It seems like a straightforward proposition: reward customers – who already love you – to bring in new customers. A win-win for everyone, right?
Not necessarily. Worldwide101, a premium remote personal assistance platform, reported that their customer referral program backfired not once, but three times – undermining their brand and wasting time and resources. Their experience is not uncommon: businesses of all sizes struggle with creating a customer referral program that works.
A customer referral program can come in many shapes and sizes. As a result, there are many ways your referral program can go wrong. Referrals are an invaluable way to advertise your business, but you must structure your program to make sure you don’t lose money, make customers mad, and inadvertently destroy brand loyalty. Here are some common mistakes companies make setting up their referral marketing campaigns – and how you can avoid them.
Offering Unappealing or Irrelevant Incentives
It’s important to choose a reward or incentive that matches your brand, as well as what your customer needs. “One of the most common mistakes in referral marketing from companies, whether big brands or struggling e-commerce platforms, is the attempt to save a few dollars as they try to tempt customers with poor, unrelatable incentives,” said one expert.
When selecting incentives, it's essential to align them with your brand identity and cater to your target customers' interests and preferences. As one expert advises, "If you own a software company, giving away theater tickets isn't going to reinforce your value proposition." Conduct customer research and analyze data to understand your best customers' profiles, behaviors, and what motivates them.
If your best customers make frequent purchases, such as weekly or monthly, incentivize referrals with account credits or discounts on future purchases. However, if your customer base has infrequent purchase cycles, consider offering gift cards or exclusive access to new products. As one expert notes, "Think about what your brand can offer customers that will turn them into advocates for your company." The key is to provide incentives that align with your customers' purchasing behaviors and motivate them to actively promote your brand.
Choose a Sustainable Incentive
There are various types of referral programs. They range from 10% off coupons to free trials and pro-bono services. Giving free items might attract new people but are they ideal clients ? or will they leave your service when the freebies run out. It's essential to find a balance that your company can sustain long enough to receive ROI.
Choosing the incorrect referral incentives not only increases churn but also lowers your overall LTV and critically affects your cash flow. There are several things to consider when selecting referral rewards. It's not always the best course of action to give more than you receive just to gain subscribers, and it's simply not feasible for most businesses. Meal kit delivery service Blue Apron is an excellent example of what not to do when choosing incentives.
Blue Apron expanded its client base by offering free meals in return for subscriptions. After exhausting signup bonuses, customers unsubscribed. After a user unsubscribed, they got a win-back incentive; customers could receive hundreds of dollars worth of free food and repeat the process numerous times.
Overcomplicated Referral Process
Many companies make the mistake of overcomplicating their customer referral programs, creating too many steps and presenting excessive fine print that customers must navigate. As one expert warns, "You have only seconds to get the details of your referral program across to your visitors." A convoluted referral process can quickly discourage participation and undermine the program's effectiveness.
To maximize participation, keep your referral program simple and intuitive. Provide clear links to the referral page or email, offer easy sharing options via email and social media, and enable customers to track their progress and redeem rewards seamlessly. As one expert advises, "Making it too complicated" is a common pitfall that can hinder the success of your referral marketing efforts.
Additionally, consider what actions you're incentivizing. Many referral programs only reward customers when a referred friend makes a purchase, which one expert notes is "a big ask." Instead, offer rewards for smaller actions like providing a potential customer's email address or phone number. This lowers the barrier to participation and increases the likelihood of customers engaging with your referral program.
Ineffective Referral Solicitation Approach
A key lesson learned by WorldWide101 in their referral marketing journey was the importance of using the right approach when soliciting referrals. In one trial, the company attempted to "bribe" contacts to send leads, compensating referrers only if the referred contacts remained customers for three months. This approach was perceived as penalizing referrers for factors beyond their control, angering the company's network and damaging credibility. As they learned, "the best referral partners aren't (just) motivated by monetary reward." An effective referral solicitation approach should focus on positive reinforcement and align with customers' intrinsic motivations.
As WorldWide101 discovered, "The best referral partners aren't (just) motivated by monetary reward. They recommend your products and services because they genuinely like them, they genuinely like you, and they genuinely want to help someone they know." When soliciting referrals, it's crucial to approach customers in a way that resonates with their intrinsic motivations, honors their brand loyalty, and values their contribution to your company's success.
Failing to Target Ideal Referral Candidates
Most marketers know that not all customers are created equal. Referral marketing works best when you can activate people who are already big fans of your brand. Look at your sales data and social media channels to identify marketing personas who are active, as well as early adopters. You can also look for a segment of customers who would benefit from a financial incentive, such as a $50 credit on their next bill or a percentage of the sale.
Brands that have failed to connect with customers are going to have a hard time running a referral program. Referral marketing isn’t a substitute for real customer service: these programs aren’t “set and forget” solutions for building brand loyalty. Referral marketing software can, however, help you determine who your best participants are, as well as test different incentives and channels to drive results.
Forgetting to Set a Timeline
You’ve found your target customers, set up a meaningful reward...and nothing happens. Referrals aren’t coming through as fast as you would hope. What’s going on?
First, make sure your audience knows your referral program exists. What are good ways to connect with your audience? One of the biggest reasons why referral programs fail is because customers aren’t aware of it. A newsletter is a great way to spread the word about your referral program – if someone is on your email list, you can bet they support your business. But, you should also spread the word on your website, social media channels, and in-person.
Second, add a timeline to your campaign to create urgency. Tie your rewards to a certain deadline – e.g., “bring in eight new friends by July 4 to win a case of wine.” Deadlines give customers something to work toward, increasing purchase frequency and keeping your brand top of mind. A little urgency can go a long way.
Make sure your deadline doesn’t backfire, however. A short-term deadline may not give your customers enough time to learn about the referral reward and start spreading the word. Don’t expect customers to be constantly thinking about your brand. “One of the biggest mistakes companies make with referral marketing is assuming customers always have their brands on the top of their minds,” wrote Entrepreneur. Give your campaign time to work!
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