E-Commerce brands have the same opportunity to take advantage of referral marketing. Marketing executives are aware that Refer a Friend can be profitable.
It's true that some brands aren't benefiting from great returns for a few reasons:
However, most brands are seeing promising results - even from in-house efforts. This is the case because for online retailers, Refer a Friend is attractive because it rhymes with lower CAC and more bang for the buck.
For a VP Marketing or a CMO who's behind on acquisition goals, this can become a new secret weapon.
Though today's marketing executives are fully aware of the benefits of referral programs, the purpose of this post is to highlight just how much impact the scale of a successful referral program can bring to a company -- as can be seen in the cases of Airbnb, Dropbox, and Uber.
For example, a Sociable Labs case study found that Beyond The Rack's original in-house program delivered great ROI, but fell woefully short in producing real impact for one simple reason: scale.
After all, what is the point of a referral program if it cannot scale across your marketing mix?
The problem is that until recently, referral programs have been fairly inaccessible for E-Commerce brands who are most concerned with protecting their core competency: selling.
In spite of the technical challenge involved in building a best-of-class Refer a Friend program, which isn't solved via traditionally-priced SaaS vendors due to a lack in ROI clarity, brands choosing to build their own referral programs face the same challenges Airbnb, Dropbox and Uber did on their journey to atmospheric growth.
To prevent you from reinventing the wheel and going through the same painful lessons along the way, we've prepared a few essential examples and lessons to keep in mind as you embark on your referral marketing journey.
But before we get started...
REFER A FRIEND: MORE THAN A NICE-TO-HAVE
Companies fail to see impact from their referral programs for a variety of reasons. One of these reasons is both one of the most powerful and most basic:
At the core, Airbnb, Dropbox and Uber's refer-a-friend programs are far more than nice-to-have assets. In fact, referral marketing is driving a large percentage of new user acquisition, yielding customers with lifetime and average order values many times greater than customers acquired via traditional paid media.
Here's the kicker:
These companies aren't using referral as one-off campaigns. Instead, they leverage social sharing to amplify the rest of their marketing mix. The result? More bang for each acquisition dollar spent across the board.
Let's take a quick look at how these consumer brands are driving social selling using Refer a Friend. Following these examples are seven best practices you can leverage today to reduce your customer acquisition costs, get more customers and reach your E-Commerce revenue acquisition goals with greater impact.
Dropbox's referral story came from a higher sense of necessity than from an interest in testing Refer a Friend as a marketing channel. As PPC ads became more and more expensive, the cost of a new customer began to create serious business model problems that threatened the success of the then young startup.
In light of this, Dropbox launched a double-sided reward program incentivizing both the referrer (parent) and the referred (child) to take immediate action -- in this case, inviting additional people to use the service in exchange for additional storage space to both the referral parent and child.
The result? Dropbox increased user signups by 60% permanently.
Because as a product, Dropbox is so shareable, referral marketing allowed the company to bypass a previously unprofitable paid user acquisition model in favor of an approach that took advantage of the organic signups their referral program generated.
Thus, Dropbox's initially abysmal CPA, which ranged between $233-$388 for each customer acquired via traditional paid media, now fell dramatically as 35% of daily signups originated from their referral program.
While reducing the cost per acquisition proved to be a big win, the biggest impact on Dropbox's business came from the scale their referral program enabled, which Dropbox rightfully leveraged to its full extent.
As of today, Airbnb's valuation has soared to over $25 Billion, generating annual revenues in excess of $900M. Even more impressive, that valuation is more than double that of last year. A large portion of Airbnb's initial (and current) user acquisition success is due to the impact delivered by their Refer a Friend program.
Once again, the key here for Airbnb wasn't positive ROI - it was scale.
Airbnb's referral approach relied on sending email invitations to existing participants. That offer was compelling: referrers receive a $25 travel credit when new members take their first trip. Additionally, they would receive an additional $75 credit when they hosted a guest for the first time.
From Airbnb’s perspective, the Refer a Friend program was obvious. After all, they only paid for referrals after new users made a purchase. This ensured that they weren’t wasting any money on unprofitable referrals. The program worked and still does to this day.
Airbnb's growth came not from the profitability of their ongoing referral campaign, but from the sheer scale at which they could apply the program across the rest of their marketing activities, including PPC - producing huge incremental user acquisition gains - to the tune of propelling them into never-before-seen growth rates.
This was made possible because Airbnb's referral program was baked into Airbnb's product at various trigger points, leveraging the company's user experience to incentivize profitable social sharing at scale.
You can learn more about how Airbnb used this approach in the video below, where Airbnb's Jimmy Tang and Gustaf Alstromer discuss Airbnb's growth strategy.
It isn't recommended to copy another company's referral program for the simple reason that each referral program pertains to a particular use case. Analyzing other referral programs should hopefully create a sense of awareness for what will work best for your customers.
Identify which customer segments are most likely to refer (net promoter score is a great indicator here) and offer appropriate, double-sided benefits to both referral parent and child.
Additionally, focus on streamlining your calls to action by integrating them as much as possible into your overall user experience. Your referral program is the sum of its parts; moving parts you have the power to optimize on a continuous basis.
But companies are busy. They want results and don't have the time, resources or justification to build, launch, manage and optimize a best-of-class Refer a Friend program. So they wait.
"It's not the right time," they say. "Maybe next quarter," they say.
In spite of this, many leading online retailers are moving to build referral programs in-house and are going through the growing pains we've described above. Sometimes, ROI is great but the scale is just not there. Such is the case of Beyond the Rack, who initially fielded an in-house referral program before choosing a different route offering them a managed service guaranteeing both scale and ROI.
Read the full Beyond The Rack case study on how BTR ended up leveraging social selling to optimize their ad spend and achieve 12X ROI while also increasing user registrations by 8%.
Download The Case Study By Clicking Below:
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