To refer or not to refer: Does an incentive help?

In 2001, a senior executive in one of India’s largest ad agency, decided to quit and turn an entrepreneur.

Even before he’d incorporated his new venture, three of his customers had assured him of their business. Two kept their word, ensuring he had revenues from day 1. Over the next 13 years, his company won and managed 48 clients. Barring a handful, all of them came in through referrals.

Imagine, a business built entirely through positive referrals of existing customers!

The story holds no surprise. Without exception, successful businesses grow on the strength of positive customer referrals.

Compared to cold prospects, referrals cost little, it’s easier to make an entry, sales cycles are shorter, and most important, referred clients give far higher revenue.


Question: Why do customers refer?

Foremost is experience, experience that consistently exceeds or meets up with customers’ expectation.

Be it a roadside vada-pao wala, or a super-premium fine dine restaurant;

Our tailor, or the ready-made fashion store 5 miles from our home;

Our local grocery store, or the online ecommerce market place;

Our auto mechanic, or the vendor that takes care of our company’s hardware maintenance.

We want our friends, family, associates and colleagues – everyone we like – to get an experience that’s no less than we ourselves enjoy. When it happens through our recommendation, it makes us feel really good. (Of course, there is a flip side to it as well: An awful experience gets our goat, and when it does, we spare no effort in bad mouthing the vendor. But let’s leave that out of discussion for now).


Second reason is affinity, a fondness we develop with the vendor or service provider over time. We begin to like them, and wish them well. We want to do our bit to help them along the way.


The third reason is purely selfish: we don’t want our favorite vendor to go out of business. If they did, we’d have to look for a replacement. The hassles of finding one are apparent. Plus, there is no guarantee we will succeed. Till we do, we may have to compromise, and is some cases suffer for what could be an extended period. Which could be distressing. (Imagine for a minute how you felt when your favorite reportee informed you she’s quitting).


Do we need to be nudged to refer?

My experience shows not too many of us make an effort; majority of us remain passive referrers. Which means, if someone asks, we share our view. But rarely do we broadcast our preference.


Does a financial gain increase our chances of referring? 

It definitely does.

It’s not easy to resist a freebie, that too for just telling someone,’Hey, why don’t your try such an such product or store or service. I have and I like it.”

Should freebie be cash? Should the incentive linked to referees buying the product? Should your referees know that you are earning when they buy the product? Should the referees also be offered something ‘extra’?

Also, if there are any templates to help us take a better decision when we embark on a referral program? What role can technology play?

I’ll help you with above and several other aspects on how you can leverage customer referral to grow your business in second part of the article. Go to ‘How to run a successful customer referral program’


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