ups. Win-win.

Fraud prevention is another key aspect in goalpost creation, as this is the part of the referral program structure that must create value for your brand. Airbnb also stipulates that it must be a new credit card that pays for the booking. This way, they don’t get gamed by false users. Referral SaaSquatch makes it a cornerstone of program structure to prevent fraud.

Design the user experience

Effective referral programs offer a streamlined user experience that’s both aesthetically appealing and intuitive to use. In the digital age, this warrants referral program software. Who uses referral marketing software? Three big industries, primarily: e-commerce, marketplaces, and software. These companies have large and often diverse customer bases and need to target broad user segments at scale. Referral program software allows companies like Airbnb, Threadless, and Typeform to create branded user experiences across their marketing channels.

Designing a user experience hinges upon optimizing what the end user sees and how they interact with the referral program. This step is crucial for defining how they discover, share, and sign up for the program. The easier you make this, the more you ensure referral program success. This means optimizing across channels like email, desktop, mobile, sales teams, customer support, and apps.

Three factors contribute to a quality UX: discovery, sharing, and onboarding. 

Let’s look at Busbud, an online bus travel app for an example.

Discovery

How likely are your users to find your referral program when using your product or service? For optimal discovery and engagement, your referral program should be placed where users can easily find it. Busbud has a referral widget built into their mobile app. “Refer-a-friend” is positioned underneath “Payment Info” for effortless in-app discovery. 

Having an in-app section for a referral program is great, so is a menu navigation. Other mobile discovery tactics you can use are interstitial banners and push notifications. Email campaigns are also effective for positioning your referral program into other useful marketing messaging.

Sharing

Effective referral programs make it as easy as possible to share. A complicated process creates friction and directly undercuts the referral initiative. Personalized links to hook user attentions, pre-filled text boxes to streamline sharing, and one-click sharing CTAs – this all works wonders. The best brands conduct their referral programs within a seamless sharing experience.

As we see here, Busbud succeeds with all UX optimizations. After a succinct and value-oriented headline and supporting copy, we find the sharing interface below. Users can send an email link or connect via social share CTAs. Each link out is large and visible and well-placed for action. The app also gamifies the experience by showing a “Referral Stats” section at the bottom, further enhancing the will to share.

Onboarding

The onboarding experience should be just as easy for recipients as senders. What’s the point of creating a great user flow on the front end and having it stall out at the point of conversion?  Best practices dictate that you welcome new users with a personalized landing page to grab attention immediately. Then apply personalization to messaging that guides them to their goalpost. Cookie tracking is fundamental for these processes.

Above is Busbud’s referred user signup flow. After sending the referral message, the recipient sees that their buddy “Brandon sent you $5 to spend …” This outstanding headline copy is personalized with a familiar name and promises direct value. Next, the email body copy cleverly and directly explains the benefits of the reward, plus exactly how to claim. 

Especially at onboarding, spell out the process for users. Assure them it’s a quick and easy win. On the last Busbud screen, onboarding is one click away. Social sign-in with Facebook is fastest, or the bold and energetic and orange CTA pulls users to the winning goal post.

Promote the referral program

Like many restaurants who have an amazing menu, some just fail to bring diners in the front door. In kind, marketers often struggle to promote their referral programs effectively. Who wants to create a rockin’ referral program and have it go underused? 

How will you benefit by promoting your referral program?

  • You’ll earn more first-time referrers. This drives user awareness for the program via your available marketing channels.
  • You’ll earn more recommendations per referrer. Keeps users active with re-engagement campaigns to drive fresh awareness and first-time revenues, plus recurring revenues.
  • You’ll earn better quality recommendations. Remind your best customers to invite friends to get more and better shares from your most loyal advocates.

The strategy behind promotion messaging is to explain the referral program to customers and encouraging their participation. This comes down to a blend of two factors: discoverability and findability. Discoverability is when the audience can discover the program without trying to find it. Findability is when your audience find the program easily when they want it. This means promoting your referral program where your customers will see it. To effectively promote your referral program, align program strategy with marketing channels that directly reach your best customers (as discussed in step one). 

For example, if you’re an e-commerce brand and have loads of desktop users but few on mobile, why waste resources on mobile messaging? You would be better off designing a desktop referral promotion strategy. This means you would promote your program via:

  • Main navigation of website
  • Referral program landing page
  • Emails about program launch, re-engagement loop email, nurturing email footers 
  • Website FAQ or knowledge base (to outline referral program details in a logical place)

To be an effective promotion, all these messages have a visible CTA waiting nearby. Beyond encouraging conversions, the key to an effective referral marketing program is positioning your referral offers at what are called “happy moments.”

What is a “happy moment?”

A happy moment is a time when you’re using a product at a natural point of conclusion and satisfaction. At this finishing point, the next step with the product or service is unclear. Referral programs capitalize on this feeling of resolution and satisfaction by offering users a logical, easy next step: to share this positive feeling as a referral. Examples include after a purchase, a signup, or an account activation. Find your users in a logical moment of happiness to make a referral.

“Word of mouth is the primary factor behind 20 percent to 50 percent of all purchasing decisions.” 
― Jonah Berger, Contagious: Why Things Catch On

Emotions and promotions go together. After all, we are emotional buyers. Motivations for sharing are important to consider. Let’s turn to Uber for some examples of referral program promotions that leverage different user motivations and emotions.

Self motivations

Yes, self-interest drives plenty of shares. Here, Uber uses a mobile interstitial banner to appeal to the human want for exclusivity and savings. Users can “score” themselves $20 worth of rides – and as an afterthought, friends get a ride too. 

Altruism

Altruism is a powerful motivator because helping our friends and associates indirectly improves our own position. Altruistic messages that promise double-sided rewards are effective because they appeal to the motivation to help those around us and benefit in kind. The psychological principle of reciprocity – feeling obliged to help those who have helped us – also drives this messaging tactic. Uber inverts their messaging copy here, telling users to “Send friends free rides” and thereby promising a benefit for you too. 

Be sure to test the self/altruism motivation messaging between your customers. Some users and products or services are more aligned, but a blend of both is often best. Use your referral program software to track agents and deliver reports for key insights on how to optimize messaging.

Higher meaning

Uber doesn’t offer one of these, but many charities will apply this motivation to drive referrals. For example, Tom’s Shoes acquires new customers by attributing a higher meaning to purchasing. Yes, you might get a pair of shoes that you want, but so does an unshod child in Africa. You feel good for doing good works, plus you get to enjoy groovy styles in moral comfort as well.

The last words

Before you can dine out on the benefits of a referral program, you need happy customers. When you create your effective referral program, you’ll leverage user’s “happy moments” to amplify their brand engagement and prompt new user invites. 

Referral marketing is a truly user-centric, highly optimized strategy that enables those who love your product to bring along new users who will love your product too. The beauty of referrals is that they not only directly add to your bottom line, but also pay dividends in customer retention, loyalty, and compounding recurring revenues. In this way, you can use referrals to boost growth in an organic, genuine way that benefits all parties. Soon your customers will say, “They’ll have what I’m having.”

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