Referral Marketing: science in practice
Getting to grips with this e-commerce essential
1. Background: what is referral marketing and how does it work? 🔍
Referral marketing is the practice of promoting products or a brand to new customers through existing customers, primarily by word-of-mouth. Referrals happen spontaneously and organically, but businesses can influence this through strategic programmes, often through incentivising the new or existing customers with product discounts, loyalty points, freebies or some other immaterial reward.
Word-of-mouth is undoubtedly the world’s oldest marketing strategy. For millennia, people have trusted those close to them for advice on decisions big and small. Nowadays, with many product markets so saturated with competing brands, word-of-mouth has a new lease of life in helping businesses reach untapped markets through the social networks of their most loyal and advocating customers.
2. Is it effective? 📊
The unique quality of word-of-mouth (WOM, or eWOM when talking about its use online) is the way the brand is promoted. Unlike traditional marketing communications, which rely on interruption and often somewhat vague targeting, stimulated WOM requires comparatively little input from the marketer, instead working through the ordinary, idiosyncratic communication of the referrer. In fact, referrals are some of the most trusted form of advertising among consumers, with 84% of consumers trusting the recommendations of people they know.
Benefits of stimulated referral marketing include lower customer acquisition cost, increased brand awareness, higher customer lifetime value and higher customer retention. Crucially, referred customers are better matched to the brand. Because their friends or family know them infinitely better than any marketer could, their recommendation is often more likely to lead to a purchase and long-term brand loyalty.
3. The theory behind the practice of referrals: some takeaways 📚
We’ve established that people trust their peers for advice far more than other forms of advertising, but how does this actually work? What’s the science behind referrals? For this, we need to delve into one of the seminal theories of social psychology for the answers.
Key theory: Robert Cialdini’s 6 principles of persuasion
Robert Cialdini (Team Robert Cialdini on Medium), one of marketing and psychology’s most prolific and influential authors, defined 6 principles behind the ‘science of persuasion’, which are immensely effective in helping individuals and organisations exert influence over others.
(1) Reciprocity
The first principle, reciprocity, describes people’s propensity to feel a sense of obligation to repay acts of goodwill in kind. There is a degree of indebtedness felt by people who receive favours, burdening them with a sense of obligation to reciprocate.
In practice:- Offer something first- Offer something exclusive/special- Personalise the offer — let them know it’s from you to them
(2) Consistency
This principle describes how we tend to stick with the choices we’ve made, especially when others know we’ve made them. Essentially, people align with their clear commitments. People, once they take a stand, prefer to stick to it.
In practice:- Ask your customers to start with small actions, so they’ll stick with it- Encourage public commitments — they’ll be less likely to back out- Reward your customers for investing time and effort into your brand
(3) Social proof
This is one of marketing and social psychology’s most important and useful principles. The idea is that people follow the lead of similar others. People rely heavily on those around them for cues on how to think, feel and act. Persuasion can be extremely effective when it comes from peers — which is why referral marketing can be a very effective strategy. “Stated simply, influence is often best exerted horizontally rather than vertically” (Cialdini).
In practice:- Show your customers that a specific, desired behaviour is the norm- Enable your customers to see that others are successfully referring and benefiting from the practice
(4) Liking
People like those who like them. We are also more likely to comply with requests made by people we like. This may sound basic and inherently intuitive, but it is essential that this is at the heart of all brand marketing communications.
In practice:- Don’t just behave like a brand. You have to be your customers’ friend- Keep your brand’s tone-of-voice amicable and homogeneous across all brand touchpoints- Maintain a good relationship with your community through frequent and positive interactions, such as online engagement- Express gratitude to customers who reach out or promote your brand themselves
(5) Authority
This principle says that people defer to experts. We follow people who look like they know what they’re doing.
In practice:- Show your expertise and know-how- Make your brand’s story clear, so that people can see where you’ve come from- Testimonials lauding your products and customer service can do wonders
(6) Scarcity
People are drawn to things that are exclusive and hard to come by. Essentially, people want more of what they can have less of. Scarcity can come in various guises, such as limited numbers or limited timeframes.
In practice:- Set deadlines for referrals offering discounts — create a sense of urgency- Emphasise the temporariness of specific offers
4. Referral marketing case studies 📖
So, referral marketing (in theory) is very effective. It’s proven by theories of social psychology like those of Robert Cialdini, but what does it look like in practice? And what can your brand learn from some successful referral campaigns? Let’s have a look at some renowned ones.
1. Harry’s: making referrals fun
In 2013, Harry’s was a new men’s grooming product company, positioned in an ultra-competitive market of shaving supplies. The company was able to grow extremely quickly, however, thanks to referral marketing.
The company set up a referral marketing campaign on their pre-launch website landing page, whereby people would be rewarded with free shaving products in exchange for sharing their brand. This enabled them to collect over 100,000 sign-ups and launch to a massive audience.
The campaign was built around the idea that the most powerful and effective way to be introduced to their new company was through an effective referral. This campaign made sure to offer tangible and attainable rewards for something the customers would gladly do.
They made sharing as easy and fun as humanly possible, through an intuitive interface and visible tracker to see how many friends signed up with your unique referral code. There are plenty of great things about this campaign, but let’s boil it down to a few.
Key takeaways:- Gamify the referral system — make it fun and social- Get people involved in the launch/growth of your brand- Be transparent about rewards and make them attainable
2. MeUndies: making referring easy
MeUndies is another fantastic example of referral marketing in action. The company is adamant that it makes the world’s most comfortable underwear, and wants to get that message out as organically as possible.
Simply boasting through online ads just won’t cut the mustard nor be particularly persuasive, but when people we trust recommend the products to us, that has a huge impact (Cialdini’s principles in action again).
What sets MeUndies’ apart from other brands’ referral marketing campaigns was how easy they make the process. The call to refer friends is on the front page of the website, in plain view. It’s clear they want their customers to tell their friends just how much they love the products, and that in doing so, they can make a good buck and their friend will save on their first order.
Furthermore, invites are trackable (like with Harry’s), so it’s easy for customers to check up on their friends (saving the company some work in the process).
Key takeaways:- Make referrals easy — really easy. Remove as much of the cognitive and temporal effort as possible- Consider smaller, but still highly effective tactics like putting social sharing buttons on each product page- If people really do love your product or brand, and would probably recommend it anyway, make use of that
5. Implementing a referral marketing strategy for your brand 👇
In bringing together some of the key theories behind referral marketing and social psychology, and the key learnings from successful campaigns by other brands, we can start putting together a bespoke and uniquely on-brand referral campaign for your brand.
Some things to keep in mind before starting
- Great products — you will need great products or services that people are prepared to put their reputation behind
- The necessary budget — there will be costs associated with the SaaS tools needed to automate the referral programme. There are graphics, content, and online ad campaigns that will need to be created, as well as the costs associated with the rewards and discounts you’ll offer to advocates and new referred customers
- An existing base of loyal customers — an established base of loyal customers will prove immensely valuable in getting the referral programme going
- A good brand reputation — launching a referral programme when people are excited about your brand and happy with your products
- Knowledge about your customers — consumer insight is really valuable in finding out what they like, what motivates them and what incentives would make them more likely to share your brand in their social networks
Identifying objectives
One of the principal steps in implementing a referral marketing strategy for your brand is defining a set of adequate and clear business objectives. In order to measure marketing effectiveness, you will need a target to work towards.
Some example objectives could be:
- Increasing brand awareness among your principal target market by 75%
- Increase product sales by 50%
- Grow your brand abroad
Defining the target market
Referral marketing campaigns can be used to target repeat customers or new customers. For example, for a clothing business, the number of repeat customers will, to an extent, depend on the range of products available. Depending on the extent of the range available, individuals buying products for themselves might make 2–3 purchases over their lifetime. They may not want/need more than 1 hoodie and 1 beanie, for instance.
Determine what motivates your customers and create incentives around those factors
Think about why your customers might want to refer and be advocates for your brand. What is it about you they like so much that they’d be willing to give up space on their personal social platforms to your brand?
The fact is that people are often reluctant to do so, because we each painstakingly craft our own image through social media — whether we know it or not. Providing the right incentives, therefore is crucial in getting them over that first hurdle and extrinsic drives such as incentives can be powerful tools in guiding behaviour to desired goals. A good incentive will provide some type of desirable reward for your existing customers, as well as equipping them with a desirable incentive to share with others.
When considering what motivates people to buy your brand in the first place, you can design a referral campaign that truly speaks to what your customers really want.
Think about how referrals are executed
It’s vital to think about how your target audience interacts with your brand online and with their social network of friends. Would a referral be something a person gives one-on-one, as a unique code for someone they really thinking would love the brand, or would it be a code/link shared to their whole social network, for all to avail but certainly less personalised?
Considering the importance of AOV when defining the referral rewards
It will be important to think about the customer’s average order value (AOV) when defining the referral campaign’s rewards, both for the advocate and for the new customer. The AOV could fluctuate throughout the year depending on product pricing (e.g. a seasonal sale) or new product launches. There could be an ‘evergreen’ referral campaign, alongside a pulsing campaign of occasional bigger rewards which may be limited in time to a specific month (e.g. an extra 10% off/€10 for the customer if the person they refer buys in the month of August).
Target innovators and early adopters first
“Sell one. Find one person who trusts you and sell him a copy. Does he love it? Is he excited enough to tell ten friends because it helps them, not because it helps you? If not, you must stop what you’re doing and start over.”
– Seth Godin
Innovators and early adopters are the ones leaping at the chance to get your products first — they’re passionate, driven and loyal. These are the people who’ll be vocal about supporting your brand, and will be some of the most valuable advocates for it.
Tell a meaningful story
A brand is a promise which, if honoured over time, creates value. It’s important to tell a story about your brand and about why it matters. Authenticity and honesty are key, which your brand needs to have by the boatload.
3 key action points:1. Have a mission, values and an enemy (creating the ‘minimum viable personality’)- How does your product change your customer’s life?- What do you stand for?- What do you hate?2. Figure out your brand archetype- Explorer- Hero- Everyman3. Decide what your story is- Challenge — the underdog, zero-to-hero story- Connection — relationships- Creativity — finding new ways to do things
Make it easy for customers to refer. Really easy.
“How easy is it for an end user to spread this particular ideavirus? Can I click one button or mention some magic phrase, or do I have to go through hoops and risk embarrassment to tell someone about it?”
– Seth Godin, Unleashing The Ideavirus
Simplicity is key for a referral marketing programme. You don’t want customers to have to venture far out of their way to refer their friends. Customers often do want to refer, but just don’t go ahead with it in practice. In fact, 83% of satisfied customers are willing to refer, but only 29% actually do — this discrepancy is easy to fix.
To build on Thaler & Sunstein’s theory of ‘nudging’, build the choice architecture in such a way that people’s natural propensity is to do what you’re asking or suggesting. If it only takes a single click and isn’t annoying, they’ll more than likely do your bidding — especially if they like you.
A few tips:1. Help the advocate find out who they want to share with. You want to remove as much cognitive effort from the customer’s referral journey as possible2. Capitalise on triggers — are there specific times/places people will share?3. Set good default sharing messages — keep them relevant
Placing the referral campaign
Where customers find out about and sign up for the referral programme will have great influence over its success. Ideally, you’ll want to catch customers at strategic points of delight — that way they’ll be more motivated to take part in it. In most cases, the best time to ask is just after payment is confirmed, so a referral box at the end of the transaction or in a confirmation email would work really well, for example. Customers will be in a happy state, excited and awaiting their new purchase.
Alternative (or additional) placements could include notes placed in the packages advertising the referral programme, or even offers posted to previous customers.
Omni-channel integration
It’s vital that the referral programme is integrated across all relevant social media channels and is adapted for mobile devices. The consumer’s journey will have a variety of touchpoints, as many consumers nowadays start a task on one device and finish it on another and expect continuity while changing channels. A seamless, customer-centric experience is the key to successful marketing of the referral programme.
Meaningful rewards
Having spoken about the importance of incentives, it is worth exploring how incentives could manifest themselves in your brand’s referral campaign. Rewards for advocates and the friends they refer need to be worthwhile, relevant and relative to the cost or value of the thing being referred. The reward offered reflects what the customer is worth to the company, so if a customer doesn’t feel like they are truly valued or worth very much, then it’s unlikely they’ll become a referrer.
Moreover, the way rewards are presented influences their efficacy. It’s important to be honest with customers and communicate the premise and rewards of the referral programme — this includes how you phrase your communications around rewards or discounts. Nir Eyal, author of Hooked, talks about how it’s the way rewards are framed that matters far more than exactly what the reward is.
6. In summary 🖇
A referral marketing campaign requires a holistic view of both marketing activities and what the brand stands for. By factoring in the key points raised above, a referral campaign could be a very promising way of growing your brand through its expansion into the untapped markets of current customers’ social networks.
By explaining why people are psychologically drawn to interact and recommend brands or products to their peers, as well as showing how a referral campaign can be designed for highest success, I have outlined some key recommendations to be taken on board when creating a campaign for your brand.
Ultimately, it’s vital to think like the customer and truly understand what motivates them to refer and what rewards they find appropriate if a referral campaign is going to succeed for the brand.
