Customer acquisition is one of the largest expenses your marketing team has to deal with. Nevertheless, customer acquisition is necessary for business growth and expansion.
But you can reduce your acquisition costs simply by tapping into your current client list. This removes one of the most expensive parts of acquisition: prospecting.
Using a refer-a-friend program, you’re finding new customers through current customers who already believe in you.
What is a Refer-a-Friend Program?
A refer-a-friend program is a type of marketing tactic that encourages your current customers to bring their friends and family to your brand as well. It’s like a B2C business referral: “who else do you know that could benefit from our products and services?”
It plays on the natural network effect of purchasing. A woman buys a pair of shoes with a refer-a-friend promotion attached to said shoes. Her friend compliments her shoes and asks where she purchased them. She tells her friend where she bought them and gifts her the refer-a-friend promotion. In some instances, this comes in the form of a discount.
This has a two-pronged response for the shoe brand. First, her friend may go out and buy those shoes themselves. Second, that initial customer has an even deeper love for those shoes because of the compliments. In this scenario, both parties received a reward. The original buyer received positive reinforcement, while the friend got access to the referral based deal. In many cases, sellers will offer an added incentive to the original customer in the form of a discount.
Refer-a-friend programs work so well because you’re tapping into an established network. Customers who have already purchased your products believe in your brand. That means they likely hang out with other similar people who could also really love your brand. This creates a more focused target audience than attempting to acquire customers through less direct avenues.
In effect, a refer-a-friend program says to your customers: “We value you so much that we want other customers like you.”
A refer-a-friend program invites your loyal fans to share their love of your brand with their own network. This helps you acquire new prospects while further engaging with current customers.
So how can you use a refer-a-friend program to widen and deepen your audience?
1. Incentivize Both Parties
Even the most loyal brand advocates won’t always share their love of your brand as much as you’d like. Offering an incentive is the most direct way to encourage your customers to refer their friends. An incentive also transforms the program from just social proof into a measurable, marketable campaign.
An incentive could be any type of promotion that your customers would enjoy. For a refer-a-friend program, dollars or percentage off usually works better than gift-with-purchase or free shipping.
Keep in mind that you still need to encourage the new customer to purchase, because they’ve likely never interacted with your brand before. So offering a discount on the product itself is more likely to encourage them because they feel they’re getting a deal. If they aren’t yet sold on your product, a free gift won’t mean as much to them.
You usually want both parties to have the same incentive. So if the friend gets $15 off their first purchase, the one doing the referring also gets $15 off their next purchase. (Make it an “if” statement. The referrer only gets the discount if their friend converts.)
This creates a “purchasing camaraderie.” The referring party will encourage their friend to make the purchase so they can get the discount themselves. They’ll not just send the referral link, but they’ll follow up with their friend to say, “Make a purchase because I love this brand and then we both get money off!”
2. Make it Social
Today’s consumers, especially Millennials, want their friends to know the brands they support—especially if the brand has a unique or social mission. People use their products and brands to show off a specific type of lifestyle.
Some loyal brand fans actually want to refer all their “friends” as a way to better connect with the people around them. For example, you sell yoga clothing. Your customer loves yoga, and all of their friends are yogis too. You give them a discount code that they can share on social media. This exposes your brand to more yoga lovers, and it also gives the sharer a way to further engage with their friends.
By using referral marketing businesses can grow their audience by tapping into their existing customer's network.
Make sure that you don’t just provide a discount code, though. You’ll want an associated branded visual that your customers can spread around on Facebook and Instagram. The more attractive and branded the visual, the greater your brand awareness and the more likely you’ll convert.
However, make sure you put some sort of time limit on the discount. With this in mind, brands have approached refer-a-friend promotions with strategies that utilize coupon codes. Coupon codes allow you to put time restraints on them being valid. In addition, if coupon codes get released or mass shared, it's easy to discontinue them and create a new link. Talkable creates custom codes per user and has an API that checks that the code is associated with the right person it was shared with.
3. Make it Fun
84% of people trust product and brand recommendations. Despite this statistic, you don’t want it to be too obvious that your refer-a-friend program is a marketing ploy though. Customers today are highly aware of (and repelled by) advertising. So, you want to instead use the program as a chance for both parties to get excited about and engaged with your brand.
A typical example: “Here’s the link for our refer-a-friend program. Your friend gets $15 off their first order. If they make a purchase, you also get $15 off your next order.”
A good example: “You and your bestie can get matching dresses for $15 off? Score! When your friend buys something with us, you both get a $15 coupon code for whatever you want in the store. Talk about t-winning!”
The second example is highly brand voiced for a goofy, upbeat retailer. It’s much more likely to attract and engage customers because it focuses on the lifestyle of your brand, rather than on the discount or deal itself.
4. Target the Right Customers
Refer-a-friend programs are relatively low-cost to run. You may have to make a visual and send out some automatic emails, but the real cost comes in the “profit hit” from the incentive. Even with that expense, marketing costs are optimized and shrink with refer-a-friend campaigns.
That doesn’t mean it’s a low-risk campaign. You still want to make sure you are targeting the right customers at the right time.
Let’s say you send a refer-a-friend program to everyone who has ever made a purchase from your business. This brings about two customer examples.
Customer A is obsessed with your brand, and they refer you to a friend who is also likely to be obsessed with your brand. This means that even though you’re losing $15 of profit margin on both sales, you’re more likely to convert them into a long-term client. They’ll keep purchasing from you in the future regardless of the discounts or deals. The refer-a-friend program, in this case, was a short-term incentive for long-term gain.
Customer B is ambivalent towards your brand. They refer you to a friend who is equally ambivalent. They aren’t likely to purchase from you again. So, you’re losing $15 profit on each sale, and you’re not likely to convert them again unless you offer another steep discount.
In both cases, you’re acquiring a new customer and re-engaging a previous customer… But you’d much rather spend the money on Customer A than Customer B. You want to target long-term customers, not “deal” consumers.
For instances where a business is unfamiliar with unengaged customers, segmenting offers based on certain criteria can help. These criteria may include categories based on the frequency of purchases, average value order (AOV), or even by item type.
With this in mind, you have to be aware of your margins and the cost of your referral campaigns. While refer-a-friend programs are vastly more cost-efficient in comparison to traditional advertising, you must be deliberate in targeting the right demographic. Correctly identifying and serving that demographic will help in creating repeat customers. In order to do so, you want to segment your audience so you are incentivizing the right repeat customers.
5. Make it a Community
When you’re offering a refer-a-friend program, you’re telling the customer that you love them so much that you want other customers like them. This innately builds a community sort of feel. Customers will refer friends with the same interests as them. Your yoga customer will bring on other yoga lovers.
This means you want to base your refer-a-friend program on the lifestyle associated with your brand. You want customers to feel like they are expanding their network by referring friends. They’re not just getting money off—they’re rooting deeper within this microcosm of the industry. In turn, the referred prospects feel like they’re being invited into this exclusive community, which is an ideal first impression for a long-term relationship.
Refer-a-friend programs are an opportunity for you to acquire new, relevant customers while building deeper relationships with your current brand fans. Referral marketing allows you to take advantage of pre-existing avenues of communication while providing tangible rewards to all parties, and social proof amongst your original customers. In addition to this, you can drastically reduce the costs associated with advertising and marketing your product.
Remember that refer-a-friend programs are a marketing campaign. You can’t just throw them on the wall and hope they’ll stick. These programs need a set of objectives, action steps, and strategies in order to see success.
If you want to start building a network-based marketing campaign, check out our partner Seller’s Choice. They offer a number of solutions that can help transform your business into a brand with stunning aesthetics and strategized promotions.