Referral Marketing – A Social Trend


Whilst working on a recent marketing internship, my company held ambitious aims with customer acquisition and retention. Internal surveys indicated that the most satisfied customers – those with a high Net Promoter Score – referred the company to friends and, most interestingly, those friends were the ones who stuck around. This blog reflects the social media aspect of my learnings when redesigning their referral marketing program.

There is currently a significant trend indicating the uptake of referral programs across industries, with firms such as PayPal, Uber & AirBnB boasting impressive growth due to their utilisation. Research conducted, which unfortunately cannot be shared for confidentiality reasons, found that this form of word-of-mouth marketing was significantly more effective than traditional channels, both in terms of acquisition and subsequent retention. The channel is centred around the concept of social capital, which can be lost or gained through referrals. Interestingly, referrals which are perceived to have been produced as a result of financial (extrinsic) incentives damage an individuals social capital. It is important, therefore, for organisations to maximise their use of extremely satisfied customers (advocates) to refer their wider networks due to their personal experience. I will present my key learnings of referral marketing through three case studies: PayPal, Dropbox and AirBnB.

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PayPal are arguably one of the first companies to utilise referral programs, and reported an initial growth of 7-10% per day. Sounds too good to be true? It was. PayPal rewarded both customers who referred friends, and the friends, with $10 cash for every sign up. The issue here, is that PayPal allowed their customers to withdrawn these incentives from their system, costing them over $20m in acquisition costs.

What PayPal Got Right: PayPal rewarded both the existing customers, and new sign-ups. The business also rewarded the customers with an “in-kind” (product related) reward.

What PayPal Did Wrong: Their referral scheme incentivised customers to sign up for the service, but not to use it. This resulted in a collection of customers who did not bring value to business.

dropbox

Dropbox is a further example of referral schemes, and achieved resounding success by targeting key opinion leaders via twitter. The business also made it easy for customers to refer their friends, adding social import features such as “Invite your G-Mail contacts”, Facebook and Twitter sharing.

What Dropbox Got Right: Dropbox rewarded referring customers with more space, increasing lock-in to the product. By making it easy to share across social media, Dropbox successfully reached vitality throughout their users extended networks.

Airbnb_Logo_Bélo.svg

The case of AirBnB is perhaps the most sophisticated and developed program. Optimising the platform for sharing, the company also included social sharing and, on its second release, pushed promotion across all aspects of the business, its social media and opinion leaders. They also developed a “share through whatsapp” feature, allowing people to directly message their friends.

What AirBnB Got Right: Made it easy to share to all friends, and allowed customers to use their social media in the way they deemed most appropriate.

For further case studies and information, click here.

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References:

Word-of-Mouth and Referral Marketing Blog,. (2015). Referral Program Examples – An Epic List of 47 Referral Programs. Retrieved 20 October 2015, from http://www.referralcandy.com/blog/47-referral-programs/

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