referral programs

Paying Customers For Referrals May Backfire

Many companies like banks and others pay their customers for referrals.

Thinking about paying customers for referrals? You may want to think again about this approach.

Paying customers for referrals actually makes customers less likely to refer prospects to you, especially when the prospect learns that that the customer is being paid for the referral, according to a study, “Social Sharing Behavior Under E-Commerce Context.”

If you find out a friend has recommended a restaurant, hotel, smart phone, or other product because he’s being paid, you’re much less likely to trust the recommendation. On the other hand, there is nothing more powerful than a genuine recommendation from an authentic Brand Advocate.

Alex Littlewood, one of our customer success directors, talks about this in his excellent blog post “Why Referral Programs Suck.”

Recommendations are always less trusted and credible if the recommender is getting paid.

-Rob Fuggetta, Founder/CEO, Zuberance

Think you need to incentivize your customers to recommend you? Think again!

By leveraging Zuberance...

  • Chili’s identified a brand army of nearly 1 million strong who published 50,000 reviews on Yelp and shared 320,000 offers on Facebook, Twitter, and email.
  • Each Advocate of Blurb (a print-on-demand publishing service) that recommend the company, brought in 1.6 new customers.
  • 30% of Intuit’s Advocates have written reviews and shared offers with their social networks.

When I tell people what Zuberance is all about and the results we’ve seen from companies energizing their Advocates, here's most common response I get (from marketers and non-marketers alike): “So how exactly do you incentivize people to make these recommendations?”

The answer is simple: We don’t! (As explained by Zuberance Founder/CEO, Rob Fuggetta, here)

The last time you went to an exceptional restaurant, you probably went to work on Monday and raved about the best steak you’d ever had to your colleagues. What did that restaurant give you for the recommendation? What about the smart phone you suggested to your cousin or the bottle of wine you recommended for your sister-in-law? How much did those companies pay you?

So what motivates a recommendation? Take a look:

Recommending brands and products is not a selfish action. However, if you encourage your customers to talk about you by leveraging a selfish motive (such as referral programs), it taints the recommendation. This makes your customer look bad because he’s trying to score some cash or reward points at their friend’s expense; and it makes you, as a brand, look bad because it’s basically telling your customers, “Look, since our product isn’t worth talking about genuinely, how about I give you some rewards points to do it and we’ll call it even.”

Keep recommendations for your brand authentic by going above and beyond to please your customers (becoming “customer-obsessed” as Josh Bernoff put it in a recent Forrester report.) Then, you won’t have to worry about paying or incentivizing your customers to talk about you. Because let's be real, that’s just lame anyway.

-Cara Fuggetta, Marketing Manager, Zuberance

Acquire and keep new customers- The retention effect of Word of Mouth

In a recent post, I expressed my thoughts on "Why Referral Programs Suck" from a brand's perspective. Now it's time to look at the weaknesses of referral programs from a consumer's perspective. Think back to a time when someone made a recommendation to you. Whether it was a restaurant, a car, or a SaaS Software platform, that recommendation carried weight with you and played a significant role in your purchase decision. Now, consider for a moment, you find out that your "friend," Matt, who recommended you purchase a $45,000 car, was paid $500 after your purchase. Or worse yet, he got some rewards points redeemable for a cheesy vacation getaway, which turns out to be a sleazy timeshare pitch. What are you thinking?

You might feel…

  • Misguided – The intention behind the referral was not pure. “What’s the deal Matt, you pimp out your friends for cold hard cash now?
  • Indifferent – That recommendation wasn’t authentic, the referral was made for personal gain. Maybe not exclusively, but that doesn’t matter. “That means about as much to me as the ads on the back of a bathroom stall door.”
  • Hustled – Especially if you find out after your purchase. You just spent your hard earned cash based on a recommendation you thought was genuine. What remains of your relationship with that person? With that brand? “Did you actually believe this was right for me, or did you just want a reward?”
  • Less loyal – If a few bucks got you in the door, a few bucks will get you out the door. Your switching costs are no longer tied to any brand affinity, just the dollars and cents. “I’ll stick with this until the next deal comes along.

You get it.

On the flipside, an Advocate recommendation is:

  • Trustworthy – In a study by Nielsen, 92% of consumers said they trust a recommendation from a ‘person they know’, and according to Econsultancy 70% still trust recommendations from people they don’t know.
  • Influential –  Research conducted by McKinsey concluded that “a recommendation from a trusted friend conveying a relevant message is up to 50 times more likely to trigger a purchase.” In another study by Zocalo Group, “90% of consumers said that Word of Mouth was the primary influencer in their purchase decision.”
  • Cultivating Loyalty – The Harris Poll reports that “76% of Brand Advocates said they were more likely to repurchase themselves after recommending a brand or product.” And Deloitte found that “customers referred by other customers have a 37% higher retention rate.”

When referred to your brand based on altruistic and authentic recommendations, consumers are more likely to develop a deeper and more long term relationship with your brand and the Advocates that helped them. Growing your business through Advocacy will result in more loyalty, more Word of Mouth, and more profits.

-Alex Littlewood, Senior Customer Success Manager, Zuberance

Why Referral Programs Suck

I don’t recommend ‘buying’ your customers. I’m a proud Detractor of referral programs that incentivize customers to refer their friends and family. There’s little difference between this approach and pyramid schemes… and everyone hates pyramid schemes.  Your brand is better than that.

Why referral programs suck:

  1. It’s fake. Using incentives to ‘buy’ referrals is equivalent to admitting that your brand is not worth recommending based on its merits. “We know our product isn’t good enough to tell your friends about, so here’s $10 to tell them it’s good anyways.” If this is true, fix your product or you will fail in the long run no matter how much cash you pump into buying referrals.
  2. It conditions undesirable behavior.  By paying for referrals, you train your customers that they should only recommend your brand when there’s something in it for them. Advocates recommend brands because they’re altruistic, don’t ruin that.
  3. It’s an insult.  Your customers are not mercenaries for hire. And their friends and family aren’t chumps. Besides that, when someone gets referred by a person that’s being compensated, credibility and trust gets flushed down the toilet. Just don’t do it, OK!

The beauty of Advocacy:

  1. You’ve earned it.  As a result of the hard work your brand has put into establishing an excellent product, great customer service and exceptional value, you’ve earned the business of your customer.
  2. They want to advocate your brand. Often, more than 50% of your customers will say they’re highly likely to recommend your brand, when asked. You just need to ask them to do so. Without bait.
  3. Advocacy = Altruism. The number one reason people put their reputation on the line to recommend products and services that they believe in, is to “help” and make it easier for others to find products and services that meet their needs.

Now, there comes the little matter of demonstrating to your Brand Advocates that you appreciate their recommendation. This can be as simple as a thank you note, or an actual reward (coupon, giveaway, etc.) for their Advocate actions. This may seem like a subtle difference, but I assure you it is not. Consider the difference between the two following calls-to-action, and the motivation for why an Advocate takes action:

  • Referral approach: “Tell a friend to sign up, and we’ll give you 50 dumb reward points, and this T-shirt you’ll never wear.”
  • Advocacy approach: “You’ve experienced the benefits of our product, please share your experiences and spread the word. Love you, mean it.”

Take the Advocacy approach, and then demonstrate your appreciation to your customers when they recommend your brand. This will drive immediate purchases, and some may take a while. Either way, if you encourage and show love for these Advocate behaviors then positive Word of Mouth will drive your business to new levels.