Updated: Sep 7
A referral program is a form of marketing that leverages recommendations from customers as a mode of advertisement. Although these recommendations can be generated organically, as per a study conducted by Texas Tech a large majority of satisfied consumers are willing to recommend a brand, however, only a mere 29% of them do it.
Therefore, to convert more willing referrers into actual referrers, brands use a referral program that extends an incentive to the referrer in return for their recommendation to another customer. In this article, we will discuss how referral programs work, how they have helped others, and how to build one for your D2C brand.
Why is a referral program important?
Referrals are one of the most successful forms of advertising. The bulk of referrals for most brands come organically, however, these can also be initiated by prompting a customer to do so, in return for a benefit. Marketing as an exercise is an arduous task, often plagued with tough conversions and a never-ending need for revision of strategies. However, some of the highest conversion rates by the brand have always been through recommendations.
While a customer may be prompted to buy or try a brand after witnessing them through traditional marketing channels, a customer is most likely to convert when a friend, relative, or any known person recommends it to them.
Hence, a referral program is extremely important for customer acquisition for a brand.
How does a referral program work?
A referral program gives an existing or previous customer an incentive to promote the brand. As the incentive provides value to the customer, willing and even less willing customers who are satisfied with the product are more likely to convert as referrers.
The incentive for the referral is offered both in monetary forms such as cashback, discounts, and vouchers as well as in-kind such as freebies, gifts, etc. As long as the referral remains relevant to customers, the likelihood of them recommending the brand to another will remain high.
How to build a referral program for eCommerce brands
Depending on the type of the brand and target customer, the referral program has to be adjusted to offer the best possible incentive to the customer. It is important to create a strategy and prepare a roadmap for the development and deployment of a roadmap for a referral program. Therefore, here are some important steps to help you build a referral program for your D2C brands.
Before setting up a referral program, it is important to understand the goal behind it. This is to understand the kind of customers that your brand wants to acquire, and what would attract them to come to your brand. Along with this, it is also important to understand the value that the referral program would provide compared to the expense that it incurs.
Brands need to understand their existing customer base and choose an appropriate incentive to motivate them enough to make a recommendation. This can be done by understanding where the customers spend the most and providing an attractive proposition by giving them easier access to that category.
For D2C brands the incentive can be monetary such as wallet balance, discounts, etc., or in kind like free products and hampers or add ons. These incentives must be relevant to the customer to go out of their comfort zone and reach out to another person with a recommendation.
After introducing the referral program brands must track the success of the program to understand if it is making a difference for them. The performance of the referral program is important for a sustainable business model.
For instance, a brand may notice a large number of sign-ups, however, customers do not remain with the brand. In another instance, a brand may witness that the program is not able to yield any sign-ups, making the referral either unattractive or poorly executed.
These considerations help brands understand the viability of a referral program and help improve it.