Rewards and Referral programs are not new. Most companies we come across do referral programs in some way or another. However, most of these companies do not have a focused structured rewards and referral program either which is a pity because it can be a very cost-effective tool to engage existing customers and pay for new customers.
A reward program essentially tries to induce certain behaviour in your customer. Typical reward programs incentivize customers to do the following:
- Social actions like twitter follows, facebook likes and shares, instagram posts that help create awareness and “social word of mouth”.
- Purchase actions like any repeat purchases, a certain number of repeat purchases, higher value of purchases help maximize the value generated from each client.
- Engagement actions like writing reviews, reading content and answering related questions helps create a stronger brand recall and brand attitude for a company.
- Referral actions such as inviting friends to view and purchase products can be strong growth levers for any company.
While all these are important, referral actions take the highest priority for most brands since the cost of customer acquisition is generally increasing across sectors, especially as competition increases. One of the companies that does the referral piece really well is Goibibo, one of India’s largest online travel agents.
Goibibo has a referral program where you as a customer can upload your contact list. Goibibo will then invite the entire contact list to join Goibibo if they aren’t members already without using your reference. When any contact from the list books anything on Goibibo, the referrer gets Rs.50 as Goibibo cash that can be redeemed for the next booking on Goibibo.
Let’s look at what makes an ideal rewards and referral program:
Rewards and referral program needs to have a separate focus, accountability structure and reporting for the program needs to be put into place if it has to succeed. The start should be identifying what are the various actions a brand would like its customers to perform and what the business benefit of that action would be. Then put a monetary value to that business benefit and assign a part of it to the reward the customer can earn for performing that action.
2. The scale of incentives
Does your customer get an equal amount of money for every referral? I like to use what I call the 1234 rule. For the first referral, a customer gets 1x, for the next 2x, for the third 3x and for the fourth 4x. The idea behind the 1234 rule is not to stick to these numbers but essentially, give a small reward for the first referral and make every extra referral a little more lucrative. Once the customer gets to the peak referral number, he ends up getting a lot of value.
In this model, the peak referral number needs to be lucrative enough to entice a large number of customers to participate but also difficult enough to reach. Only a small number of clients should reach this number so that the company doesn’t lose a lot of money on referrals. Those that do, would have become ambassadors for the company in the journey and need to be handled as part of a separate program. Those who do not reach this goal would not be dissatisfied either because they earned incentives along the way.
3. Make it easy
Look at rewards and referrals from a customer’s point of view while designing the program. If he is expected to put in a certain amount of effort, he needs to be rewarded with an equivalent number of points or a chance of winning something really big. Ideally, rewards and referrals should not require more than a couple of clicks. The more you expect people to do, the more they are likely to drop out.
4. Use your own currency, consistently
Instead of giving actual cash for actions, create your own currency that customers can accumulate and use for purchasing a product or service. This builds loyalty since they are now incentivized to purchase from your store than a similar competitor. If you do create your own currency, make sure that you use that currency across different rewards and referrals otherwise it creates confusion that ultimately leads to loss of interest in the program.
If you are planning to set up a rewards and referrals program, you can either code one from scratch if your tech team has the know how and bandwidth or use a full featured solution like SwellRewards which has an extensive set of reward options as well as APIs that can be used for deep integration with your business logic.
Another thing I like about Swell is that they give you a detailed report of your rewards and recognition program. The best part is that it is free for the first 100 orders a month as well as for unlimited orders during the first month during which at the very least you will have a good idea about what works and what doesn’t for your product or service offering.