5 Reasons You Think You Don't Need a Referral Scheme
Despite a recent report that 92% of consumers believe recommendations from friends and family over all forms of advertising, many companies don't see the need for referrals to be a formal part of their referral strategy.
What is holding them back? Maybe it is one of these common misconceptions:
"My brand is well known, so I’ll get referrals naturally"
We have worked with many well known brands, who you might consider would naturally receive referrals. However once implementing a refer-a-friend scheme, they typically have seen new customer acquisition increase by between 10-30%!
Having a brand everyone loves is wonderful, but that doesn't necessarily translate into word of mouth. You need to give customers a reason and the tools to share.
The reason doesn’t have to be money off (more detail on that one in the point below); making it easy to refer is also key. We offer 14 ways to share a referral offer and find different tools work better for different brands; the key is to become a natural part of the conversation. If referrals can take place in conversations between friends then conversion is likely to really take off. This was one of the reasons we developed our “mention by name” capability; which means friends can just say “enter my name at the checkout”.
These case studies of referral schemes at FarFetch and Emma Bridgewater are excellent examples of great brands using referrals well.
"I don’t want to give away discounts unnecessarily"
Firstly, referrals doesn't need to be about discounting. Although this can be highly successful in certain markets, other offers such as vouchers, free delivery or gifts can also work well. We have undertaken over 700 AB tests with our clients, to identify which offers and sharing options work best.
If you do decide to discount, this needn’t impact your bottom line. Our clients have found that referred customers generally spend more on their first purchase to the tune of 10-25% more than than the 'normal' AOV. This completely counterbalances the discount right from the first order.
The discount can in turn be a powerful motivator for the existing customer too: in fact customers who earn a reward for introducing a friend are 54% more likely to shop with you again.
"We already run an affiliate scheme so we don’t need a referral scheme"
An affiliate scheme and a referral programme are very different things. Affiliate schemes can be a great tool for customer acquisition, but customers referring your product are likely to have a deeper connection to the brand.
An affiliate is likely to be driven by monetary motivations (usually), whereas a referrer has tried your product or service and is engaged enough to share it with their friends and family. This interesting post from Ritchie Mehta shows why winning ‘earned’ before ‘bought’ loyalty results in stickier relationships.
You are likely to find that customers acquired via referrals turn out to be more valuable to your business. We have found that there is a virality to referral programmes, with referred customers in turn likely to refer 3x more frequently. They also tend to spend more and have a lifetime value 2x that of non-referred customer.
"We don’t have the development resource to implement a referral programme"
Once your referral programme is launched you are going to need to optimise it to see the true benefits. Without testing, referrals might only account for up to 5% of customer acquisition; AB testing can increase this to up to 30%.
Having a platform that enables the marketing teams to make any changes they want without any development involvement is crucial when internal resources are limited.
"I can’t afford the time or marketing budget for another marketing channel"
Ironically many modern digital marketing initiatives are trying to mimic the goodness that comes built-in with referral. Friends make the ultimate tailored and personalised recommendations.
They are more trustworthy so conversion is higher; they are influencers on a deeply personal level and they naturally work across multiple channels. With the superior metrics that referrals can deliver, you'll soon find that they outperform all your other marketing channels.
The question should be - Can you afford not to have referrals as a channel?