Referral Marketing Programs Work: Here's Why

by Friendbuy

June 12, 2013

Planning your refer a friend program is fun. Why? Because it’s where your personal creativity and business objectives meet.  You get to ask a lot of ‘what if’ questions and intuit the outcome.  Who doesn't like speculating about the future?

If you already know what you want to do to get started - that’s fantastic.  Fire it up!

If you’re not entirely sure what direction you want to go with your referral program -- maybe you have a few competing ideas (totally normal) -- or perhaps you have no idea how you want to proceed, that’s what this blog series (and forthcoming white paper) is here to help remedy. If you’re caught in a state of indecision, or 'analysis paralysis,' here’s a helpful way to think about it:

See how Nuuly used Friendbuy to drive thousands of new subscriptions within  weeks of launch. >>

Nothing needs to be set in stone right away.  You can always hit the ground running with an A/B test of two different referral incentives. You can even start without an incentive and get a baseline for your sharing metrics. Relax. You don’t have to be perfect right out of the gate.

Referral marketing programs are a time-tested, proven marketing tactic

Well before the digital age, traditional businesses invested time and resources to get existing customers to refer clients to their front door. For brick and mortar businesses like dentists, auto dealerships and construction companies, referrals proved to be an incredibly efficient marketing tactic. Why? Because referral adherence to two core marketing principles: targeting and social proof.

When an existing customer is asked to refer friends, their brains immediately run a matching algorithm against targeting criteria such as age, gender, location, psychographics and income (ability to pay): “Aunt Sally could use a new roof!”

After the match is made, an even more important dynamic takes place, the recommendation. Recommendations inherently contain the high-converting power of social proof:  “My nephew, Jim, got his roof fixed by a construction company that he says did good job.” It’s the trust of a family member, friend or colleague that builds trust in a product or service.

The good news is that there is a long history of businesses who thrive on referrals and some general frameworks that will help you approach your own program. The digital age simply makes it faster, easier and more flexible to build a perpetual referral machine.

While every business has its own unique fingerprint of sorts, general standards apply. Aspects of your business such as revenue model, products, audience demographics, psychographics and customer lifetime value will be factored into your approach. Your program will rhyme with historically successful programs but will be unique as your own business.  No question about it.

A word to the wise: It’s natural to try and emulate another company’s successful referral program. But what works for Groupon would not necessarily work for Fab. Rest assured, what optimally drives your customers to share and refer – given your product and market position – will be unique to your own situation.

See how Nuuly's referral program generated thousands of organic subscriptions within weeks.