Aleksandra Velkova on April 14, 2021
People talk in detail about their latest purchase, the experience they had at the new fitness club, the food they tasted in the newly opened restaurant and the service they received from the staff.
And that talk influences our shopping choices big time.
How often do you go to check out a new restaurant once a friend tells you about their mouth-drooling food?
Or hurry to buy that new pair of jeans once a friend tells you the store offers free shipping and an awesome discount?
I do quite often.
That’s what referrals do; they have the power to shift people’s choices and preferences when coming from someone we trust.
Introducing referral marketing for your e-business isn’t hard; you need a proper strategy and a solid referral software in place to deploy your program and watch it do all the work for you.
In this guide we analyze what is referral marketing, when and how to start your program and how to measure and improve its performance.
In this article:
What is referral marketing?
Why is it effective?
When is a good time to start a referral program?
Elements of a successful referral strategy
Examples of B2C e-commerce referral programs
Referral marketing is a form of promotion of products and services to new customers through word of mouth, using the existing customer base. It involves a strategically designed incentives offer for both sides of the process and it’s a performance-based approach.
Essentially, you’re incentivizing your biggest fans to spread the word about your business and help you generate new customers while earning valuable rewards.
Digital advertising costs have been on the steady rise for several years now causing businesses to spend a small fortune and not get a proper return on their investment. While digital advertising is far better than traditional advertising regarding return, there’s still the fact that only 33% of consumers trust online ads, whereas a whooping 93% of consumers trust referrals from people they know.
Referral marketing is performance-based, and as such leaves no room for guessing; your true cost happens only when you gain a new customer.
People are 4x more likely to buy something when referred by a friend and will likely spend 2x more when being referred to a business.
A carefully crafted referral strategy not only brings in new customers, but also increases the average order value.
When people like a product, they will tell their friends and family. When they’re incentivized to do so, they will advocate about your business even more. They eventually become your salesforce; a win-win scenario!
People like to share a positive experience, a product they love and use religiously. This is a form of social currency; we share with others what makes us look good and unique. When you have an awesome product and an interesting story behind it, you can easily build a community of like-minded people, and referrals facilitate this process.
One thing is for sure; it’s never too early to launch a referrals program.
You want to establish few things before you consider launching your program:
Are you selling products with high buying frequency?
Do people love your product, are there raving reviews and other social proof?
Can you set a solid margin to support the incentives you’ll offer without causing a hit on your finances?
The phase your business is at is also important; not much for whether or not to launch a program, but more of how you structure it and the strategy you’ll deploy. For example, if you’re just launching your business, you may want to deploy a more aggressive referral strategy than if you had an established, loyal customer base.
Before we dive into the different approaches you can take at various stages of your business, let's explore the elements that make a complete referrals program.
A successful referral is based on incentives given to both your customer and your prospective customer to make a purchase with you and join your community.
For e-commerce businesses, this process has to be:
Easy to understand and use - you have to provide the most seamless user experience for customers on your website;
Easy to track - so you can see and know how are referrals processed;
Automated - you want to use a tool like a referrals program software to help you organize, deploy, run and measure the referrals program.
Let's break down the individual elements of a referrals program.
When it comes to choosing the right reward for a referral, you want to know what your customers find most valuable from your business offer.
Is it store credit?
A percentage discount?
Maybe you can offer your best seller as a free product?
There are a lot of ways you can determine what is the best reward you can offer for a referral, like analyzing which product has the highest buying frequency, or which one is most loved by your customers.
You can also ask them; run a survey/poll and see what option wins the most votes.
Next thing you want to consider is your margin.
Don’t try to trick your customers; if you’re offering something with a huge profit margin for you but of super low value to your customers you won’t see results.
Find the win-win balance.
I like to think of these as 2 separate approaches to a referral program.
The standard referral program is best deployed at a stage when you already have an established loyal base and you wish to reward them for advocating for your brand.
It’s a steady, long-term referral program based on one incentive your customers love and are happy to do a referral for.
The gamified approach is best suited for businesses at their starting stage, when they need to grow their customer base and they want to acquire highly qualified leads who would eventually become part of the advocates community.
With this approach, you can offer several different incentives (making sure you follow the above principles) and create referral goals.
For example: refer 3 friends, get $10,
refer 5 friends, get 10% off your next order etc.
The better the rewards, the more people will be incentivized to refer to your business.
Now that you’ve defined the rewards, what is your story?
What message do you want to send to the people who receive the referral?
It’s important to offer pre-filled messages so customers don’t actually have to make them up. It saves time and makes sure your brand is communicated properly.