Referral Program – an Effective Tool to Attract New Customers

Referral programs have been known for a long time, but still prove their effectiveness and value.

The word of mouth promotions was originally tried out offline, perhaps, centuries ago, but with the advent of Internet online retailers started using it as a sales promotion tool.

Why Referral Programs?

Almost all shoppers highly appreciate trustworthy advice and expert opinion regarding multiple available products and services.

Recent studies revealed that word of mouth promotions have from 3 to 5 times higher conversion rate than other marketing channels (Source: Extole). According to Nielsen Global Trust in Advertising Report, 2013, 83% of people worldwide trust in recommendations from people they know, and all these 83% take some product related actions, in order to read a review, or supervise its features, or just purchase it. So, referred prospectives are loyal and active participants of the pre-sale process and can be more easily converted into real customers.

65% of new business comes from referrals, New York Times

Before starting a referral program you should plan and implement several obligatory steps.

Offer Your Referrers Worthy Rewards
The first thing to consider while starting a referral program is to find out truly effective incentives, which are able to foster your brand advocates recommend your products.

In fact, only a few customers are able to become your referrers and the reward you offer is to be closely related to their needs. Or you may appeal to your partners or even employees asking them widely recommend your products and, in this case, the prize is going to be a bit different. Moreover, sometimes non-cash intensives may be even more attractive than discounts or reward points.

Note: According to The university of Chicago research, non-cash incentives are 24% more effective at boosting performance than cash incentives.

Actually, possible options are almost endless, so you should pick up some ones, which sound really appealing and test them on buyers.

People are 4 times more likely to buy when referred by a friend, Nielsen

Since we clarified that the referred visitors usually become loyal and active customers, you should not only reward referrers, but referrals, as well. This will allow you to increase your retention rate and draw more brand evangelists.

Ask People to Recommend Your Brands
Regardless the quality of your products people will not recommend them to their friends until you ask them about it. In most cases, they are afraid to be annoying or even intrusive, but if they appreciate your products and brand, they will respond to your request.

And one more thing, if you take the referral program initiative seriously, you should announce it through all available marketing channels: email, the website, social media, and etc.

Explain Customers Your Referral Program
Before people will dive into your referral program, they need to clearly understand how it works. Otherwise, they will be not completely motivated and able to recommend your products without a second thought. So, you should prepare text explanations or comprehensive manuals of the program and put them before customers in their accounts or on a separate page of your site.

Make Recommendations Simple for Customers
Despite the value and attractiveness of the referral program for your customers you still need to do everything possible to simplify the recommendation process.

85% of brand fans on Facebook recommend them to others, Syncapse

Allow customers use multiple channels for sharings, including a broad range of social networks, email, or, perhaps, internal notifications within your site.

Provide customers with e-mail templates and let them use multiple variables within templates, which will help them create more personal and effective messages with fewer efforts.

Ask People Deliver a Friendly Advice Rather Than Just Direct Advertising
Asking people to advise your products to their friends makes them feel useful and valuable. They feel happy recommending really valuable information about discounts or other promotions and do not feel embarrassed.

Track Your Results
Your referral program is an ongoing activity and you need to track its results from the very beginning in order to evaluate its efficiency and implement new tactics for its improvement. Several main indicators, such as quantity of referrals, shares per referral, total shares, clicks per share, and various conversion rates, will provide a complete enough description of your results.

The LifeTime Value of a new referral customer is 16% higher, Wharton School of Business

Still, the customers participating in your referral program should also have a chance to monitor and clearly understand their achievements. So, comprehensive statistics of their activity provided in personal accounts are vital for successful referral programs.

Technical Background
Starting a referral program is quite difficult technically as it requires definite functionality serving all the activities.  Actually, you have several options in this case: create the corresponding functionality by yourself, use one of multiple offered SaaS platforms, or take advantage of Magento integrated solutions.

The Refer a Friend Magento ExtensionRefer a Friend

If the last option is the most preferable for you, we’ll be glad to recommend you for that purpose a full-featured solution – Refer a Friend.

This Magento fully integrated referral program possesses all necessary features for starting a really successful cooperation with your customers:

  • Advanced tracking and user-friendly interface;
  • Bonuses to the invited customer;
  • Ability to broadcast the referral link;
  • Ability for the same person to be referred by different customers;
  • Personalized referral messages to boost conversions;
  • Unlimited rules and great flexibility in setting rules;
  • And much more.

Learn the full scope of the features provided by the Refer a Friend extension on the product page or try it in our demo stores.

Word of mouth promotions are able to radically change your business and vision of its further development. Sometimes business owners are so satisfied with the results of their referral programs that consider them central elements of their marketing strategy and arrange other marketing efforts around it. This is a true testament of power and effectiveness of referral programs.

If you have any referral program success stories, please share them in comments below.

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