Referral Marketing Makeover for 2016

How traditional referral programs and social media work together to increase customer engagement.

March/April 2016

Referrals are nothing new as a means to attract more customers. Business owners have asked their current clients to come back and “tell a friend” since the dawn of commerce. However, this strategy can take on a digital dimension when woven with social media and gamification to gain more customer attention.

“Imagine cavemen around a fire saying ‘Go that way; there’s berries,’” says Matt Roche, CEO of referral marketing software company Extole.

In the digital world, social media serves as that proverbial campfire, and its pairing with referral programs has gained momentum in recent years. Like many of his peers, Roche’s software helps brands develop programs for sending out incentives and discounts to customers, deals that can in turn be sprinkled among their followers on social media.

This trend stems not only from the public gabbing on social platforms such as Snapchat, Instagram and Facebook—but also from the reality that it gets harder and harder to retain people’s attention with traditional marketing tactics. “Consumers tend to believe more in what their friends and other trusted parties talk about than what the brand advertising is,” says Vijay Pullur, CEO of SocialTwist, a social marketing technology company.

One way to leverage that trust is by getting customers to go beyond simply liking a brand’s Facebook page, and to serve as ambassadors within their social circles. For example, companies can give their existing customers private links to deals they can share, which gives the customers’ friends and family a sense of receiving very personal discounts.

That can help get around some of the aversion people might have to more direct and forceful marketing approaches. Posting referral links and deals via social media may be less off-putting than demanding that customers hand over the email addresses that belong to their unsuspecting friends. Such methods can make people feel like their pal threw them to the wolves—just to earn a discount.

An effective referral program, Roche says, gives a little something to everyone who participates. “The heart of why this works is a simple quid pro quo,” says Joshua Ho, founder of Referral Rock, a developer of customer referral software.

Introduce a win for the referring customer

The deal itself can be gamified when customers try to earn greater rewards for themselves by spreading the word and getting more people to choose to take up the offers. For instance, a $10 coupon might become a $15 coupon as the chain of referrals expands, Pullur says.

That may sound like encouragement for people to spam their friends on social media with deal after deal, but consumers can be very discriminating about what they share. “In reality, if you don’t like a product, you’ll never make a referral,” Pullur says.

Turning deals into a sort of game, where customers see online how they stack up on a leaderboard or other type of progress indicator, also taps into a subconscious sense of competition, Roche says.

Businesses that use referral programs tend to find that the new customers they gain stick around and spend more money, Roche says. Part of it has to do with the validation the brand got via the friend: The offer can also be seen as a bit of advice, especially for expensive products that are purchased infrequently.

Success measurement made easy

This digitization of referrals has another benefit for businesses and brands. Marketers can measure how effective their campaigns are by tracking where and how customers are redeeming online offers. That is something Pullur says is extremely difficult to do with real-world, word-of-mouth referrals.

Furthermore, referral programs can make social media work for the brands instead of the other way around. In the early days of social networks, businesses raced to get more and more people to like or follow their pages. “What companies found out is they spent phenomenal amounts of money helping Facebook build an awesome social graph of people who like the brands,” Roche says. Such data would be sold back to the companies, even though they did the actual legwork.

Now brands can build their own social graphs through referral programs, he says, and connect more with their customers. “That may be the most important part of this,” Roche says. “It’s not about buying loyalty; it’s about getting people to pay attention and act.”

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