4 Types of Referral Programs

Good reputation is the most prized possession for any business. Referral marketing is an effective business tool that uses current customers to generate new ones. It works on simple principles; word of mouth and goodwill.

Deriving reputable brand advocates helps build customer trust, which leads to satisfied customers who will refer your products or services on the ground to more potential customers. Referral programs are also designed to track the success of the referral made by a customer and offer a reward for each verified transaction.

More and more businesses use referral programs as a substantial part of their marketing strategies. This is an excellent business move since leads yielded from referrals have up to a 30% higher conversion rate than those generated from other marketing channels.

Referral programs are win-win partnerships that, if executed correctly, protect the interests of everyone involved. We compiled all the details you must know about referrals, different types of referral programs, success tips, and some great examples from real-life lucrative referral programs.

What Is a Referral Program?

A referral program, or refer-a-friend program, is an e-Commerce marketing strategy that works on advocacy by word of mouth. The idea is to increase brand awareness and boost sales by letting current customers advocate for your product or service. Referrals are generated in numerous ways – from user recommendations to formal e-Commerce marketing partnerships.

This program encourages existing customers, influencers, or business advocates to share good experiences about your offerings in their social circles. And if anyone from their circle makes a purchase upon their referral, the original customer earns a reward from the company. The referral incentives typically include discounts, cash, or a free month of subscription.

Leads coming from these referrals are more likely to fit the business’s customer profile and help in generating further sales. Such programs are great for nurturing long-term customers, and building loyalty and are a great method of new customer acquisition.

4 Types of Referral Programs

There are 4 kinds of referral programs that you can choose from and include in your marketing plan.

Direct Referrals

Direct referrals are one of the oldest and most effective advertisers for a business. It’s also known as the customer referral program or the word-of-mouth referral program since it attracts new prospects by having customers share their experience of your business’s offering.

A business creates a referral program and simply asks its loyal customers to spread the word. The offer has a catch for the referrer, such as free services for a limited time, a complimentary product, free access to services, etc. Sometimes, it also offers a tempting reward for the referee.

This systematic program works quite well because people trust the opinion of someone they personally know over an online review, recommendation, ad, or sales representative. These kinds of referrals are cost-effective yet powerful tools for expanding the customer base.

Tangible Referrals

This referral program works by giving a physical or digital object of value to the referral partners that they can pass on to a prospect. You can send out a $200 gift certificate to some of your best buyers and ask them to give it to friends and family to earn a nice reward.

This tactic makes the referral process more interesting for the customer because it’s simple and tangible, and brings in rewards when the gift certificates turn into customers for the business. There are different approaches to this technique, popular examples include “being a friend for free” and “give a friend a free product”.

Another extension of tangible referrals is Giveaways. A giveaway is an advertising technique that includes giving prizes to randomly selected people. Attractive prizes lure in customers who then generate a buzz around the referral giveaway, improving the brand’s visibility.

For example, set eligibility criteria to participate in your giveaway and incentivize customers to make referrals, offering all the referees eligible for the next prize draw.

It is typically done by sharing a link to the referral contest on social media platforms, website landing page, and through marketing emails with catchy subject lines. Customers can share this referral link, get more people to enter the contest, and have a chance to win.

Implied Referrals

In an implied referral program, the business does not ask directly for a referral but instead speaks by example. The company makes its work obvious without promoting it explicitly or openly asking for a referral. It involves creating a situation that shows a business’s target market how they work for their clients that are similar.

For example, a furniture designer might create a book showcasing all of his or her designs from previous projects and leave it in a salon, or office lobby to act as a brochure. Or, a remodeling contractor posting before and after pictures on social media.

This way, potential customers are able to see the quality of work beforehand and may want to contact the company based on that.

Community Referrals

Community referral programs involve a business partnering with a community or non-profit organization to offer its services and show support for its motives. It generates an opportunity to give back and earn free publicity.

For example, stating to your customers or target audiences that a percentage of proceeds from their purchases or sign-ups, etc. will go to benefit a community partner. This benefits the partner whenever a sale occurs and in return, they talk about and promote your business to their constituents.

4 Successful Referral Program Examples

Understanding your audience and offering the right reward is the key to perfecting a referral program. Here are some brands with the best referral campaigns:

Dropbox

Dropbox introduced a referral program for a digital product and aced it. Although it employed cheap incentives, it worked effectively to fuel its growth marketing campaign.

The company offered 500MB of free storage space to each new user that a referrer brings in. It also rewarded loyal customers with upgrades to Plus and Professional plans that have higher rewards.

What Referrer Gets?

Dropbox users who invite their friends, family, and acquaintances to sign up for cloud storage earn free space. In addition, they also earn referral bonuses for referring friends and accepting invites. They get 500 GB for every friend who installs and signs up on the Dropbox desktop app.

What Referee Gets?

The friend who gets the invitation to sign up for the platform gets 500 MBs of free storage space to start with.

Key Learnings

• Using low investments, Dropbox earned high rewards. Dropbox grew by 3900% after this popular referral program.
• It’s a prime example of effective give-to-get referrals.
• Referrers get a lucrative deal because getting a friend to sign up for free online storage is not hard these days since we are all looking for cheap cloud storage options.

Fiverr

Fiverr is a popular online marketplace for independent contractors to find work remotely. It links freelancers to companies and individuals looking to hire their services. Their referral program allows users to earn up to $100 for spreading the word and bringing in a friend to sign up and make their first order.

What Referrer Gets?

The referrer has to share a referral link with friends and family that they think would be interested in signing up and working at Fiverr. It’s typically done via social media platforms, email, or private messages. When a friend signs up to Fiverr, And the referrer gets 10% of the amount of their first order, up to $100.  

What Referee Gets?

The person who receives the link and signs up to Fiverr using it gets 10% off their first purchase.

Key Learnings

• Direct promotion and an attractive incentive made an impressive number of freelancers participate in the program. Google trends show Fiverr as the most searched freelancer marketplace, which eventually brings in more business.
• Quick referral earnings. Your earnings are added automatically to your Fiverr account balance and are easy to withdraw. No hassle, no delay.
• The process is easy and communicated in a fairly straightforward manner.

Vitality

Vitality is a Health, Car, and Life insurance provider in the United Kingdom. It uses rewards as a major part of its business model and successfully expands through it. Their referral program basically encourages customers to promote health and get healthier through rewards and incentives.

Its longest-running referral program is the Health and Life where you can earn £100 gift card to spend once the referred friend has taken out a health or life plan from the Vitality and paid three months premium.

What Referrer Gets?

£100 John Lewis Voucher or Amazon gift card for each friend who signs up and pays premiums for three months.

What Referee Gets?

£100 John Lewis Voucher or Amazon gift card.

Key Learnings

• This referral program observed a 98% engagement rate and 49% conversion rate. It promoted healthy lifestyles and encouraged people to take charge of their lives.
• The use of Amazon and John Lewis was a smart move since the target audiences were mostly people in their 30s and 40s. Gift cards from these stores never go to waste in these age groups, hence attracting the audiences to hop on the program and bringing in a monumental number of referrals.
• They gave the referrer a choice to select their reward from two great options.

Harry’s

Harry’s is a male grooming company that boasts a billion-dollar subscription service through its e-commerce store and shop in Manhattan. Its stellar launch made a lot of noise and for good reason.

The company executed a week-long incentive-based referral program. It was designed to collect email addresses of potential customers and offered rewards to those who can refer a friend through email, Twitter, or Facebook.  

What Referrer Gets?

The referrer can actually benefit from accumulating reward system. Here’s what it looked like:

• Refer 5 friends and earn a free container of shaving cream
• Refer 10 friends and earn a free Thomas Handle razor with a blade
• Refer 25 friends and earn an entire Winston shave set
• Refer 50 friends and earn an entire year’s worth of free replacement shaving blades

What Referee Gets?

10% off their first purchase from the brand.

Key Learnings:

• It combined referral marketing with a gamified referral element by offering tangible rewards, making it hard to resist.
• Harry’s generated 100,000 leads within the first week. This supported a successful, big launch and practically made the brand a household name.
• The campaign was a success because of how easy it was to obtain the rewards.

What Makes a Good Referral Program – Key Takeaways

A successful referral program brings in quality customers that stay longer and spend generously. Some elements that make it a success include:

• Ask the Right People: Carefully analyze your existing clients and customers and shortlist the most satisfied, loyal, and profitable ones to participate.
• Ask At the Right Time: Choose your moment, preferably at a time when customers are more likely to give a positive response. For instance, after a repeat purchase, an upgrade, a renewal, or after they leave a nice review or comment about your product or service.
• Give a Clear CTA: Make sure that you have an easily comprehensible call to action so the reader knows exactly what they need to do to earn a reward or incentive.
  
• Give a Choice for Rewards: Rewards and incentives add appeal to your program. Don’t limit them to one or selective reward or incentive. Instead, offer a choice of rewards to capture the audience’s interest better.
  
• Keep It Simple: Make sure the user experience and design are simple and easy to operate for everyone. Recheck and remove any unnecessary friction points that might stagger the referrals.
  
• Stay On Brand: Ensure that the fonts, colors, tone, and referral messaging are in sync with your brand identity and represent you in the best possible manner.
  
• Be Smart: Use smart psychology and gamification tools to lure participants to share your referral links again and again. Using booster campaigns, and tiered rewards, create fear of missing out (FOMO) and time jeopardy. This encourages referred-in friends to take immediate action.
  
• Work On Your Reach: Market your referral campaign all across the internet to make sure audiences know you have a referral program and where they can sign up. Post about it on your blog, website, and social media accounts, and market it in emails and newsletters.
  
• Offer Valuable Rewards and Pay Promptly: Make your rewards attractive to both the referrer and the referred-in person. For example, DropBox offered extra online storage for each successful referral. Also, ensure you pay the due rewards to keep the referrers engaged and motivated to continue referring.
  

Closing Word

There are several different ways to refer others to your company. Some businesses use only one type of referral, while others might need to use a combination of referral types to generate target leads. We went over 4 types of referral programs and how they can make your business grow.

You can choose one or multiple referrals and experiment to determine what works for your target audiences. If you’re confused about where to start, or how to design the perfect referral program, sign up with prefinery.com for your exclusive referral marketing strategy and let us handle it for you.

FAQs

What is the best type of referral?

A referral program that works for almost all kinds of businesses is direct referrals. It’s the best advertising your brand can get because it comes from real people who have experienced your product. They are also inexpensive and have higher conversion rates than other referrals.

What are the benefits of a referral program?

Here are some advantages:

• Generates trusting, loyal, and high-value customers
• A better measure of customer satisfaction from the audience’s response to the program
• Extends market reach
• Improves brand awareness and conversion rates
• Better customer engagement and feedback
• Enhances customer retention rate
• A cost-effective way to acquire new customers

Do you really need a referral program?

A core job for any enterprise is to find a solid customer acquisition channel that will bring in quality leads. A good referral marketing program in place can help you do that. Your existing customers will bring in new ones. This simply reduces spending on elaborate marketing campaigns to bring in new customers and increases customer retention.