Testing different types of rewards and levels of reward can have a major impact on the success of a referral programme. Whilst the rewards aren’t usually the primary driver of a referral, if you get them wrong then your customers just won’t share. There are no hard and fast rules on rewards but it is always worth testing extensively which rewards work best for your customers and whether different rewards work better for different customer segments.
Test, test and test again
Whilst incentives are not the sole driver of referral programme success, they are important and can make a big difference. We find that it is possible to more than double the performance of a programme by testing different offers. Testing offers sounds like an obvious thing to do but it’s more complicated than it first sounds and you need to make sure that your programme has the capability to do so. If you show an offer to a cohort of customers for a month and then want to test a different offer, it would be a very poor user experience to just switch out the offer that referred friends of the first cohort are expecting. To avoid this you need to be able to conduct AB testing by cohort so that you can offer consistency of experience to each cohort. AB testing by cohort enables you to offer one cohort an offer and for them and their friends to continue to benefit from it for the next six months but for the next cohort to see a different offer and for them and their friends to be able to benefit from the new offer. In order to unlock referral being able to test offers in this way is critical.
How much to offer
This is very business specific. Your underlying economics will determine how much you can afford to give away. The other offers that you have in the market place will determine how much you need to give away in order for the referral offer to feel special. Both offers should always be better than other offers that the referrer or their friend could get elsewhere. Without this the customer feels like they’re doing their friend, or indeed themselves, a disservice in sharing it. The reward for the friend should be at least better than other new customer offers on the site and the reward for the referrer should be better than other offers you’ve been emailing to your base or that they can see on your site. Businesses that get referral to work often find that they can go deeper than they go in other channels because they can afford a higher cost per acquisition for referred customers. Since referred customers tend to spend 15% to 25% more on their first order and have double the lifetime value it is possible to be generous in the incentives that are offered. Teams often want to prove this before rolling out deeper offers and so again a platform that allows testing by cohort is critical to be able to do this.
How to split the incentives
The rule of thumb here is that a balanced offer between the referrer and their friend is best. If you are generous to the referrer but not to the friend then the referrer risks feeling like they’re taking advantage of their friendship and may not share. If you’re generous to the friend but not the referrer, it makes the referrer question why their friend can get a better deal on your site even though they themselves are already a loyal customer. That is not to say the offers need to be the same. It may well be that you can’t offer them the same because of your business model or your business systems. Or simply because money off a future purchase isn’t attractive to a referrer if they’re unlikely to buy again for a while. In these cases, offering something that the customers perceive to be of roughly equal value tends to work just as well.
Rewarding the referrer, their friend or both
For the reasons outlined above, we’ve found that rewarding both parties works significantly better than only rewarding one party. Some businesses think that the referrer should only need an offer to give to the friend and not need the reward. However, this can leave them feeling frustrated if they’ve never been able to get that offer themselves. Similarly, if you just give the referrer a reward then it can feel like you’re trying to pay them to take advantage of their friendships and that can make people feel uneasy and prevent them from sharing.
The most effective incentives
There are some other rules of thumb here based on our experience that we use to determine which incentives to test. The first rule is that money off your own product or service tends to work best; customers understand it, they like your product or service enough to recommend it and so will probably want more of it. It also is likely to be more cost effective for you as a business. Where it isn’t appropriate because of your business model or your business constraints then 3rd party vouchers can work. Generally the more liquid the voucher the better. In other words Amazon works very well because it can be used universally online towards a wide range of products. The supermarkets are next most effective because people can envisage using the vouchers soon. After that comes national brands (like M&S in the UK). Finally then come national brands with regional bias (such as John Lewis in the UK which has a much stronger retail presence and brand affinity in the South). In most cases these can either be fulfilled by e-vouchers or as physical cards by post. What is interesting is that offering cash, the most liquid of rewards, tends to convert less well because it results in confusion. Customers don’t understand why you as a business are offering them cash rather than credit towards your store nor do they understand how you’d give it to them. This confusion is usually enough to stop many from sharing. Best for conversionCredit for your own product* Cash £ / $ / Euro Perceived liquidity of reward * so long as the customer can perceive using that credit in the near term It should be said that this is not a hard and fast rule and that there will certainly be circumstances where you make decisions based on what is right for your brand. For instance, many brands may consider it inappropriate to offer a supermarket voucher. We would always recommend testing different offers and seeing what works best for your business, and preferably what works best for your different customer segments