Referral programs are a great way to bring new customers into your system. By incentivizing third party affiliates or your own customers to refer new people to your business, you can build an effective automated system that will bring a recurring stream of new business. But they can also be a tough nut to crack. In a lot of cases, customers brought in through incentive-schemes are often less loyal than those acquired through organic word-of-mouth references.
There are several reasons to this – Firstly, since there are incentives involved, the referrer may make use of false or misleading marketing techniques to bring customers to the program. Secondly, referrers are likely to use their own marketing strategies that may be quite different from your own business strategy. Such decentralized marketing strategies can confuse or overwhelm the prospective new customer which also plays a part in them not sticking long enough.
Fortunately though, a lot of these issues can be avoided by taking necessary precautions. Here are a few pitfalls to watch out for while running your own customer referral program.
Choose The Right Incentives
The incentive you provide for bringing new customers can make or break your program. Many businesses choose to offer financial rewards for the leads or customers that affiliates bring. While nothing beats a financial reward, the trouble with this is that this may attract affiliates who may not even have a good understanding of your industry. Besides, since the objective is to make money, many of these referrers often use devious tactics to rope in new customers.
According to Darrell MacMullin, the co-founder and CEO of Toronto-based BitGold, the trick to a successful referral program is to offer incentives on the product or service you sell. “The Airbnb referral program is a great case study to look at”, he says. Darrell points out that the company does not directly reward cash for bringing new customers. Instead, referrers and new customers are offered a financial incentive that they can only redeem by doing business with Airbnb. That helps customers get a discount on their Airbnb transaction while helping the company bring new people to their service.
Open The Program To Customers
It may be tempting to reach out to influential third party affiliates to promote your business for you. The truth here is that such affiliates have no love for your business and look at this purely from a rewards perspective. This has been the root cause for failed affiliate programs. An alternative is to restrict your program purely to existing customers. People who have done business with you are not only in the industry you target (and are thus connected to your target demography), but their recommendations are often based on personal experience. This brings in new customers who have a sense of what to expect and are thus more likely to stick with your company.
Centralize Marketing Strategy
Unlike what most marketers assume, referral marketing is not a “set and forget” strategy. It requires constant monitoring and effort. One key area that requires significant resources is in centralizing your marketing strategy. This includes keeping your affiliates informed of your latest marketing campaigns, what products are being promoted and what campaigns are being shelved. Keeping your affiliates in the loop ensures that their latest campaigns are in line with your own business goals and strategies. Failing to do this could lead to your prospective customers being exposed to a multi-faceted marketing communication that could confuse and repel. Treat your affiliates as part of your marketing team and ensure that your marketing strategy is centralized.
