Referrals build business. Any doubts?

A 37 year old, having failed at seventeen different vocations, turned into the world’s greatest salesman within 4 years! His magic mantra: referrals. “Six out of every 10 cars I sell, come through positive references of my existing customers,” he declares. Mind you, these are the sales he has been able to track. My guess is that almost 100% of his sales would have come through referrals. Else, he wouldn’t have continued to remain the world’s greatest salesman for 13 consecutive years! [Read the details in his autobiography: How to Sell Anything to Anyone by Joe Girard http://en.wikipedia.org/wiki/Joe_Girard]

In my professional capacity over the past 23 years, I have closely observed the power of referrals. I have conceptualized over a hundred referral programs; have run 37 of them, measuring and tracking the results with child-like curiosity. Here’s what I have learnt:

Why do people refer? Three reason:

1. We like to talk. All of us like to talk about our experiences all the time, whether we are drunk, or sober. Many of these experiences are about products and brands we use. Credit card overcharge, taxi service that let us down, best airlines, our bank’s stupidities, good restaurants, great music, delicious food, doctors we trust, etc. There’s just no end to our desire to talk and share our experiences. With friends, family, colleagues, fellow passengers, or for that matter anyone who cares to listen. The joy is pure and universal. We will talk, no matter what. New media, like the internet, Facebook and Twitter, makes sharing easier, letting us reach out to more people, sometimes within minutes!
2. We can’t resist a great deal! It excites us, instinctively making us reach for our mobile phones. “Hey, there’s a fantastic kurta sale on at Fab India. Just 250 rupees!!” Or, as answer to a question on how you managed such a wonderful deal,  you hear yourself say: “I have friend who deals in so and so. He introduced me to this dealer. Phenomenal deal!” “You must give me the details. I also want it for myself,” asks your excited friend. The moment we come across a great deal, be it just ‘news’ we hear, or stumble upon it at a store or a shopping site, we get busy! We want everyone we care for to know about it.
3. Referral makes us feel important. Have you met someone important through a friend? Or have you been invited to a party because a friend of yours knew the right people at the right places? Don’t you wish you were in your friend’s shoes and could extend such privileges to your own friends and family? We like to be instrumental in helping our friends get special privileges, discount or deals.

But unfortunately, referral doesn’t work as well as it used to anymore. Or so lament many marketing people I interact regularly. In fact, the use of referral programs in recent times has dwindled. Here’s why:

Smart marketing has killed the power of referrals. You must have seen in many Bollywoord films – a poor, but principled hero declaring with pride: Main Bikao Nahin Hoon (I cannot be bought over at any price). However, marketers believe otherwise: ALL referrals can be bought. Results are referral campaigns that go something like this: Send your friend to our resort. For every one of your friends who actually books, we’ll credit Rs. xx into your account. If 5 of them book, we’ll give a free night. Clever!

Clever?

Such campaigns are recipes to disaster. Worse, they create negative impact. For two reasons: We recommend only what we genuinely like. And we don’t refer for a personal reward.

You may argue that without any personal reward, customers will never really make any effort to refer. Absolutely right! Which is why, personal reward is a good idea, but to link it to value of sale accomplished reduces your customer from a person who’d genuinely like to get his friend to enjoy special benefits or deals to a person who is getting bribed to sell a product. Customer will never refer a product to a friend for which he is earning a commission. (He may refer it to non-friends, but then, his reference will have little impact as such referrals are unlikely to value his opinion, and end up buying). Result is poor response. But often, the horse (referral) is blamed instead of the rider (using it all wrong)!

Lack of unique benefit: With discounts galore, in product eat product world, there’s little in form of ‘uniqueness’ marketers are able to offer when it comes to referral. Successful referral programs play on the ‘feeling of importance’ factor, taking their customer’s help to reach out to others in return for extending special benefits to him, and his references. Let me share three successful campaigns:

1. Year 1995. The one year old joint frequent flyer program of Air India and Indian Airlines had about 20,000 members. We decided to launch a referral campaign to prop up membership. We offered our members 500 bonus points for referring us the names of five friends. ‘We’ll contact your friends directly, offering them membership for Rs.895 instead of regular Rs.1000, and we’ll award you 150 bonus points to you for each enrollment,’ continued our offer. The response was stupendous, as we ended up collecting 28,000 referrals. Of these, 35% enrolled, giving us nearly 10,000 new members through referral within a period of three months. True referral was at action here: Members had discussed the campaign with their referred friends, so when our offer arrived, the ‘referrals’ had been expecting it.
2. Year 2004. Our client Flextronics (formerly Hughes Software, and now Aricent), needed to hire at least 800 fresh graduates from top 30 engineering colleges. The only problem was that it was February, and campus recruitment had finished in August of the previous year. We decided to use a unique strategy: referrals. We wrote to the 500 fresh graduates recruited by Flextronics from these institutes. These students were scheduled to join in May. We informed them about our requirement, seeking their help. We also explained reasons for such an urgent requirement: exciting new project. (The students translated this as ‘exciting career opportunities’.). Within a week, we had over 1500 resumes, nearly twice the number expensive recruitment advertising launched the previous week could generate. The only reward we offered was: ‘Win an ipod for sending 10 names’.
3. 2006-7: We helped Bausch & Lomb build new patient traffic at eye clinics for lasik/zyoptic – a high tech but expensive, permanent vision correction procedure – through referrals of patients who’d undergone such a procedure. Here we used CRM instead of rewards. It worked – bringing us 1 new patient through referral for every 5 existing patients.

Whether we like it or not, customers will refer. Positively, as well as negatively. To build a successful business, we must learn to use referrals to your advantage. You can of course choose to ignore it, but remember your competitors might just pay attention to it.

Raj Bhatia

(Published in Inc. India e-magazine, November 2009 issue)