Referral marketing doesn’t start after you have a boatload of users, after people are telling their friends about your brand, after bloggers are writing about the features and so on and so forth.
It begins much before that.
And in this referral marketing primer we’re going to show you exactly the types of programs that create winning marketing programs, and in turn successful businesses.
As CEO of Evernote explains, “We wanted to build something we were excited to use and talk about. We wanted our friends to use it and think it was helpful and cool. So, we built something we wanted to use. And by luck, it turned out that other people wanted to use it, too.”
It starts even before you build your product.
If your product isn’t already great no amount of referral marketing or advertising is going to help. But, an already ‘good’ product can be helped significantly through an easy to use, and easy to implement, referral program.
As marketing costs are going up and user acquisition is continually becoming more difficult, more and more businesses are creating their own referral marketing programs as a way to supercharge their growth.
On an average 5% of your customers invite friends. 100-200 invites are sent by a referral program participant. Even if there are only 5 participants each one sends 100 to 200 invites.
Examples of companies following the model successfully
A great way to boost referrals is through social media channels. LastPass which was purchased by LogmeIN for $125 million in cash has to thank its referral program and sharp focus on social media platforms for million plus users and 15,000 businesses on the company books.
The referral program encouraged users to post referral links on their social platforms like Facebook and Twitter. When someone signs up both the referrer and referee get one month of premium access for free.
In addition to that, even after acquisition they haven’t made any changes to the freemium program.
Evernote too pursues a freemium model that has enabled the company to garner over 100 million users worldwide. At the same time, user acquisition budget sits at a grand zero. The referral program is responsible for continued success with user numbers burgeoning to more than double in the second year than what used to be in the first year.
Yesware is another such company that successfully implemented referral marketing. Its entire growth hinges on referrals. Yesware users can invite friends and colleagues to the multi-suite tool offering email tracking and analytics. In return these referrers can earn t-shirts, gift cards and other company swag.
When a user acquires 6000 points they get a free tee. At 12000 points they get amazon gift cards.
Such tangible benefits resonated really well with their core audience.
Now that we’ve seen some successes let’s drive to the nuts and bolts of what makes people share stuff.
Why do people share?
Put simply, sharing makes us look good.
Tucker Max, whose books range on subjects from attraction, and evolutionary psychology, to narcissism, creativity, to greatness sums up the psychology of sharing as:
Word of mouth is a status play. If you give people something good, something valuable, they want to talk about it. It benefits them to talk about it…if I share a book with you, it raises my status, it helps me me look good to my friends that I know this and now I’m sharing it with you.
Let’s peel the layers of this onion a bit more.
Ernest Dichter simplifies sharing to four main reasons in his Harvard Business review article.
- Product Involvement (33%) – The experience from using the product was overwhelmingly positive that the customer can’t help but share
- Self-Involvement (24%) – Sharer feels special about the insider information and wants to be one of the first ones to break it.
- Other Involvement (20%) – A sense of altruism, the person wants to help others.
- Message – Involvement (20%) – The message has to be shared because it’s that valuable.
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The New York Times splits sharers into six categories
In a New York Times Customer Insight Group study titled: The psychology of Sharing, researchers discovered that sharers fits precisely six categories.
- To bring valuable and entertaining content to others. 49% say sharing lets them inform others of products or things that encourage action or brings positivity to lives.
- To define ourselves to others— 68% share to give others a full mirror view of what they are to other people.
- To grow and nourish our relationships—78% share information online because it lets them stay connected to people they may not otherwise stay in touch with.
- Self-fulfillment— 69% share information because it allows them to feel more involved in the world.
- To get the word out about causes or brands— 84% share because it is a way to support causes or issues they care about
Additional data corroborates with these findings. Let’s consider a related example, that of Facebook.
Facebook defines that act of liking as—Like is a way to give positive feedback or to connect with things you care about on Facebook. You can like content that your friends post to give them feedback or like a Page that you want to connect with on Facebook.
Research from Pew Research Center indicates that 44% of Facebook users “like” content posted by their friends at least once a day, with 29% doing so several times per day.
A 2 week experiment of quitting Facebook left Elan Morgan with the following insights
The Like is the wordless nod of support in a loud room. It’s the easiest of yesses, I-agrees, and me-toos. I actually felt pangs of guilt over not liking some updates, as though the absence of my particular Like would translate as a disapproval or a withholding of affection.
Facebook and other successful social networking sites have discovered ways and means to trip the brain’s reward centers by providing quick wins like likes.
We thrive in an environment where people are appreciative of what we do and sharing referral links is one among many ways to gain that appreciation.
The playground of interactions has morphed from physical to digital. Resultantly, the chest-thumping has now evolved into digital.
When’s a good time to send a referral email?
The bulk of the registrations on Roku (almost 75%) are due to triggered referral emails to customers.
The Roku team found that 45 day period was the best for converting referrals.
Forty-five days after purchase emails resulted in the following results.
Open rate: 33.4%
Conversion rate: 22.4%
Forty days after purchase
Open rate: 23.7%
Conversion rate: 17.7%
Thirty-five days after purchase
Open rate: 19.8%
Conversion rate: 13.5%
That said, it need not be a solid cyclic number of days.
Email timing can also be derived from user behavior.
Dropbox usually sends referral emails right after the user’s first run. For Airbnb it was right after someone came from a stay or hosted a stay.
Having analyzed over 7000 articles on New York Times, researched zeroed down to the fact that articles were most shared based on the intensity of article positivity and how excited the reader became after reading it.
How to get people excited about your referral program?
Start by analyzing your customer
Not every type of customer is going to send you referrals. In most cases only few engaged ones do.
To zero down on customers that fit the ideal profile, you need to focus on engagement metrics and craft campaigns targeted at those segments.
Set up easy rules for higher engagement
Ensure that the rules surrounding the program are simple to understand.
An overly complicated program might stop people from joining.
More so, the benefits have to be clear.
Choose rewards that people value
When PayPal was just another startup, they gave away cash rewards to promote signups.
Presently, Payoneer follows the same tactic.
Dropbox gave away free storage whenever a customer referred someone else.
Ultimately make sharing easier
True&Co had an offer where they used to provide people with in-store credit whenever they referred their friends.
They made the referral process as easy as it gets. One could sign up simply by providing them their email address and start referring people.
There’s no compulsion to purchase anything to be able to do this
As you’ve seen from this referral marketing primer, referral marketing could be game-changing for your business.
Inviting your existing users and fans to share your product with their networks at the right time, in the right medium, and for the right reward is the secret sauce to crafting a winning referral marketing program for your business.
In the end referral marketing is more like nitro to your engine. The engine needs to be running smooth already for it to have any benefit.