Why Referral Programs Are Effective

Referral marketing is effective because of many reasons. Here are the reasons why a referral program is ideal for your eCommerce business.

They Can Be Easily Implemented

You don’t have to overthink this. Creating a referral system for your online store is easy. With referral software, you can set it up in a few clicks. The great thing about this software is that it can easily be integrated into your existing eCommerce platform. So if you are running a WooCommerce site, there is a WooCommerce affiliate plugin for that. The same is true for Shopify and BigCommerce. It is all about finding the right app that will do the job.

They Bring More Traffic

Referral marketing is a marketing method that works with networks, unlike traditional marketing, where communication is linear. Referral marketing communications usually branches out like a tree. In conventional marketing, you have two actors: the business owner and the receiver. The business owner is in charge of promotion, and the receiver will choose his reaction. Communication is linear because it comes from the actor, and it goes to the receiver. Referral marketing is different. Contact is not direct. While the business owner can send a message to the receiver, the receiver can also pass the word to others. This is what I am talking about when I illustrate it like a tree. This is because every receiver can share the message with others.

They Bring More Sales

Since the message can be passed to more people, this will result in more sales as well. Deals are usually dependent on conversion percentages. So if a website has a 10% conversion rate, this means that if 100 people visit the site, 10% or ten people will likely buy. Since conversion rates are dependent on traffic, it means that more traffic can translate to more sales.

They Increase a Brand’s Trust Factor

One of the significant factors that influence purchasing decisions is the trust factor. This is how well your potential customers trust you. Trust can be a driving factor in purchases. If a potential customer believes you, he will not have apprehensions in buying from your brand. But if he sees that you should not be trusted, you will not see him take out his wallet and buy. It is the same as relationships. You cannot ask someone to do you a favor unless they trust you.

Fortunately, referral marketing can help you increase your brand’s trust factor. When someone promotes your website, this acts as social proof for your brand. This is because someone is talking about your brand and is giving it a positive review. This can positively affect your social proof. This will increase the trust of potential customers.

It Produces Higher Customer Lifetime Value

Another factor that makes referral marketing effective is its effect on customer lifetime value. Since it increases a brand’s trust factor, it can also increase the number of loyal customers. With more people talking about your brand, you also get more people who will likely buy from you over and over again. This is the secret of the biggest brands out there. They ensure that they receive positive reviews for social proof, and this acts as a driving force for them to get some repeat sales.

It Lowers Cart Abandonment

If you have always been on a quest to stop shopping cart abandonment, you’ll like referral marketing. In line with increasing your brand’s trust factor, you can also lower shopping cart abandonment. You see, potential customers leave their carts for different reasons. One of these reasons is that they don’t trust the brand enough to buy from them. This is where the fear creeps in. Scenarios, where the item is not delivered, can pop into their minds. You need to get your customers to trust you before they can proceed with the purchase.

It Makes a Brand More Attractive to Influencers

When your brand gains traction in terms of traffic and sales, it is now easier to attract influencers. Influencers are great because they allow you to grow your brand in a small period. This takes network marketing to the next level, instead of merely relying on your current customers to promote your brand. You rely on influencers who have a significant amount of followers. This means that you are relying on people who can have a massive impact on your promotions. These are people who can push their followers to take action.

It Increases Customer Competitiveness

Another factor that you can include in your referral system is competitiveness. You can do this if you will transform a typical referral system into a contest. This means that you should not only give away rewards based on referrals. You can also allow your referrers to earn some points that they can use towards winning prizes. This is great if you are using referral software with built-in contests.


How to Create a Referral System for Your Ecommerce Website

Now that you know the benefits of referral marketing, it is time to implement it on your eCommerce website. Here are some steps that you can follow.

Start with the End in Mind

It is quite challenging to create a referral system if you don’t know what you want to achieve. Because of this, you must start with the end in mind. Think about what you want to complete in the campaign. Do you want to get more sales? More traffic? New subscribers? Do you want to promote a new item or service? All of these should help you create the ideal referral system for your eCommerce website.

Know Your Audience

This step will depend on how established your business is.

If you are running an established business, you should already have some ideas on your audience’s behavior. You should know their likes and dislikes, and you should know what products they are buying from your website. This will give you an idea of their ideal rewards.

But if you are running a new business, you may need to study your market on the persona level. This means that you project your ideal client into your audience. You think about who your target is, his likes and dislikes, his attitude, and how he deals with problems. This will give you an idea of what his ideal reward will be.

NOTE: If you are running a brand new website, you may want to split-test before you make some assumptions. You should promote your website first and watch the traffic comes in. From here, you can look at user behavior to determine the best reward to give away.

Brainstorm Reward Ideas

Studying your target audience should have given you some ideas on the rewards that you can give away. But you should also consider all the types of bonuses before you decide. Here are the most common rewards in referral systems.

Cash Rewards

One of the most natural incentives that you can give away is cash. Everyone needs it, and your audience will most likely need it. Some businesses offer it apart as is, or it can come as a gift certificate. This is the secret behind big brands like PayPal. When it started, no one wants to sign up. So they incentivize signups by giving them money for every signup. Soon, the word about this was spread, and the number of their subscribers grew. After that, they did not even need to activate their referral system anymore. They now have gained enough traction to become a trusted brand in the online payment processor marketplace.

Discount Rewards

The most common type of incentive for eCommerce websites is the discount reward. This is when you give your referrers a discount coupon in exchange for recruiting referrals. This is effective for eCommerce websites because they don’t have to give away anything. They just deduct the rewards from their profits. No cash or item is needed.

Free Product Rewards

Another type of reward that you can give away is a free product reward. This is quite common for retail stores that have other products in their inventory. Every year, a retail business has to clear his stock of old products. Now, you can use some small products as freebies for your referral system.

While free product incentives are attractive, it is crucial to set a limit. After all, you may not have enough items to give them away continuously. For this, you need to make it clear that you are launching a limited-time referral program. This means that you are only launching the reward for a limited time and is only activated once you reach a certain spending threshold.

Free Trial Rewards

Another creative reward is a free trial. This is a good offer for software and other digital products and courses. Instead of free items, discount codes, or cash rewards, you can give them a sneak peek into the product instead. They can earn this when they make referrals to your website.

This is also useful for apps. Users can earn points based on their referrals, and they will get more points to redeem certain items or services within the app. This means that as they recruit more people, they also get more opportunities to explore the services of the app.


Is There an Ideal Reward?

The ideal reward will highly depend on your target market. Some rewards are more effective than others. It is essential to choose a prize that will get the most referrals.

Work Out Referral Program Mechanics

Now that you have selected your prize, it is time to finalize your referral program mechanics. You need to define this so that you can easily give the instructions to your referrers. It is essential to focus on what they are getting. This is the reward. Some referral systems even have awards in the headline for emphasis purposes. But they should also know who will be rewarded. Referral programs usually work by paying one party. This can either be the referrer or the friend. You should be clear on who you are rewarding. You should reward the referrer if you want more people to promote your program, but you should pay the friend if you’re going to encourage more people to sign up. If you have the budget, it is better to take the route of rewarding both. This eliminates friction and makes both parties excited to participate in the referral campaign.

Craft the Referral Campaign

Once you have the mechanics, it is time to start crafting your referral campaign. You can do this with the help of referral software. Referral software will help you set this up in a few clicks. You just need to know your prize, set it up with the mechanics, and you are all ready to go.

Make Your Program Noticeable

With a referral system set up, you need to ensure that it will be noticeable. You can do this by putting your campaign in prominent places on your website. Some eCommerce website owners put a link to their referral system in the announcement bar of a website. With this, the site is easily seen by new visitors.

Another way to make the referral program prominent is to put it in a pop-up. You can then set this up to pop-up at convenient places on your website. This can be on the homepage, product pages, and checkout page. Best Drums Set Labs put their referral program in their checkout page and it is highly effective.

Track Your Results

You should also determine if your referral program is working well for you. You can do this by tracking your results. If you are running your system using referral software, you’ll have some built-in analytics. You can use this to track the traffic and number of referrals that you are getting. You can also see how well your referrers are performing.

As you can see, building an effective referral system for your eCommerce website is not that difficult. You just need to understand why it is useful and how it is executed, and you are on your way to creating your referral system for your business.

Leave a Reply