Incentivizing referrals

An interesting question was posted on LinkedIn asking “do you have great ideas on how to reward customers for their referrals of your brand or products to others?”

I thought I would throw my perspective into the debate in the hope that it will stimulate further debate and sharing of ideas.

I guess a lot depends upon the marketplace you are operating in, the type of customers you target and the value of the referral. I have come across lots of different models but I should point out that I think “Brand Referral” and “Product Referral” are two very different things. “Brand referral” implies that the referrer is already a Brand advocate and a loyal customer. Surely this is the goal of all Marketeers? If you are lucky enough to have customers referring your brand, the best way to reward them is to ensure you continue to understand what they like about your brand and keep doing it. I am not sure reward is appropriate as the customer probably feels that the brand is already rewarding them, hence their loyalty. The brands I am passionate about do not need to reward me. I already refer them without the need to be motivated to do so because I believe in what that brand represents.

Product referral is somewhat different as you still have the opportunity to grow the spend with that customer through cross selling, upselling etc whilst further building loyalty. In other words, you are taking the customer on the journey towards brand loyalty.

A few examples of referral incentives I have come across:

Recruitment: Refer a Contractor to an agency and we will pay you a “Headhunters fee” if they get the job/contract. This also occurs as common practice in many organisations where certain skillsets are in short supply.

Hotels: Invite a friend to stay a week at a discounted rate and you can claim a voucher to come and stay for a weekend free of charge

Cars: Refer a friend for a test drive and receive a $$$ discount on your next service

Insurance: Various but best one I’ve seen is the offer of free charity donations (in lieu of % commission) for each referred Financial Healthcheck.

Legal: Refer 3 friends for a fixed price, discounted Will and get yours free!

Telcom: Free calls to your friends and family members who join our plan. They then contacted the friends directly with a phone call saying that you had referred them because you knew they wanted to save money on their home phone bills. I’ve since noticed cellphone companies using similar tactics.

I should also mention Multi-Level Marketing (MLM) which used referrals as the basis for its entire business model. To me, it was always a way of shipping a product which was in some way deficient (in either quality, cost or market) and using cash as a way of incentivizing agents to rope in friends and family as fellow agents or customers.

I guess the morale of the story is that you have to calculate the value of the referred business and set a value on the recompense to the referrer that is appropriate to the value of the referred business. You can then devise whatever incentives you like so long as it is moral, ethical and not to the detriment of your brand and/or product/service. Remember too that it is always easier and cheaper to retain customers than to find new ones. Therefore you need to ensure that your product/service is able to delight the (new) customer and outstanding customer service processes, people and technology exist in order to retain them. In those cases, you may find referral comes easier and without the need to offer reward.

I have had personal experience with Referral methods in the last few months. My wife and I run a small Australian Bush Lodge Retreat. It is holiday accomodation in SE Queensland for nature lovers wishing to chillout and explore. We ensure that our guest book comments are posted on our website: www.nunyara.com Additionally, we follow up all guests after they have left with a Thank You email offering them a discount on their next stay and a discount to any referred friends or family who make a booking in the next 12 months. We are doing this to establish ourselves in the market but we are already beginning to get referred business. The interesting thing to note is that no-one (yet) has asked or mentioned the referral discount. When we offer it, they say they knew nothing of it and are even more delighted!!!! This has led us to question the whole value of referrals when you have a brand/product/service that has already exceeded the customers expectations. In price sensitive markets, I guess it is likely to have a bigger impact than we have noticed but we are now starting to consider rewarding the referrer unannounced, as a retrospective “Thank You”. We feel this might be a way of exceeding expectations rather than our current approach which is to reward based on a set expectation.

I hope this has provided enough food for thought and I hope will stimulate a debate that might further our knowledge on the effectiveness and innovation within Referral Schemes.

What is a CRM Strategist?

I have been involved in an ongoing debate within a LinkedIn group regarding the roles of consultants with “CRM” in their titles. Traditionally, consulting organisations have treated CRM as being within or even a dedicated Strategy practice. However, they will also employ CRM Consultants within a Technology practice (maybe aligned with a software vendor e.g Oracle, SAP, Salesforce).

The debate has raged on whether there are two distictly different roles (CRM Strategy and CRM Technology) or whether there is crossover. I argue that there is certainly crossover but it is not a skillset I come across routinely. This was confirmed to me when I had a recent meeting with Johann Jacobs, a Gartner eCRM Analyst, who admitted that he had not met too many CRM Strategists but felt that most CRM initiatives badly needed one!

I am currently consulting in a role titled “CRM Strategist and Archtect”. I am working with my client to help articulate their vision for Customer Service and subsequently develop and define a Strategy and Roadmap. We will then select and implement a CRM product to deliver the processes that are bound by that strategy and hence meet the strategic and tactical objectives.  I expect to be involved in all of those activities. If a Management Consultancy were to replace me, my client would be likely to get one person for the strategy and another for the product. The lack of continuity means that the Implementer needs to interpret the intent of the Strategist in designing the solution. This can introduce unnecessary risk. I therefore believe that, as a Business Strategist, it is important to have a strong understanding of the technological footprints and offerings that can help enable the strategy that has been designed. The Strategist should be able to help architect and assure the chosen solution to meet the objectives of the organisation.

However, there is a further complication: Software companies often subdivide their Software Consultants into Functional and Technical. The Functional Consultant tends to be understanding of the business environment and able to turn business requirements into a solution through basic configuration of the system. The Technology Consultant works with the IT Department to embed the new software into the IT Infrastructure. There is crossover with the Functional Consultant but this can be limited depending on the type of software and the skill levels of each.

In my experience, a functional consultant may understand the needs of the Sales, Marketing and/or Customer Service division but may not necessarily have the skills to help develop strategy, work on business cases or articulate future roadmaps. In my opinion, the CRM Strategist is capable of fulfilling the Functional Consultant role as well as being a Strategy Consultant. This really adds value to clients.

Without knowledge of the capabilities of a CRM Product, Unified Communications or other such enabling technology, how can a feasible vision or roadmap be developed? One has to know what is possible to be able to define it. Functional Consultants can implement a process that leads to improvements. The strategist will set the entire context within which the process sits. Furthermore, the functional consultant really should understand the strategic direction and long term objectives of an organisation in order to create the optimal, future-proof design. With the market changing at a rapid pace, increasingly innovative solutions are able to be developed. However, these “To Be” solutions should be within a context of where that organisation wishes to be. A CRM Strategist can bridge these worlds saving organisations the cost of employing two discreet skillsets and bringing the continuity of taking the conceived into the delivered. As more and more organisations appreciate and recognise the need for appropriate skillsets, there is likely to be a polarisation between Strategists and Technical CRM Consultants. This may seem like I am contradicting myself as this is how I described the structure of many Consultancies. However, I believe that Technical will mean Technical. Functional will merge into Strategy (and vice versa) meaning that the Strategists will be involved on Programs both before, during and, possibly, after an implementation. They will carry a broader set of skills and need to communicate with different audiences. However, the value to be added will be significant and the CRM Strategist should become he norm, not the exception!

Customer Democracy

I heard this term recently and rather like it.

As a self appointed “customer champion”, I like the idea of customers exercising their democratic right. In doing so, customers can exercise freedom of choice by churning from one underperforming provider to another. They could exercise freedom of speech by complaining or praising via Social Media. They can express freedom of thought by researching and investigating suppliers, products and services like never before.

So how can organisations respond to the growing democratic spirit of consumers? As with any democracy, its adapt or die. Those slow to truly listen to the voice of the customer and reinvent themselves from the outside-in may find themselves consigned to the history books. I am growing ever more confident that CRM, a term associated with software and, inevitably, IT implementation disaster stories, is finally becoming understood for what it is: It is a business STRATEGY that is supported by people, processes and product to generate MUTUAL value for both the provider and customer. I believe this message is beginning to emerge from the mire of the GFC and is being driven by the need to adapt to the new world of Customer Democracy.