Spread the Word with a Customer Referral Program

A good Customer Referral Marketing Program is a structured and systematic process to maximize word of mouth potential. Referral marketing does this by encouraging, informing, promoting and rewarding customers to talk to others about you, your company, and the value and benefit your products and services and to reward them for the introduction.

A study conducted by the Goethe University Frankfurt and the University of Pennsylvania, on referral programs and customer value which followed the customer referral program of a German bank that paid customers 25 euro for bringing in a new customer, was released in July 2010. According to Professor Van den Bulte, this is the first ever study published on the financial evaluation of customer referral programs. The study found that referred customers were both more profitable and loyal than normal customers. Referred customers had a higher contribution margin, a higher retention rate and were more valuable in both the short and long run.

On whether customer referral programs are worth the cost, the study says that it records “a positive value differential, both in the short term and long term, between customers acquired through a referral program and other customers. Importantly, this value differential is larger than the referral fee. Hence, referral programs can indeed pay off.”

 Dropbox – In 2009, Dropbox, a Web-based file hosting service that uses networked storage to enable users to store and share photos, videos and files with others across the Internet using file synchronization, implemented a referral program to encourage their users to tell their friends about their product. Their referral program had a two-sided incentive for sharing: the person who signs up for Dropbox through a referral link gets more space than through a normal sign up, and the referrer gets additional space as well. According to Drew Houston, the Co-founder and CEO of Dropbox, at the Startup Lessons Learnt Conference on 23 April 2010, the referral program was inspired by the Paypal Sign up Bonus program. The referral program permanently increased their signups by 60%. Referrals account for roughly 35% of their daily signups (as of April 2010). In the 30 days before the conference presentation, Dropbox estimated that their users had sent 2.8 million direct referral invites to their friends.

 Okabashi – In March 2011, Okabashi, the largest US manufacturer of sandals and flip-flops, implemented their own customer referral program through ReferralCandy, a customer referral web app by Anafore. According to a case study released, the referral program became one of their top ten drivers of external traffic, boosting sales within a week of implementation. Referred customers also spent 13.2% more on average compared to regular non-referred customers.

 Be sure to introduce the simple details of your referral program to every customer. Then, remind them once a quarter with an email or newsletter success story.

Explore posts in the same categories: Audience Targeting, CRM, Online Marketing, Online Reputation, Retail, Social Media

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