The last time you were shopping around for a new gadget, who did you ask for advice? Based on data, you probably talked to your family and/or friends — and their recommendations carried weight. Almost all (83%) of consumers trust recommendations from friends and family over advertising. And that’s why more businesses are creating referral marketing programs.
Referral marketing is a word-of-mouth marketing strategy for growing your business’s reach through your existing customers’ networks. Typically, a company with a strong referral marketing strategy operates a formal “referral program,” which incentivizes customers to spread the word and recommend the business and its products to their friends and family (or professional connections).
Referral programs are very common across industries and verticals; whether you’ve used a friend’s sign up code for a new app, or posted something on social media to earn rewards, or shared a coupon with a friend for a product you like, odds are that at some point you’ve been involved with a referral program.
While formal referral programs are the most familiar form of a referral marketing strategy you’ll come across, there are other activities and opportunities which technically could be considered referral marketing:
- Word of mouth
- PR and other press coverage
- Influencer marketing
- Customer review sites like Trustpilot or Yelp
How Can Retailers Benefit From a Referral Program?
Referral marketing is one of the most cost-effective and highly converting strategies you can implement to help grow your business’s reach and profits. This is because most consumers base their buying decisions on trust factors and a recommendation from a trusted person in our network is one of the most influential factors there is.
In fact, one Nielsen survey stated that“92% of consumers around the world say they trust earned media, such as word-of-mouth and recommendations from friends and family, above all other forms of advertising.”
Additional research from Extole (a referral marketing platform) suggests six reasons that referred customers are so valuable to a business’s bottom line compared with non-referred customers:
- Their Net Promoter Score is 15 points higher (on average).
- Their lifetime value (LTV) is 25% higher.
- They have 20% higher average order values (AOV) annually.
- They are 4-5x more likely to refer new business.
- They are 18% less likely to churn (meaning they have higher brand loyalty).
- They are 25% more profitable than other customers.
Given this, as a retailer, you could be missing out if you’re not currently using referral marketing. There are many different ways you can leverage the power of a referral marketing strategy to grow your retail business. In this post, we will cover 10 popular referral strategies you can borrow and also offer some general tips onr how to have a successful referral program.
10 Referral Marketing Strategies to Consider for Your Retail Business
Even though all referral programs share a common goal, not all referral marketing strategies are created equal. Depending on your business model, products, and target audience, there are many different ways to structure a successful referral program. Here are 10 examples to give you some ideas:
1. Graze: Personal Referral Codes
The personal referral code program is one of the most common types of referral programs, especially for online businesses and subscription-based businesses where the goal is to encourage users to create an account and return frequently (like subscribing on a monthly basis).
This type of program offers users a personal code, and when a friend uses that code to sign up for the product or service, you and your friend each get a reward (usually a store credit, discount, or free product).
Graze, a snack subscription box service (they also sell individual products), is a great example of this type of program: when you get a friend to sign up using your personal code, both of you get your first and fifth box free.
2. Amazon: Affiliate Program
Amazon boasts a massive affiliate program, where affiliates receive a commission on orders placed using their personal product link. Participants get commissions on purchases made by customers who use the link (within a 24-hour time period), regardless of whether the product purchased is the same as they were originally linking to.
Other companies that use this model: Apple, Target, WalMart
3. Harry’s: Referrals Through Social Media
If you have a large social media following, or if you have goals around growing your social media presence, you may want to consider a referral program based on social media sharing. That was the approach Harry’s took when they were preparing to launch as a brand.
They encouraged people who signed up pre-launch to share about the brand with their friends and earn rewards. Notably, the goal of this campaign was to collect email addresses rather than purchases or signups; and they collected 100,000 emails during a single week. They also had a tiered rewards system (which is another strategy we’ll cover below) where they offered bigger incentives if you got more of your friends to sign up.
Other companies that use this model: Dollar Shave Club
4. Pure Chimp: Earn Points and Win Rewards
Some brands prefer to offer a points system (rather than directly offering monetary credits), to incorporate more of a gamified feel. Using this approach also allows you to incentivize multiple actions and give greater weight to more valuable actions.
For example, Pure Chimp (a UK brand that sells matcha green tea) have a system where you can earn points for your own spending (for instance, you earn 10 points/￡1 spent, like a typical loyalty program) but also you get 500 points when you refer a friend.
Other companies that use this model: OhmConnect
5. Denbigh Army Surplus: Sending In-Store Customers Online
For some brands, the biggest challenge is getting their offline customers to shop online and vice versa. In a sense, this is a self-referral (incentivizing an offline customer to also shop online), but it can be combined with the more traditional friends and family referrals as well.
For example, Denbigh Army Surplus offers in-store shoppers a coupon which can be used for their next online purchase...and includes a second coupon which can be ripped off and shared with friends or family.
Other companies that use this model: GAP
6. TaskRabbit: Hyper-Personalization
As technology evolves and advertising becomes more targeted, customers are expecting greater personalization than ever. This can extend into your referral program through the use of personalized messages.
TaskRabbit offers their users the opportunity to personalize a referral message to their friends so that they can increase the likelihood of converting friends and family into fellow users. When your friend signs up, you each receive a $20 voucher for use on the site.
Allowing your referral program participants to easily send messages to friends and family, while still offering personalization of those messages makes it easy for them to make successful referrals.
7. Kroger: Dynamic Marketing With Electronic Price Tags
More advanced technology can also help with running a referral program and improving personalization, even in a brick-and-mortar context.
Kroger rolled out a trial in January of 2018 to experiment with electronic price tags. In addition to dynamic pricing, these can also support messaging around promotions (including referral opportunities).
FURTHER READING: Learn how retailers can use digital signage to promote their products and engage customers.
8. Uber: Facebook Messenger Chatbot
Uber is taking the blending of technology and personalization one step further with their chatbot functionality on Facebook Messenger. Users can select friends from their Facebook contact list and the chatbot will send them a referral code. You can also use the chatbot to request rides, keeping everything neatly in one place.
9. Tesla: Tiered Rewards System
If you want to incentivize multiple actions or consistent referrals, you may want to consider a tiered rewards system. This means that customers get different “levels” of rewards depending on how successful they are at achieving the desired goal.
This was part of Harry’s pre-launch referral program described above, where you could receive anything from a free shaving cream (for referring five friends) to free shaving products for a year (for referring 50 friends). This worked so well that around 200 people ended up referring 50+ friends and claiming the top reward.
Luxury brands like Tesla take this a step further, offering VIP experiences and exclusive products as rewards. For one or two referrals, you receive an exclusive piece of swag (a special wall connector only available through the program, or a miniature model car). For five-plus referrals, you can get special event access to an official unveiling event.
10. Roku: Third-Party Partnerships and Rewards
The classic referral code option doesn’t work for every type of product. For example, if your product is the type of thing that a customer purchases rarely (or even just one time), getting store credit isn’t very valuable to them. But you can offer them alternative financial incentives through partnerships and third-party vouchers.
For example, when your friend uses your personal referral code to purchase a Roku device, Roku will give your friend a discount on their product and you receive Amazon credit for Amazon Video on Demand. Previously, they offered users a free month of Netflix in exchange for referrals.
Other companies that use this model: 23andMe
3 Tips For a Successful Referral Program
When you’re considering implementing a referral program, the options can feel a little overwhelming. Here are a few things to keep in mind to help you succeed regardless of which referral marketing strategy you choose.
Pay Attention to the Buying Cycle
Be sure to tailor your strategy to fit your customer’s buying cycle. For example, if you sell an inexpensive product which people purchase regularly and you have frequent return customers, they may value a reward that comes in the form of store credit or vouchers. The bonus: This encourages them to come back and shop more themselves.
However, if you sell a product at a higher price point or something people don’t need to replace often (like a pair of glasses or home furnishings), they may not be able to make use of store credit in a timely way. In that case, you may want to offer them something different like a third-party voucher (for example, an Amazon gift card) or VIP access to exclusive content and opportunities.
Know Your Audience
Related to the first point, consider what sort of referral rewards your customers will value most. Is it store credit or vouchers for future purchases? Special VIP access to products or exclusive content by you? Free swag or products? A third-party product like an Amazon gift card? A prize giveaway entry? Their name featured on your website or in your email newsletter as “ambassador of the month?” These are some of the different ways you might choose to reward loyal customers.
This is also an important thing to keep in mind when you start putting together copy about your referral program. For instance, in the famous example of Dropbox, they didn’t start their referral program information page with the headline “share with a friend.” Instead, they used the headline “get more space” because that was what their users actually wanted. Tap into what your loyal fans want and speak to that directly in your copy.
Promotion and Placement
Make sure you feature your referral program prominently on your website and in places where your existing customers will see it (such as post-purchase confirmation emails or customer forums).
You can also use tactics like retargeted ads to remind past customers about your program and encourage them to re-engage and invite their friends.
If you know when your customers will receive their purchase, you may want to reach out after a day or two and mention your referral program and/or ask them for a review. This is when they are most likely to feel excited about their purchase and want to tell other people about it.
Do you currently have a referral program? Which of the referral marketing strategies in this post would be most relevant to your business? Let me know in the comments.