Everything broken down in less than 25 slides
I have been meaning to talk about referral marketing for a while now. Figured it was about time I got my shit together and get it done, so today I made a slideshow detailing things out. Some of the slides:
WHY REFERRAL MARKETING?
Well. Other than the obvious answer revolving around the fact that it is the most RoI-effective growth tool, customers acquired via this channel are THE most valuable ones and other such many points, I have an additional reason as well.
It fascinates me!
I always talk about Dropbox when I talk of marketing. It doesn’t matter whether I would be advising you on formulating your marketing strategy, helping you identify the right marketing channels for your business or just helping set the right tracking metrics in place, somehow Dropbox always creeps into the discussion. And it doesn’t matter which direction I am shining the spotlight from, I am always shining it on their customer referral program.
Dropbox should have shut down, and it probably would have — had they not deployed the referral program.
Initially dropbox was acquiring customers via search ads and affiliate channels, with an average CAC of ~$350. How much were they charging their customers for their services? $99/yr. The maths didn’t add up, and it did not make any business sense. That is when they decided to take a leaf out of Paypal’s referral program, and launched their famous “Get up to 16GB free space” program.
Yeah. They weren’t the first ones to use the two-way reward system, but they were the ones that practically made it into a sensation.
- In less than 15 months, their registered userbase had shot up from a mere 100,000 to 4,000,000
- More than a third of their daily new sign-ups could be attributed to their referral program
Now, that’s called ‘breaking the internet’.
After Dropbox’s phenomenonal success, things quickly got out of hand with programs like “Give $10, Get $10” being adopted by every other business you could see around you.
Uber and Airbnb have witnessed their amazing success owing to a similar referral program, though I must admit that they went over and beyond, and the results were even more amazing.
Airbnb first deployed a successful referral pilot, and then improved it even more.
The first referral program Airbnb launched was similar to the one launched by Dropbox. Users could gift their friends a discounted deal on their next stay, and on every successful stay, the referrer would get $25 of credit. This pilot was tested out in a tightly held group of a couple of thousand users, and it displayed a viral growth factor of 1.
You may call it — each one, brought one.
So, Airbnb decided to up the ante, and put $100 up for the referrer to grab.
- $25 would get disbursed when the friend stays at an Airbnb
- $75 gets disbursed when he lists out his own place on Airbnb and hosts a guest successfully.
Airbnb just hit two birds with one stone. Demand, and supply baby!
Uber did something similar, albeit in a different fashion. It offered referral credits for both customers and drivers, though they were kept segregated from each other for all intents and purposes.
Nevertheless, these programs worked amazingly — for both the companies. And today they are one of the most valuable tech startups globally.
Since then, there have been countless businesses who have used referral marketing in different ways to drive immense value to their product.
Be it Amazon, Hulu, Netflix, Evernote, or any successful business you can think of, behind their success, standing somewhere in the shadows, you will find the soldier that is their referral program.
THE ONE RULE YOU MUST ALWAYS REMEMBER
There are many things you should consider and remember when you are launching a referral program, but most of them are optional.
One, however, is not. It is the holy grail of all rules — one that you must adhere to.
Never expect consumers to refer because of the ‘reward’. The reward is gratitude you offer them in return. If you want your consumers to refer their friends, better make sure you are worth those high praises.
Look at Amazon. It is no hidden secret Prime is a key focus for Amazon. Prime consumers have much higher LTV than regular Amazon customers, and are more loyal too.
And Amazon works really hard to make sure that their Prime consumers never feel let down. So much so that their confidence in their Prime offering is something you can taste dripping from their referral program.
Tell your friends how much you love Prime.
And that’s the way it works. I would put my face into recommending a product only if I am already in love with the product. I am not going to risk getting my face dragged through mud for $5.
Unless you are sure you have reached that level of delighting your customers, I would hold on to the launch date of that referral program.