How does a referral program work?

Referral programs have been highlighted as one of the most valuable forms of marketing a business can do, so it is no surprise that so many different businesses and organizations within a variety of different sectors have adopted such programs.

In simple terms, a referral program is a growth marketing tactic that is used to try and encourage existing members and customers to recommend their business to friends, family and other users who are perhaps looking for a product or service that is being provided.

One reason why this particular form of marketing has proven to be incredibly successful over the years is because of the trust that is built between the person who refers the business to another person. According to research and data that is available, it is believed that around 9 in 10 people will trust recommendations that have been made by their peers, thus highlighting why so many companies look to take advantage of these schemes.

Successful referral programs

There have been a number of successful referral programs to have been provided in the past, with a number of the world’s biggest companies having all used this particular marketing technique in order to reach consumers that they may not have initially been able to.

For instance, Tesla is perhaps one of the most famous companies to have used the program, as they provided new and existing customers with 1,500 kilometers of free charging when they bought a car through a recommendation. In addition, those who refer someone who then makes a purchase is then rewarded with the opportunity to win a prize; a brand-new Tesla! It is believed that the company managed to make nearly $16 million in 2015 via this scheme as one buyer referred 188 new customers!

Dropbox is another company that have used the program to their advantage, as they provide existing customers with 500MB of extra space when a friend is referred to their business. Within 15 months of using this marketing method, the company saw growth of 3,900% be achieved as 100,000 registered users turned into 4 million.

Gambling operators have also been able to use the program successfully, as well, as the Unibet RAF scheme has been a hit in helping to attract more players. New customers are able to get up to $500 back if their first bet fails to win, each person involved gets $50 each as a thank you, provided the minimum terms and conditions have been met.

What can make a referral program successful?

There are three different types of referral programs available that businesses can adopt and use in order to market to potential new customers, although it could be argued that one of them will typically be preferred over the others.

The first of the referrals available is those that are incentivized. This model will essentially provide a person with a reason as to why they need to refer to the product or service being offered as they will receive something that will benefit them for doing so. This could be in the form of a discount, for example.

Some businesses will look to make the referral attractive to both parties involved, as both will be rewarded for joining and using the model.

Another type of referral that is possible is via direct means, which is when an existing customer or client decides to actively tell people about the business without being prompted to do so. This is considered to be the most natural form and one that can attract a lot of positive business as there was no initial incentive for the first person to mention it.

The last type of referral that many established businesses will find working successfully for them is the model that is based on reputation. When a strong brand name and reputation has been formed, it is naturally easier to attract new business as there is confidence in the product or service being provided.

How to test a program?

There is a lot that goes into creating a referral program, which is why it is always important to test whether it works in an intended way. There are a number of different ways in which marketers can achieve this, though, with some more common than others.

One of the main ways is via the A/B method, which can be known as split testing. This method is a comparison between two versions of a program against each other that help to determine which one performs better.

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