How to run a successful customer referral program – 2

In the previous part of the article – To refer or not to refer: Does an incentive help? –  I introduced you to the power of customer referral in building successful business. I explained why customers refer and why a majority of them remain passive referrers, rarely broadcasting their preference.  I concluded by suggesting that a financial gain or incentive can nudge many of our customers to refer. I promised in my next article how you can leverage customer referral to drive business success.

Now further.


There are two referral templates:


Offer an incentive for referring – a friend, associate, acquaintance, colleague, etc., in exchange for a guaranteed reward. The reward is often linked to sharing a minimum number of names.

There are two other popular variations:

One – a reward directly linked to number of referrals. Example, Rs.100 Amazon GV for every referral.

Two – guaranteed reward for a certain number of referrals, and entry into sweepstakes for additional names.

For each of these options, the modus operandi is simple: marketer collects the contact details and fulfills his promise to the referrer. There is no other obligation to either the referrer or the referees.

Such offers work brilliantly in building a list of prospects. Though the list throws up a number of ‘dud’ names as well, but that’s just a small inconvenience.

Reader’s Digest has repeatedly used this template and quite successfully too. A program aimed at building a list of prospective subscribers returned a list of 2 million referees through a single insert inside the magazine! The offer was simple: it asked the readers to share up to 20 names along with contact details in return for a book.

I have myself replicated the template to drive referrals for scores of products, especially in telecom, airline, consumer goods and insurance industries.

To cite the insurance case:

The objective was to create a list of referrals for insurance agents. We offered the customers a guaranteed incentive for the first five names shared, and additionally, an entry into sweepstakes if they chose to give up to 12 names. The response was overwhelming – giving us 1.2 referrals for each customer we contacted!

Lately though I find more and referral programs offering rewards directly linked to number of contacts. Though effective in pulling large number of responses, my experience indicates quality of referrals begins to slide after three or four names. Which means, a far poorer Return on Investment (ROI).


Now the second referral template:

A reward to both referrer and referee, but directly linked to sale. A surrogate commission.

Though this seems smart, it gets limited success, even when a brand has a large pool of satisfied customers. Here are four reasons why:

  1. One, gratification is too far away. Who knows how long it will take for the sale to fructify, if at all?
  2. Two, customers aren’t too happy to be seen peddling a product or service for a financial gain.
  3. Three, it’s too transactional, with no emotional connect.
  4. Four, no amount of financial reward can make a customer recommend a product or vendor he’s unhappy.

Such offers are effective for low-involvement products that can be tracked online. Like an order from Swiggy. Or a discount coupon for a particular store. Or purchase of movie tickets from BookMyShow instead of PVR. Or test drive of a car. Such offers are good at generating trials, registrations, downloads, and sometimes just traffic.

However, when it comes to premium or high involvement products, such offers often fail. We are unlikely to refer a friend to a hair stylist, tailor or doctor, or to particular service agency, like dry-cleaning or pest control unless we’ve ourselves had a great experience. No amount of incentive is likely to make us act.

Let me share a case.

Product was vision correction service for an established brand. We asked customers to share names of their friends who might like to consider vision correction. We tested three offers: : no incentive, low incentive and high incentive. There was no incentive for customer linked to conversion. There was benefit for referee though– free check-up and consultation. Guess which one got the best results?

Both no incentive and low incentive gave us identical number of conversions. However, the latter got us a higher number of referrals. This means our ROI was far poorer as we spent more on low incentive and ended up giving a higher number of free consultations. High incentive got us a lot of gas, and conversion rate that was poorer than even low incentive! Moral of the story: For serious product, appeal to the emotions, offer no or low incentive for sharing names, and give something to the referee linked to pre- or final sale. Nothing to referrer.


Ironically, while technology has made referral programs dumb, easy and seamless, participation has dwindled. Programs are unable to nudge larger number of users to participate, nor are conversion rates any better.

Answer is difficult to seek. Programs have become tactical, sticking to ‘surrogate commission’ model, offering something to both referrer and referee. Emotional connect is completely missing.


Let me end by introducing you to Joe Girard, the world’s most successful user of referral marketing.

Joe Girard was rated as world’s greatest salesman by Guinness Book of World Records for 13 consecutive years! His secret: 7 out of every 10 sales he made came through customer referrals.

Joe Girard practiced three principles:

  1. He took great care of his customers
  2. Stayed in touch with with each if his customer, forever. (Learn more about his engagement strategy.)
  3. He offered his customers a small incentive for referral and made sure he gave the referees an exciting deal.

We may have no desire to become the world’s greatest salespersons, but we can pick a leaf from Joe Girard’s success. I have practiced it through my professional life. Successfully. For myself and for scores of my clients. In fact, the entrepreneur who built his business using referrals mentioned at the beginning of this article is me.

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