Referral Program: People respond to incentives. That’s because rational people weigh the costs and benefits of a certain action and respond accordingly. It’s a basic economic principle that students learn in any introductory economics class. Sometimes, however, these incentives can promote behaviors that can be unpredictable.

Referral Program
Referral Program

Similarly, in business, shoppers respond to incentives, which is why referral programs can be extremely effective when implemented correctly. But managers may soon realize that these reward programs aren’t completely predictable. Different shoppers respond differently to different incentives.

In other words, managers looking to grow their sales may quickly realize that not all referrals are equal.

So what are the factors that drive the success of a customer referral program? And what kind of incentive will motivate shoppers to refer your product or service?

4 Steps to Building an Effective Referral Program

Many businesses that reach a stage where they want to accelerate their sales growth decide that they want to invest in building a referral program. But how should businesses go about doing this?

Make sure you have happy and satisfied customers.

Happy and satisfied customers are the only ones who will refer your product or service. It is vital that you do everything you can to deliver them a superior customer experience.

Develop a strategy for finding referrals.

First, you’ll need to make a list of anyone your business has ever contacted – current, past, and potential customers. From that list, you’ll need to determine who has had a good experience with your product and service and would freely recommend it to others. Your sales team can be instrumental in this step.

Identify the best time to ask for a referral.

It could be right after they purchase your product for the first time, or after they receive a delivery. You’ll need to find the right time to follow-up for additional referrals in the future, while at the same time striking a balance between gently reminding them and being too aggressive with your approach.

Offer the right reward.

Free product, discount, reward points or brand coffee cups and cool t-shirts? It might take a bit of trial and error, but ultimately whatever reward you offer existing customers should strengthen their brand loyalty, and incentivize them to refer your product or service to others.

Shoppers Respond Differently to Different Rewards

The power of sharing
The power of sharing

A joint study from the University of Pittsburgh and Korea University on customers using different mobile phone services found that not all rewards are equal. Two types of brands, weak and strong brands, were tested with two types of rewards: rewards split between the referrer or existing customer and the purchaser, or rewards given solely to the existing customer.

The result of the study found that new businesses with weaker brands had shoppers make more referrals when rewards were only given to the existing customer, the referrer. Stronger brands, in contrast, should split the rewards between the referrer and the purchaser to best incentivize their current customers to make referrals.

The economics rule of thumb once again prevailed. Customer behavior achieved through incentives proved to be fairly unpredictable.

Leverage Customer Communities and Inner Circles

Advanced recommendation engines assist you in building the most effective referral program to grow your business. By leveraging your customer’s communities and inner circle, you’ll be able to easily tap into a ready-made referral program to boost your sales. Better yet, VOCO’s AI bots automatically prompt these referrals at the exact moment they are most excited about your product or service (like after a movie or returning home from a vacation). When customers refer your product or service to others, a cashback reward is split between the customer and the referrer. This, motivates both sides to recommend your product or service again and again. It’s a perfect incentive for both customers of established as well as newer brands that managers should consider when building their next referral program.
Want to learn more?

Join Voco to start building your own effective referral program today!  

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