I’m sure you know all about the iconic and unicorn brands that built their businesses through referral marketing like Uber, Slack, Tesla, Dropbox and Airbnb. In each of these cases, it’s well documented that referrals from satisfied customers played a key role in helping these businesses scale rapidly without spending very much, if anything at all, on marketing.
So if you’re looking to launch a new product or brand, then surely you should be adding referral into the mix right from the get go? Particularly when referred-in customers are more valuable than customers acquired from other channels, not just because they spend more and stay longer with the brand, but also because they are themselves more likely to refer-in new customers.
Well it’s possible that you might not have included referral as part of your launch plan. That’s perhaps because you think, while it’s clearly a great strategy to grow your business, maybe you need to wait until you’re more established and have a decent base of customers to act as a seed audience for referrals before getting started. But then you might be missing a trick or two and here’s why.
So while the basics of referral marketing are simple:
- First have satisfied customers;
- Then identify them and ask them to refer you to friends, family and colleagues;
- Offer them a easy and safe means to do so;
- With enticing rewards and incentives to encourage referrals.
The first leg is clearly to have customers, and if your brand or product hasn’t launched, then you are unlikely to have customers. But is that necessarily so? Not always, as you can see below.
If you’re an established brand
If you are an established business that’s launching a new brand, product or service, then you may have a database of potential customers to market to. These can be your ex-customers or soon to be ex-customers, who love and value your brand but just don’t need it any more. Maybe you sell baby clothes and your customers’ children have grown up. Or perhaps you provided an entry level SIM Only telecoms product and your customers’ economics mean that they can now afford a more expensive service with a latest generation smartphone with insurance and free roaming. Or conversely, your customers may unfortunately be looking for a cheaper product as the cost of living increase has put pressure on their purse strings. But either way, whether those ex-customers would be trading up or trading down, provided they had a good experience with your brand, they may be only too willing to sign up and refer your new product or service to their friends.
Of course, your current customers could be also willing to refer your new brand to friends even if they have no use for it themselves, for example, if your current middle aged customers could refer their children for an entry level product etc.
If you’re just getting started
Even if you’re starting from a standing start, without the benefit of an existing customer base to tap into, referral can still be a great marketing strategy for your launch.
That’s because referral and reward marketing can dovetail with all the other marketing strategies you will look to employ for your launch. Depending on your brand, product or service and the budget available to you, these could include any of the following:
- A public relations campaign to get in the press
- A high profile launch event
- Working with influencers to spread the word
- Emailing a database of customers, ex-customers or even buying a permission email database to email
- Trying to create a viral campaign on social media
- Posting competitions on competition sites
- Above the Line brand building in the traditional media
- Setting up an affiliate program with affiliates directly or via an affiliate network
- Targeted ads on search and social networks
- Working with partners to access their client databases
- Guerilla marketing
- etc.
While these tactics should be able to bring you customers, many, like trying to create a viral campaign or get in the press, can be hit or miss. And the main issue is that most of these are very expensive, and unless you have a large launch budget, they will be out of your range or you will only be able to spend a limited amount on each.
That’s why you need to ensure that each expensively acquired new customer will deliver you more value than just buying your product or service. If, for example, you’ve paid US$250 to acquire a new customer through paid search or paid social, then getting that expensively acquired new customer to refer you two or three more, at a lower cost, can help amortize that investment and turn it from being loss making into being profitable.
What’s more, if you’ve spent a lot of money on some of these expensive marketing tactics to acquire a valuable new customer, referable marketing is the perfect channel to acquire more such customers. This is because, as explained in research from the Keller Institute, your best customers will tend to socialize with people just like them in terms of demographics, economics and values, and due to the concepts of passive or active matching, should be able to refer in other good customers. So having just shelled out a fortune for a great customer, you should be targeting that person with a referral offer.
Why would new customers want to refer you?
You might ask yourself why your newly acquired customers would want to refer you straight away and not wait until they’ve spent some time using and learning about your product. Well here again, if you’ve done your homework and you’re launching a great new product that fulfills a hitherto unmet need, then your new customers will probably be only too happy to refer you to friends. That’s because, as identified by the psychologist Johan Berger, one of the key motivations of word of mouth is self serving, in other words to look good by being the first one to break a great new offering to a group of friends. I’m sure we all remember the first person who told us about Uber, Skype, Spotify or Netflix. Well, perhaps part of that person’s motivation was wanting to look cool as the person who always finds great new things before anyone else did and appear as an ‘early adopter’ or ‘trend setter’.
Also, when we’ve just found a great new product or service, that’s when our endorphins are likely to be highest. So that’s a great opportunity to tap into that moment of excitement by asking your newly won customer to refer you.
And even if your new customers aren’t willing to refer you straight away, they may be willing to do so relatively early in their journey with you. That’s probably because you’ll likely over-serve your first customers, or at least you’d be well advised to do so, and they’d likely be very satisfied with your service and be ideal brand advocates or ambassadors.
How to use referral and rewards with your other launch marketing tactics
Looking a little closer at some of the potential launch marketing tactics above shows how reward and referral marketing can make all of these more effective.
For example, if you‘re doing traditional above the line marketing, public relations or targeting ads on search and social, then you could offer a time limited reward for each person who signs up before a certain date. Not only could this make that marketing more effective, but if you use a code or keyword to claim the reward, you’d be better able to track the effectiveness of those efforts.
In particular using the mechanics and technology of referral marketing with brand partners, affiliates and influencers can provide a very effective means to supercharge these channels by providing the partner, affiliate or influencer an exclusive offer for its customers, visitors or followers, with an accurate means to track the conversions and make verified payments for success.
How smart referral rewards can reduce or delay your customer acquisition cost
Another often overlooked advantage of referral marketing is that because the costs of customer acquisition is principally the rewards and incentives given to referrers and their referred-in friends, it can be much more cost effective. This is particularly true when the cost of the reward is low to you but has a high value in the eyes of the customer or the customer’s friend, for example as Dropbox did by offering free storage. In this case the marginal cost of the extra storage was almost zero, but the customer knew the cost of acquiring that extra storage from the price list on the Dropbox site. The key is in offering a reward that, while enticing for the referrer, doesn’t cost more than the value of the referred-in customer.
Another benefit is that rewards can be designed to stimulate future purchase, such as by giving a discount off the next purchase, a gift card, voucher or loyalty points. As a result, the cost in reduced margin is delayed until a later date when the reward is used, and may be even zero if the reward is never actually used. However, the main benefit is often to encourage increased use of the product or service, for example by giving a streaming subscriber a free month of the premium service for each referral, which may encourage adoption of the higher level service in the long run, and increase profitability.
Baking referrals into your DNA
One advantage of starting early with referrals is to create a pattern of behavior right from day one, not just with your customers but also with your own staff. When happy customers learn to refer early in their journey with you, it may become a natural behavior that continues with them throughout the customer lifecycle and brings you a steady stream of new customers, as part of referral contagion.
But you may not have considered how having referral at the heart of your marketing will also have a positive effect on your staff, as they will instinctively think about referral and how to incorporate it into every customer touch point and marketing campaign, which will be crucial in making sure your referral marketing is a success. We set out how to market your referral program successfully in our activation and discovery document.
And finally, having a referral program with rewards and incentives that can only be redeemed in the future, not only conveys a confidence that your business will be around in a few years, but also gives your referrers and their referred-in friends a vested psychological interest in your survival. Which in itself is likely to make them more inclined to promote and refer you.
Some case studies of product launches using referrals
We have had the privilege to work with many great businesses that launched with a referral program, but two that make great case studies are the launch of the highly successful mobile virtual networks VOXI and SMARTY, by Vodafone and Three respectively.
Vodafone, launching its first dedicated youth sub-brand, knew that its target market shunned traditional marketing and advertising and so the key to getting adoption was to create brand advocates among the target customers’ peer groups and influencers. And similarly, SMARTY, knowing that it’s contract-free plans risked churn at every turn, it needed to acquire customers without throwing money at the problem and to build engagement and stickiness over time. In both cases, the brands launched with a referral program and it has been a key element in the success of the businesses, as happy customers convinced friends to give the networks a try.
But if you’re still wondering about how you can use referral without customers, then why not consider Revolut’s strategy in Latin America, which introduced a waiting list for those who wanted to get their hands on a revolut card, even though it hadn’t launched. Referring more friends got a person higher in the waiting list, a tactic that’s brought them thousands of potential customers. That’s without even having a live product in the market, never mind customers!
If you’re looking at how to launch a new product, brand or service, or even relaunch one, we’d be happy to share what we’ve learned. Get in touch and we’ll arrange a chat.