“According to a report by Nielsen, 92% of consumers around the world say they trust earned media, such as recommendations from friends and family, above all other forms of advertising, and people are four times more likely to buy when referred by a friend,” shares Rob Goehring of RewardStream.
In another study by Ogilvy, Google, and TNS, 74% of consumers indicated that word-of-mouth marketing played a significant role in their buying decisions.
Ultimately, businesses know that if you can get your existing customers to recommend your product or service, it’s far easier to acquire their friends as leads than if you had reached them via paid advertising.
For this reason, incentivized customer referral programs have become incredibly popular in recent years. Acquiring customers from referrals usually results in a lower CPA (cost per acquisition) than traditional marketing, and because there is a higher level of social proof around your product or service, referred customers are likely to stick around for longer.
Here are 5 examples of brands that have grown rapidly as a direct result of incentivized customer referrals.
1. World of Warcraft
Unlike the traditional business model for computer games, where a customer would make a one-time purchase to acquire the game, World of Warcraft is a highly-popular MMORPG (Massively Multiplayer Online Role Playing Game) which charges its players a monthly subscription fee to access the online servers. With this in mind, each new player that signs up to the game may have a tremendous CLV (customer lifetime value).
Blizzard, the team behind World of Warcraft, executed an excellent customer referral program which benefits both the referrer and new player. By bringing a new player to the game, you can get a number of great in-game benefits – most notably, a flaming horse for your character to ride into battle with other players around the globe.
Another highlight of the referral program is that usually, new players and veterans would not interact with one another much, as they would be in different phases of the game. However, when you refer a friend, you’re given special permission to go on quests with players at a different level than you. This allows friends to stay together, which encourages new players to stay for longer, improving Blizzard’s revenue in the long-term.
Maple is an on-demand meal delivery service based in New York City. You can get a meal delivered right to your home, or even to a park bench if you wish. Maple’s Refer-A-Friend Program is not revolutionary, but it’s well-thought-out. When new members sign up via a referral, they get their first meal for free, while the existing customer receives a $15 credit.
The interesting part about the referral program is that existing customers need to have ordered at least two meals before they’re eligible to refer their friends, and even then, they are limited to a maximum of five referrals. If you’ve bought two meals already, that means you view the service positively. By limiting the number of referrals per customer, it means you’ll have to think carefully about which friend to refer if you want to collect the $15 credit.
Scarcity tactics like this undoubtedly help to improve the efficacy of the referral program. Keep in mind, however, that the only way a program like this will work is if the quality is excellent. A great referral program won’t make up for an underwhelming product or service.
British sports betting company Betfair is known for its generous double-sided referral program. Just as World of Warcraft players would be excited about getting a free flaming horse to ride, Betfair understands that its customers appreciate the gift of a free bet to wager on any sport of their choosing. Selecting an incentive that really resonates with your target audience is crucial to a successful referral program.
In order to get a free bet for both you and a friend, the new customer must wager $50 within the first month of registering. Cleverly, the new customer is prevented from wagering on an excessively heavy favorite if they want to qualify for the bonus (meaning they won’t get a free bet without a real risk of losing their first wager). Whether or not the qualifying bets made by referred customers typically win or lose, clearly the average CLV of referred customers is high enough for Betfair to continue promoting its referral program.
Harry’s, a male grooming brand, gathered over 100,000 email addresses using incentivized referrals before the company had even launched. The referral campaign utilized a two-page microsite. On the first page, users could enter their email address to find out more about the new company, and on the second page, users were given a unique referral link to send to their friends. The unique part about this campaign was that the more friends each person referred, the more substantial their prize would be.
For 10 referrals, customers received a free razor; for 25, they received a shave set with a premium handle; and for 50, they received a year’s worth of free shaving equipment. Harry’s intentionally tried to make sharing as fun as possible, and allowed users to track their achievements using a simple interface.
“We wanted the entire experience to feel like a fun game,” says co-founder Jeff Raider. “To amplify the experience, the campaign page included a tracker…where users could see how many friends they had referred and what prize they had achieved – or not yet achieved.”
For more on this ingenious example of referral marketing, check out the full in-depth post by Raider on the 4-Hour Workweek blog.
No article about customer referrals would be complete without mentioning Dropbox and its referral incentive of offering customers 500MB of extra space for enrolling a new user. According to Samuel Edwards, writing for Entrepreneur:
“The program permanently increased signups by a whopping 60 percent, with more than 2.8 million direct referral invites taking place in the first 18 months. In fact, 35 percent of all signups now come from the referral program.”
Dropbox did everything right in its referral program, and that’s why the company is frequently a case study in articles about referral marketing. If you can provide a strong incentive for your customers, create social proof for new customers, and make it as easy as clicking a button to send referrals, you’re onto a winning strategy.
It’s also worth noting that every referral made and every reward delivered strengthens the bond between customer and brand, creating a high level of customer loyalty.
The success of these five brands should give you the inspiration you need to set up your own incentivized referral program. By providing existing customers with something so valuable that they simply have to refer you to their friends, your business will be primed to reap the rewards.
Article originally written by Sunaj Patel for Forbes online.