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.

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Author: Nick Davey

Evangelist, Strategist, Leader, Implementor, Author, Speaker and all round nice guy, Nick has built his entire career on improving the management of customers both from a customers perspective "looking in" and from within an organisation "looking out". You might call it CRM. Customer Relationship Management or, as Nick often says, Constantly Realigning Misconceptions. Nick reiterates that his comments are his own personal comments and do not necessarily reflect the opinions, strategy or views of any previous employer or customer.. He is delighted to be impartial and able to share ideas with open minded and collaborative professionals around the world. Outside of his passion for CRM, Nick pursues other less demanding passions such as Scuba Diving, Native Wildlife (e.g Wallaby) Rescue and Rehabilitation, Amateur Flying and watching as much Sport as his long suffering wife will permit.

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