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Best Practices for Setting up a Referral Marketing Program

Guest Post from our Partners at Talkable

People naturally trust other people. For example, imagine your friend sends you a link to a track on Spotify, telling you, “check out Nicolas Jaar’s new track, it’s awesome!” Chances are, you click on the link and listen to those mysteriously hypnotizing sounds. That’s how I became a fan!

Now picture another situation. Someone knocks at your door, and you open it to see a person telling you, “Hello, We’ve analyzed your social media profile and we think our music is perfect for you! You’ll definitely fall in love with it!” How would you react?

This explains why there is no more trustworthy marketing channel than word of mouth.

Because of the nature of personal trust, referral programs are very powerful economically and socially — and that’s something businesses can use to make money. A referral program is an organized process of promoting products or services to new customers by asking current customers to spread referral incentives to their friends.

According to an ExpertVoice study, 53% of consumers don’t trust advertising. A torrent of sales information and solicitations makes people feel fed up. Instead, they would rather trust recommendations from their friends or colleagues.  

Chris Cowan — who has over 25 years of international marketing and sales experience with brands like Unilever, Duracell, Sky, and Disney — theorizes that we live in a world of recommendations. In his TedTalk, he emphasizes that social media is changing everything about recommendations because by simply clicking a button, each of us can share our opinions and experiences with many, many people. These people, in turn , can easily share that information with their friends. 

At this moment, businesses of different sizes — from small start-ups to big multinational enterprises — are using referral programs to get new customers. Before launching, they go through decision swings, considering all the pros and cons, budget questions, and technical integration matters which are typically important. Sometimes there are doubts, as asking for referrals can seem awkward, and businesses don’t want to scare off their current customers. 

How can you set up a referral program that drives results and doesn’t disrupt your user experience? In two words, strategy and automation. Let’s go through it step by step.

Take a Strategic Approach

Choose the right target audience

A prerequisite to successful referral campaign is having who will say positive things about your business. Therefore, when developing a referral marketing strategy, it’s necessary to create a snapshot of the users to whom you will direct the referral program. 

Consider who will have access to the referral program. Your snapshot of a targeted customer should include such basic demographic metrics as gender, age, country, and interests. If you can get the statistics about clicks and pastime on your website, this can help to make your referral offers more intuitive, since they will appear at the right time and at the right place on the customer’s screen. 

Define the who, when, and where of your referral offer.

Who are the users who get the most out of your service, and when and where they are most likely to share their positive experiences?

  1. Find motivation

So you have chosen a group of clients/users who will become your advocates. Now you have to choose the right incentive. What can you offer them so that they will spread the word about your service or products, recommending them to their friends and giving positive reviews?

The incentive is a set of rules and conditions for rewarding participants of the referral program. The logic of the whole process should be clear and well-thought-out for both your advocates and the people they refer to. A good incentive has a few set limits. Your brand respects itself and respects its customers. Therefore, your brand won’t give gifts just because. A condition for receiving the reward could be that the referred friend must spend at least $50 dollars on their purchase. 

Remember that rewards are a prerequisite for generating customer motivation. 

If you want your customers to spend their time helping your business grow, you have to think about how to thank them. Make sure the reward is realistic and matches your customers’ interests. To simplify your decision, take a look at five common reward types below:

  • Gifts  — stickers, T-shirts, or any other stuff related to your business. 
  • Added value — free delivery or additional services.
  • Bonus points — bonuses that can be used for future purchases.
  • Discounts — everyone loves lower prices!
  • Credit — an amount of money given to customers to spend on their next purchase. 

If you choose a reward, it needs to correspond to what your business is selling. A membership in the fitness program WHOOP, which provides a fitness tracker and a subscription service, didn’t reward their customers with extra sit-ups or push-ups, even though it might sound funny. 

It was considered to create a double-sided incentive. Advocates who share the offer receive a free month of service and their referred friends get $30 off their first month’s subscription.  

Screen Shot 2019-07-22 at 6.16.50 PM

As a result, WHOOP has seen a 10% sign-up increase.

From fitness to fitness accessories, let’s see how referral marketing does two good things at once. Firstly, it helps people’s wrists look stylish. Secondly, it increases the total revenue for the accessories brand.

Fashion is a crowded market. It’s also a profitable business. According to Forbes, the US adaptive clothing market will be worth $51.8 billion by 2022. This means that marketers need to fight for client attention. 

Pura Vida, a hand-made bracelet and accessories store, says that word-of-mouth marketing has been particularly effective for growing their company. At the moment, they get 12% of their total sales through Talkable referrals

What they do: The Talkable Customer Success Team ran an analysis and came up with the idea to create two-sided reward offer. After A/B tests, we made a creative which increased campaign visibility. This put their attractive offer in front of more interested eyes. 

Pura Vida Example

During his research, Chris Cowan spoke to people who receive recommendations. As it turns out, there are three main factors that make a recommendation effective:

  • Timeliness (Do I need what’s being recommended to me?)
  • Credibility (Does the person recommending it have any expertise in what they’re saying?) 
  • Relationship (What relationship do we have that allows me to trust their recommendation or not?) 

The best way to choose is to ask the users themselves what the best reward is for them.

For example, loyal users of Dropbox who rated the free subscription features wanted to increase their storage space most of all. Therefore, the company’s marketers launched a referral program offering additional storage space for each new user attracted. The campaign exceeded all expectations and entered marketing training materials as an example of a case study of a well-developed referral program.

Be sure not to forget that the conditions of the referral program, as well as the actions to follow from the reward stimulus, should be clearly (or better - clearly) described in your marketing messages and conveyed to your target group of users.

Automate Your Referral Program Whenever Possible 

Automation is always about saving time and hassle. In referral marketing, automation can be used in the following ways:

  • Social Media: Sharing a referral program through social media channels. In order not to miss your brand mentions, set up alerts for when a client mentions your business.
  • Email: In an ideal world, you should set up a chain of triggered emails. While learning the questions about triggers, Charles Duhigg gives a vivid and iconic explanation of the function of a “signal-pattern-reward loop.” Logically, the sequence for an advocate differs from the sequence for a referred friend. 

Screen Shot 2019-07-22 at 6.20.57 PM

As you can see, advocates get an offer email while a friend receives a shared email. The tone of voice depends on the goal. In the case of an advocate, an email should motivate to share (ex.: Share + Get $10 Off!). A referred friend should get a feeling of excitement about the benefit contained in the email (ex.: Congrats! You have received $150 on JamesAllen.com from your friend John!)

  • Customer Support Platform: This helps to boost engagement with your referral program and provide support to clients. With a customer support platform, you’ll see what actions each and every user takes and will be able to quickly resolve personalized issues.  

Of course, the traditional way of tracking manually advocates and friends still exists. It requires accounting for such slight and subtle differences as poor user experience and poor end results. 

An automated referral program tracks participants through the entire process, which provides businesses with important information about their customers — when they sign up, when they send out referrals, and to whom they share referrals. 

Generally speaking, this helps in building a smart and intuitive process based on detailed analytics. Moreover, you can run different A/B tests to get a clear idea of which campaigns drive growth and control the timely delivery of rewards. 

Automated systems draw a detailed map which shows:

  • Which referral campaign is performing well and which is not
  • Which channels participants most often use to share offers
  • The behavior of advocate and referred friend at all the stages of the referral program
  • Clear metrics (revenue, new customers, and etc.)

While the word ‘automation’ may sound impersonal, it actually helps to create a more personalized experience for each customer. 

Finally, building an in-house referral program is costly and requires technical expertise. Automation solves such challenges as online payment processing, inventory in order, and promotion. 

Automation 2.0 - Utilizing Automated Shopper Assistants

Taking automation one step further, utilizing an automated shopper assistance platform can take your referral program to the next level.  If you utilizing your data not just at the post-purchase, but rather creating a holistic 1:1 experience across both pre and post you can fully engage your customers and empower them to refer a friend at all stages of the conversation. 

Key Takeaways 

We can come up with ideas that belong in your marketing strategy — offering customers benefits for referring their friends is a fool-proof method to generate qualified clients. Success depends on awareness of your program, user experience, a deep understanding of customers, persuasive messaging, incentives, and progress tracking. 

The huge advantages you get with referral programs are brand awareness, virality, and a reliable customer base. Moreover, you save your time, money, and hassle when you automate your referral program. It would take far too much time to gather information and statistics about your customers manually. Time is precious for businesses, and it is better to spend it on mastering other facets of your business. Let us take care of this one!

Alex Petrenko
Alex Petrenko
Alex is a team lead at Talkable. He is a Marketing professional with 3+ years of marketing experience. Passionate about e-commerce and referral marketing. Find him on his LinkedIn: https://www.linkedin.com/in/oleksandr-petrenko-6a5a10134/

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