Everywhere customers go they are surrounded by ads and marketing. As a result, they have learned to tune out traditional marketing. This means that companies need to find another way to reach their customers effectively. According to Hubspot’s study, 81% of people trust recommendations from friends or family over those from businesses. And while some customers may recommend your product without any incentive to do so — just because they’re genuinely happy — others might need a little motivation. That’s why referral loyalty programs are one of the most effective ways for businesses to boost customer acquisition and retention.
What Are Referral Loyalty Programs and Why Do They Work?
You probably already have a group of happy customers spreading the word about your product. But what happens when you add power to the referral machine by incentivizing those customers with rewards? Customers may enjoy bonus points, early access, free items, coupons for future purchases, and more. Referral loyalty programs encourage existing customers to recommend your products to their network or anyone on social media.
Referral loyalty programs also increases customer lifetime value and boosts retention. That matters because loyal customers are worth up to 10x of the value of their first purchase. Impressively, 18% of Gen X consumers say word of mouth is the main way they discover brands. And that’s great news for brands because referral leads tend to have a 30% higher conversion rate than leads from other marketing channels.
The Benefits of Referral Loyalty Programs
With the help of referral loyalty programs, businesses can easily pinpoint their biggest brand fans, as well as track where new customers are coming from. It also provides companies with an additional layer of credibility, while generating twice the sales of paid advertising.
But the benefits don’t stop there. Other benefits include:
- Expand your network: referral loyalty programs provide access to your customer’s circle of friends and family. Including influencers in your loyalty program exposes your brand to new audiences.
- Meet valuable customers: referred customers already have a positive opinion about your company because they hear about your brand from family and friends. As a result, they tend to have a higher lifetime value than customers acquired in other ways.
- Acquire frequent customers: referral loyalty program members have a higher chance of becoming long-term customers. A customer who refers a friend is likely to visit your website more frequently and, in turn, purchase more often.
- See great ROI value: adding a referral loyalty program to your existing loyalty program is a cost-effective way to advertise.
- Build stronger relationships: rewarding customers for spreading the word about your product shows them that you cherish their contribution.
- Identify your most devoted customers: referral loyalty programs allow you to track and target your most loyal customers and provide a more personalized experience.
How to Make the Most Out of a Referral Loyalty Program
There are many ways to turn your customers into spokespeople for your business, but one of the most powerful ways to do so is by offering the right rewards. When they join your referral loyalty program, they receive a unique code or link to share with their network. Companies can track referrals through referral codes, rewards cards, or referral links.
The referral process creates a natural word-of-mouth marketing experience for your brand, which ultimately increases both your customer retention rate and revenue. Referral loyalty programs also encourage brand advocates to share your brand’s story on different social media channels to snag referral rewards. This means more publicity and conversions for your brand.
Influencer Loyalty Programs
It makes sense that people trust recommendations from their family and friends more than they trust sponsored ads. Interestingly, it also turns out that people also trust reviews from authentic influencers. This means leveraging influencers may be an effective tactic to boost your brand’s referral loyalty program.
The appeal of influencers lies in their perceived ability to generate buzz around your company. With a high reach and highly engaging content, influencers drive positive word-of-mouth among their loyal follower base. 34% of customers following brands on social media say they like to see content created by people who are using the brand, such as reviews, unboxing videos, and product demos. In return, influencers receive special treatment like VIP services, pre-launch product features, special discounts, or sponsorship to attend events.
Gamification is another great way to encourage referrals without incurring a high cost. In a referral loyalty program, customers already get points for referrals, so why not turn it into a game and make it more fun? Place a progress bar or visible tokens in your loyalty program to help track referral rewards. Use your products and brand story as part of the game so customers feel more emotionally connected.
5 Examples of Loyalty Programs Supercharged With Referrals
Companies need to design their rewards programs to guide customer behavior. Encouraging social and behavioral actions, such as peer referrals, is a prime example. According to Forrester‘s Q4 B2C Marketing CMO Pulse Survey, 54% of respondents said that they had a referral loyalty program embedded in their broader customer loyalty program; another 38% said that they have a stand-alone customer referral program Let’s see how companies show their appreciation for customers who bring in new business through referral loyalty programs.
1. Diamanti Per Tutti – The Diamond Club
Belgian diamond jewelry company Diamanti Per Tutti implemented an omnichannel, influencer-friendly loyalty program promoting affordable luxury. Diamanti Per Tutti wanted to draw attention to the beauty of contemporary jewelry and place a strong emphasis on diamonds.
Furthermore, the company wanted to spread their message with the help of social media influencers and brand advocates, who get unique loyalty benefits in return. A select few are even invited to The Ambassador tier, which is a secret VIP tier. Some of the perks of being an Ambassador include free jewelry, VIP services, discounts, and the opportunity to rent products for special brand events.
2. BrewDog – Planet BrewDog
BrewDog’s new badge-based loyalty program, powered by Antavo, encourages adventure. Planet BrewDog rewards customers for exploring more of the retailer’s beer selection. One of the features of their program, Planet BrewDog, lets members refer their friends using a referral link found in the member’s profile on the company’s website. When members place orders using a referral link, both parties receive a discount. BrewDog’s loyalty program also rewards members for helping the company achieve its sustainability goals. The company shows its commitment to making the world a better place by taking twice as much carbon out of the air as they emit. Plus, they also plant a tree for every multipack of beer sold.
3. Sephora – Sephora Squad
Sephora’s beauty influencer program, Sephora Squad, is comprised of a unique and inspiring group of storytellers with a diverse range of followers, points of view, and interests. Sephora recruits experienced and aspiring beauty influencers.
Members of the program receive free products, content collaboration opportunities, professional coaching, networking events, early access to products, and many other benefits. The company is looking for influencers who love sharing honest stories of triumphs and struggles and who are looking to make genuine connections and build a community.
Squad members can also try hauls of products from the most buzzed-about brands and get early access to some of the industry’s most highly anticipated launches.
4. Tesla – Tesla Supercharger
Tesla Motors has always been forward-thinking. They don’t use traditional forms of advertising. Instead they rely on word-of-mouth from existing owners, bloggers and influencers to bring in new customers. A couple of years ago, the company launched a referral loyalty program, which provided a great example of how to reward referrals with something other than pure product discounts. Within their referral loyalty program, new buyers could use referral links from current owners when buying a new Tesla. Both new and existing customers received 1,500 kilometers’ worth of free charging. Although the company has since ended this part of its referral loyalty program, they have kept the program for Solar Roof, in which Tesla customers can earn $500 when ordering Solar Roof through a referral link.
This is the “World’s #1 Tesla referrer”, who referred more than 1,400 people to buy a Tesla. His efforts helped him earn nearly 2 million free Supercharger Miles, which he is going to use to travel over 2,500 miles across the USA.
5. Dropbox – Dropbox Referrals
Dropbox’s referral loyalty program is probably one of the most famous of all. It’s still used in case studies to showcase how referral loyalty programs can contribute to growth. With its program, the company managed to increase the number of registered users from 100K to over 4 million in a little over a year. By 2017 they had almost had 34 million members. The success of their referral loyalty program lies in it being very understandable. Since the company offers storage space in the cloud, they decided to reward customers with additional space, not only for customers who referred friends, but also for new customers who accepted the referral invitation.
Customers Are a Brands Greatest Asset
As we can see, one of the most effective ways to get more customers down the sales funnel and increase sales in the long run is having a referral loyalty program. When implementing a referral loyalty program, it’s essential to understand the best ways to incentivize sharing among your customers. Harnessing referrals by using a well-designed program that encourages word-of-mouth and builds customer loyalty is key.
Meanwhile, download our guide to better understand the process of creating a successful loyalty program.
Barbara is a Loyalty Program Specialist at Antavo and a Certified Loyalty Marketing Professional - CLMP. She is also a writing expert with several years of experience in marketing and also in the information technology industry. In her free time she likes traveling the world, reading crime stories, and doing crossword puzzles.