Referred customers are valuable customers. But why is this? What’s the psychology driving such loyalty and such high conversion rates? And what can we learn from businesses doing it right?
It’s often the case that when talking to clients, they’ll cite social media management, content production and email marketing as their immediate priorities. Not many have ‘referral programmes’ at the top of their minds, but neglecting this area can be a serious mistake.
The bottom line is that referrals make excellent customers. Not only can you expect a 16% higher LTV from referrals, but they’re also four times more likely to make a purchase in the first place. From the other side of the table, customers bought in by referral feel more immediate kinship and connection to a brand, and will likely keep the domino effect rolling, bringing their own referrals to the table over the course of their lifespan as your customer.
Referred customers are clearly valuable customers. But why is this? What’s the psychology driving such loyalty and such high conversion rates?
It all boils down to social proof. As a marketing professional, you’ll no doubt have come across this term when redesigning your website or putting case studies together. For projects like these, social proof often translates into ‘get some testimonials’.
But there’s more to social proof than simply throwing some good reviews on your homepage.
The term was coined back in 1984 by psychologist Robert Cialdini and refers to a compelling social phenomenon. Cialdini demonstrated that in ambiguous situations (in which a person does not know which action to take), they will copy others, driven by the conviction that other people possess more knowledge than they do.
So when somebody is teetering on the edge of this brand or that brand, being nudged by social contacts can have a profound effect.
The basics of referral programme success
Referral programmes create dramatic conversion statistics because they go a step beyond testimonials. Testimonials themselves are subtly coercive because they demonstrate that a company is trustworthy and delivers what it promises. And as humans, we largely trust the experience of others.
Referral programmes are much more effective because it’s extremely likely that you’ll know the person that’s referred you. They will likely be somebody that you share a social bond with, which ups the stakes of them giving you solid and dependable advice.
And if you are overwhelmed with options, being on the receiving end of a referral can immediately help you to cut through a lot of the noise. It’s a shortcut that helps to cut down your research in a tangible way.
Referrals are so much more than ‘here, let’s share 20% off’. They tap into so many levels of our primal psychology, to let us know that it’s safe and desirable to take a particular course of action.
The best referral programmes
Assuming that all of this information has whet your appetite, what do you need to consider to get your referral scheme up and running?
Let’s look at three great examples and unpack why they work so well:
1) Thrive Causemetics
The best referral programmes are those in which everybody wins and Thrive Causemetics’ offering embodies this maxim fully.
Referrers get 10% off, their friend gets 10% off and Thrive will donate products to women in need. This is an excellent tactic for B2C brands in particular, because the discounts are nudge-worthy and the reward can be claimed immediately.
Thrive’s offering also speaks to their brand mission, providing another opportunity to communicate what they’re all about to the customer. The social enterprise has a wider mission to help vulnerable women get back on their feet and their referral scheme reinforces this with the extra charitable donation.
Setting up employee share schemes used to be dull, expensive and an administrative time suck. Vestd’s platform mitigates all of these problems and is a fun, simple and economical way to manage your equity.
The company launched their referral programme in 2020 and filtered these brand attributes into their offering.
Their referral page is fresh, clean, easy to navigate and offers the referrer a lot of choice, putting them in charge of their reward. People can choose between Amazon vouchers (always a winner), charitable donations, a box of cake or even a Mexican wrestling suit!
Booker’s ambition to create more outreach resulted in a simple and straightforward referral offering.
If you refer them to interested parties in their favourite sectors (spas, salons, fitness studios etc), you can claim an ipad mini. Any successful references after that result in a clearly-defined payment. Easy.
Again, this is perfectly customised to articulate brand values. Booker’s mission is to simplify bookings for all of their clients. A convoluted referral programme just wouldn’t do.
So there you have it, a few great examples to get you thinking about what you can do with your referral system.
By taking advantage of social bonds, you can accelerate company sales and drive wider growth. Never forget the power of social proof when creating pricing pages, demos or brochures. But more importantly, don’t forget to implement social proof’s greatest vehicle: the referral programme.
Keep it simple, keep it on-brand and you’ll have referrals pouring through the door in no time.
Jemma L. King is a writer based in Wales. Her work has won and been shortlisted for The Young Welsh Writer of the Year, The Dylan Thomas Prize and the Wales Book of the Year. She has worked with a number of businesses across the energy, manufacturing and fintech industries.