This post will discuss how you can use customer referral schemes to promote your business at little or no direct cost.
This is Part 6 of our series “Zero Cost Marketing”, where we suggest ways you can promote your business with little to no budget. If you want to start at the beginning read Zero Cost Marketing Part 1 – Discounts & Samples.
Since every business has different attributes and needs, the suggestions are presented in no order of preference. Some will be more relevant to your business than others. We’ll leave it to you to decide.
Our sixth suggestion for low-cost business promotion is:
6. Create A Customer Referral Scheme
Are you scared of spiders just like your mother? Do you love a particular rose-scented perfume because your favourite aunt always wore it in your childhood? And have you ever bought an item because a friend already had one and recommended it?
Things like these show how strongly we are influenced by the actions and opinions of our friends and family. After all, they are the people we trust. It follows that if they like or dislike something, their view is liable to have an impact on us.
Every advert we see will tell us how great a product is, how tasty the food, how comfortable the bed, and so on, and so on. If we were to believe them, every purchase would be perfect and bring us total delight. Sadly, but inevitably, that is not true. Sometimes it’s the product itself which does not meet up to expectations and sometimes it’s simply a matter of personal preference. Whatever the case, the result is that we all learn to view the promises made by adverts with a certain amount of caution. On the other hand, our friends and family know us and our tastes and their recommendations are made based on that knowledge. And that means that when it comes to advertiser recommendation versus personal recommendation from a close contact, there’s no doubt which sways us more.
That’s why customer referral schemes are number 6 on our list of great ways to promote your business at low or zero cost.
Customer Referral Scheme: a word-of-mouth marketing tactic that encourages customers to advocate on behalf of your brand. Rather than writing reviews online or submitting customer feedback surveys, referral programs let customers share their brand experience with partners, colleagues, and friends.
What Goes Into A Customer Referral Scheme?
There are three main elements of a customer referral scheme:
- A Great Product
- A Great Incentive
- Monitoring and Adjustment
Let’s look at those in more detail:
Related: Zero Cost Marketing Part 3 – Write A Blog
A Great Product
It goes without saying that a prerequisite for any customer referral scheme is a great product or service which people will want to recommend onward. If your product does not match up, a customer referral scheme will not save it, so be sure that you have got the basics right first. Here, we’re taking it as a given.
A Great Incentive
If your product has solved a long-term pain point for a customer or they feel they got a fantastic bargain or superlative service they may enthuse about it to others, unprompted. However, human nature means that people are more likely to complain about a bad experience than to broadcast a good one. As a result, you will probably need to incentivise customers to make the effort to recommend your product.
What Is A Great Incentive?
The answer is “something that appeals to your customers”. It’s hard to be more specific than that as every case is different. When you choose an incentive, you will need to give careful consideration to the features of your product, your customers, and the typical purchasing behaviour for your offering. For example, there is little point in offering a 5% discount or rebate on a product costing only a few pounds (That same 5% is likely to become more attractive the higher the cost of the product, however).
Likewise a discount on next purchase is unlikely to raise any interest where your product is normally bought a single time or infrequently. By contrast, it could work well for a product such as pet food, where repeat purchases are regular.
As another example, a customer on a budget is more likely to respond to “20% off your next purchase” than “£10 off our Elite range”.
Related: Zero Cost Marketing Part 2 – Web Content
Tips For Designing A Good Incentive
- Offer incentives which are broadly, or ideally universal in their appeal. Fixed or percentage price discounts are an enticement to everybody whereas offers on particular products or ranges will attract a smaller number of interested customers.
- If customers are likely to make repeat purchases, discounts work well.
- For high cost products, a flat figure (e.g. £100 off) can look enticing whereas for a low cost product, a percentage is likely to look more attractive.
- If your customers are unlikely to repeat purchase consider an alternative incentive e.g. an upgrade on your product or cash.
- Two-way incentives are usually a good option, as both referrer and referee feel that they have gained something out of the transaction.
In a two-sided referral program an existing customer receives a reward for recommending your product to a contact who becomes a customer. The new customer also receives a reward. The incentive can be the same for both parties, or different. If different, we would recommend that you weight the incentive in favour of the referrer. After all, the success of your scheme depends on them making the referral in the first place.
Promoting Your Customer Referral Scheme
You need customers to know about your referral scheme, so it’s a good idea to mention it in as many places as you can without it becoming intrusive and irritating. These could include:
- Your website
- Your social media pages
- Your customer messaging
- An email campaign (available free on a number of mail platforms)
- The flyers or documentation which you include in customer parcels
- Posters (or even a chalkboard message) in physical premises
Of course, if you speak with customers directly, either face to face or by phone or some other form of messaging, you can use that opportunity to mention your scheme and invite them to take part. The direct approach will mean that you know for sure that they have not simply overlooked your referral program.
Make Sure your Referral Scheme Is A Positive Experience For All
It’s important that the scheme produces a “Win” result for all involved. While you gain new business, both the referrer and referee should also end up feeling like they got something out of it. To achieve this we recommend you:
- Be Transparent And Specific About The Incentive And Who Will Get It
Give clear details of the reward the referrer and the referee will receive. We don’t recommend the “free gift” idea – that could mean anything and it could leave people feeling dubious about the real benefit to them. Many people will not be willing to publicise your business for you for an uncertain reward.
- Offer A Reward Of Real Value To Your Customers
Make sure that your incentive is a genuine reward and not a disappointment. We’ve seen recommendations to use a customer referral scheme as a way to clear old stock or last year’s trends. We recommend that you don’t do that unless the item is still of worth regardless of the year. After all, who wants a fidget spinner or Perfect Banana Bread recipe book now?
- Be Sure To Meet Expectations
That means rewarding all scheme participants who fulfil the published conditions. An incentive which later unexpectedly turns out to be “subject to availability” and is not received by either referrer or referee could leave them feeling duped. That could lead to bad, not good publicity for your business.
For us at ACD, it also means avoiding any apparent obstacles to the reward being claimed. Complicated further steps to claim, previously unannounced eligibility requirements or a short validity period applied to a discount code could all be seen as an attempt to avoid giving the reward you promised.
Monitoring and Adjustment
Of course, whatever type of referral scheme you use, it’s important to monitor its results. If it’s not bringing you new customers, why not? You should keep under review the referral rate arising from your scheme. If it is poor you may need to rethink your scheme and make adjustments to find out what works for you.
Referral rate is the number of referred purchases as a percentage of the number of your total purchases. The global average is around 2.3% but results vary by industry.
Minimising Cost To Your Business
Unfortunately, the famous phrase “there’s no such thing as a free lunch” is true of most things in life and it applies here as well. You will need to offer your customers an incentive which has value to them. And normally, that will mean that there is some form of cost to you. It’s worth spending the time to think this through thoroughly before launching your scheme to be sure that your incentive will be affordable for your business if the scheme is popular. However, if the reward you offer is time (a free consultation or session), a discount or a product upgrade, it could cost very little in monetary terms compared to the value of the business it attracts.
Final Thoughts
A customer referral scheme can be a great way to promote your business. There’s nobody better to spread the word about your great offering than your satisfied customers. And depending on how you implement it, it needn’t cost you much at all. You will need to plan carefully to create a scheme which is attractive to customers and also affordable for you, but get the details right, and you could watch new business rolling in.
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