How a customer referral program can help drive business
November 14, 2011
Whether you're an ecommerce startup or a mom-and-pop diner, it can be a challenge obtaining the critical mass of customers to get the enterprise off the ground. In this economy, it goes without saying that the odds are against you, especially considering roughly half of all businesses fail within the first four years, according to the U.S. Small Business Administration.
This underscores the need to attract customers quickly. While there are a variety of ways to do this, depending on an organization's capital resources, a growing number of enterprises are leveraging customer referral programs to gain traction. Essentially, this strategy involves the offering of certain rewards or benefits to customers who are able to bring in new business - whether that means posting a Facebook link or literally referring a prospect.
In many ways, customer referrals are a form of word-of-mouth marketing, in that business owners rely on the friendly endorsement of direct customers to drive new traffic. So what are some ways companies can reap the most benefit from a customer referral program?
Take the Dallas-based hair removal salon The Sweet Spot, for example. According to Inc. magazine, founder Erin Cox instituted a program of offering 4 cents to 30 cents for each time members of the Blue Calypso mobile marketing platform posted the Sweet Spot ad on Facebook or Twitter, or shared it via text. Endorsers also received complimentary services from the salon.
The program resulted in more than 108 coupon redemptions in the first month, Inc. reports. Furthermore, Cox claimed she was still able to make a profit, even after paying Blue Calypso.
"Paying endorsers works best for companies with an existing fan base, because people are more comfortable promoting companies they trust," Fareena Sultan, a marketing professor at Northeastern University, told Inc. "People don't want to spam their friends. They tend to send promotions to friends who will benefit from them."
However, managers should also make sure their customer rewards are not cheap - they must be substantial and worth the extra effort needed to obtain them.
Finally, make sure your products and services deliver on the hype surrounding such a campaign. Your referral program should not in any way inflate the value of your offerings.
"The implementation has to be good enough that people who hear about your service through an endorsement want to become endorsers themselves," Sultan points out.