Should You Invest in a Double-sided Referral Program?
So you’ve launched a referral program. Despite that promotion goes quite well, the bottom line is still a missing conversion? Sounds familiar? If so, read on and see how you can change this with the help of double-sided referral programs, a mechanism used by global giants such as Uber, Airbnb or Dropbox.
Imagine you can increase retention rate and new acquisitions by using a single referral program. Promising, right? Double-sided campaign gains an upper hand against the competition who sticks to traditional referral marketing.
In a typical referral program, you give your referrer a reward for a recommendation, e.g. 25% off the next purchase.
During a double-sided referral campaign, the incentive is divided into referrer and their friend. For example, your customer gets 15% off the next purchase and a gift card for a friend with $10 to spend in your store.
Your customers are motivated to share word-of-mouth. It’s a chance for endowing friend or family with real value carried by a gift card or coupon code. Moreover, with an incentive at hand, referred customers are more likely to follow the word-of-mouth.
Double-side cost, or double-side benefits?
Despite that you need to cover incentives for both referrers and referred customers, such campaigns still pay off. Economics of the double-sided referral program comes down to finding a balance. It doesn’t require much more resources as you cut a little discount for referrers.
For example, if you offered 25% off, you can offer 15% off, and an additional $10 on the gift card for new customers.
Similarly, to every promotion idea, you need to start from an estimation of a budget, list necessary promotion limits, and dig deep into your sales data. Comprehensive research allows you to choose incentives with the highest chances for conversion. Last but not least, you need to verify what is possible with your software and make sure you have a proper infrastructure in place.
Two levels of a referral program, but in a consistent workflow
While talking about what’s technically available, you need to keep in mind two things. Firstly, such programs require two different batches of incentives. This is the easiest part. It gets more complicated when it comes to syncing both levels into one, traceable workflow. The truth is, without automatics, it can’t work. There are at least three basic endpoints that you (or rather your software) need to control:
- How many recommendations come from one customer?
- If each “new” customer who tries to redeem the code is really new in your database?
- If a new customer redeems a code, should it trigger a reward for a referrer?
Things are usually much more complex. Every program needs rules based on time frames, cart volume, or budget limits. This is why every redemption is preceded by an advanced process of validation. You need to be sure that a customer meets all the required conditions. Without referral levels synced into one consistent workflow, you expose yourself to misuses and fraud.
What distinguishes a good referral marketing software is the referral tracking. It should be able to gather data from each endpoint. These data are crucial for fraud detection and figuring out what's working and why. Keep in mind that analysing customers’ behaviour and program performance is the only way leading to improvements.
Double-power of a gift
Free balance is a perfect incentive for referred customers. It enables you to play with psychological marketing and keep your budget safe. Firstly, free balance gives a potential buyer feeling of money in hands. Secondly, by adding a short time limit to a card, consumers don’t have much time for hesitations. Research proves that a sense of urgency significantly increases the performance of promotions. Finally, gift cards make “giving” safe for your budget. If a customer won’t purchase at the required time, balance is gone. There is no risk of extra costs.
Launch flexible referral programs from day one