Referral Programs 101: The Ins & Outs of Referral Marketing

What is a referral program?

A referral program turns customer advocacy into a cost-efficient revenue driver by encouraging shoppers to recommend your products. Brands offer referrals through multiple channels, including on-site pop-ups, custom pages, SMS campaigns, and email campaigns. Most brands also encourage referrals through reward schemes, like “Give $10, Get $10.”

Imagine this: You’re a pet care brand. One of your loyalty members belongs to a Facebook group with 5,000 members. Someone asks for recommendations for leashes. Your customer responds and recommends your product. Three other people chime in to say they love it too.

Not only does the original poster consider buying your product, but so does everyone else reading the comments on that post. If your customer also posts a referral link, they get rewarded for anyone reading who decides to purchase your product.

What are the different types of referral programs?

Brands can use several types of referral marketing programs to their advantage. These include:

• Direct referrals: Also known as word-of-mouth referrals, this type of referral relies solely on happy customers recommending your brand — no incentive necessary. There aren’t any bells and whistles here; it’s just satisfied customers speaking highly of your brand.
• Email & SMS referrals: Email- and text-based referrals allow customers to send other prospective customers referral links to particular products.
• Social media referrals: Also using referral links, brands often leverage social referrals when working with influencers and micro-influencers. When an influencer posts about your product, they can include their personalized referral link to spur sales.
• Reward-based referrals: Incentivized referrals are what you’re probably familiar with. With this system, both the referrer and the referee are incentivized to purchase with your brand. They usually follow the “Give $10, Get $10” structure and encourage loyalty members to send referrals to friends and family.

5 benefits of referral programs

Referral programs’ benefits go far beyond lower CAC. They also help brands establish trust among new shoppers, generate higher quality leads, boost CLTV, and more.

1. Referral programs cut down on customer acquisition costs: Unlike traditional influencer marketing and other paid acquisition channels, customer referral programs allow you to turn happy shoppers into organic brand advocates at almost no cost to you. An effective referral market strategy brings in new leads keen on spending with your brand, and they help you cut through the noise when it comes to competitors.
2. Referral programs build brand trust: Customers are more likely to trust and buy products recommended by friends and family, which can help boost trust among new and burgeoning brands. In fact, according to a Kantar survey, 93% of consumers trust recommendations from friends or family over brand advertising.
3. Referral programs boost customer lifetime value: Referred customers are 25% more valuable than non-referred customers, as they’ve taken the initiative to introduce new shoppers to your brand, and they’re much more likely to spend more per purchase.
4. Referral programs highlight your brand mission: Reward shoppers based on your brand mission. Sustainable brands can offer tree plantings in exchange for successful referrals, or social justice-oriented businesses can donate on behalf of referees. Not only do you elevate customer trust in your products but also in your brand.
5. Referral programs create a strategic retention strategy when paired with loyalty: Continue to offer shoppers top-tier experiences and perks after they receive their referral discount, and turn one-time shoppers into lifelong brand loyalists.

Why loyalty and referral programs work hand-in-hand

While referral programs are an excellent acquisition tool on their own, how do you keep these customers around for the long term? Launching joint loyalty and referral programs creates a strategic acquisition to retention pipeline for your brand.

Here’s why the two go hand-in-hand:

1. Boost ROI: Loyalty and referral programs reward customers, offering a clear reason to return and spend more with your brand. After being referred to your company, shoppers continue to receive value from your loyalty program, like personalized experiences, experiential perks, early access to products and sales, and a community of like-minded shoppers. A standalone referral program doesn’t reshape consumers’ shopping experience in the same way.
2. Target your business goals in new ways: With a joint loyalty and referrals program, you can achieve transactional business goals and beyond. Depending on your brand, you can create campaigns that help you increase AOV, boost social follows, or catalyze community engagement.
3. Keep new and old customers: Loyalty and referrals programs provide a multifaceted approach to retention and acquisition. A loyalty and referrals program gives shoppers more than a one-time discount code to return your business. Additionally, loyalty rewards are buildable and personalized, making them more of an incentive to shoppers than un-stackable referral codes alone. Together, loyalty and referral solutions create a loyal customer pipeline, not just an acquisition strategy.

3 successful referral programs in action

Trying to decide how to build a top-tier referrals program? Let these three brands inspire you.

The Honest Kitchen

Founded in 2002, The Honest Kitchen is an innovator in the pet food space and created to human-grade standards. The brand serves up a premium product that pet owners don’t switch to on a whim, but once they find a product that works for their pet, “they’ll keep coming back,” says Leanne Pratt, Digital Marketing and eCommerce Manager.

“There’s a high education component that people seek out when they’re looking for pet food,” says Pratt. “Allowing customers to share their experience with our product and their pet would not only help other pet owners in a similar situation, but it would also build engagement with our brand in a really unique way.

After launching their loyalty and referrals program, The Honest Kitchen now sees 4x times the industry average for referrals and a 25% referral conversion rate.

Ministry of Supply

Ministry of Supply, a science-backed clothing brand, wanted to create a referral program to engage new shoppers. But, without establishing more profound relationships with customers and rewarding them for their commitment to the brand, few customers made referrals, even if they liked the brand’s products and services. “We weren’t wild about the referrals program we had,” says Weisman. “We needed a solution that could help us build the brand love and advocacy that reflects our exceptional customer service.”

The brand’s revenue has doubled in the first six months since launching a joint loyalty and referrals program. And, over half (52%) of referrals now come from VIP members who have spent over $300.

Lovesac

Lovesac is a modern furniture store that got its start with ultra-comfy bean bag chairs. LoveSac’s Refer a Friend program helps acquire new customers and builds brand trust. With their “Give $100, Get $100” model, the brand has seen an 8% referral conversion rate. Referred shoppers feel confident giving the products a try, and with a built-in incentive, the path to purchase is shorter than ever.