Editor’s Note: This post was originally published in June 7, 2018 and was updated for accuracy and comprehensiveness on July 24, 2019.
Referral programs and points programs are often seen as two separate initiatives with different goals:
- A referral program is a great way to leverage your existing customer base to generate new business for you
- A points program is a fantastic way to generate valuable repeat customers
However, the fact is that they are actually much more effective when used together. When you combine them, these two programs become a powerful way to build out a profitable and sustainable buying community and increase customer engagement.
Points create a switching barrier and introduce a level of gamification that encourages all shoppers to become loyal repeat customers, while referrals allow you to expand your community by rewarding your existing customers to bring you more repeat customers from their networks. This community is the key to ongoing success.
Build a sustainable marketing cycle with rewards
The most successful businesses in the world have created a buying community — a group of shoppers who are connected to the business through emotional relationships and a two way exchange of value. These businesses understand that an emotional relationship with customers is the key to success. This is dramatically different from the traditional idea that revolves around transactional relationships focused on simply converting visitors into sales.
Businesses like Sephora, Starbucks, and more, have all built amazing communities by incorporating a rewards program into a sustainable marketing cycle. This cycle is made up of 3 distinct phases.
You can’t start moving from a transactional relationship to an emotional one until customers have created an account at your store. When shoppers have an account with your store, you are able to tailor their experiences, market to them in the future, and learn more about them. That means you need to be presenting your brand in a way that gets them excited to invest in your brand.
Thankfully, you can easily encourage customers to register with your store by offering reward points for account creation and giving them points for every dollar spent. These are the best ways to incentivize shoppers to become a member of your community.
Once a shopper has an account it becomes easier to get them shopping again. Reward points for profitable actions and purchases to make sure that making multiple purchases is rewarding, fun, and engaging.
When a customer has a points balance, they are also less likely to shop with your competitors since they would have to forfeit the value they have already accumulated at your store. This is known as a switching cost.
When you have customers with accounts that are loving your brand and products, it is important to leverage their networks in order to grow your own. When you reward for actions that showcase your brand on your customers’ social networks, you are able to use your existing customer base as your acquisition tool.
Rewarding for social follows, social sharing, and most importantly referrals makes it more likely that your existing customers will see the value of staying with you, allowing you to turn existing customers into powerful marketers.
Referrals are the best way to acquire more customers
When was the last time you clicked on a social ad? 1 in 4 people reading this blog will never even see one due to ad blockers. If you want your message to be seen, the best way to do it is through your existing customer base.
Nielsen reports that a referral from a friend is the most trusted form of marketing. Not only is it trusted, but it also gets around all ad-blockers since it is not an “ad.” Instead, it is a recommendation from another person.
When you have given your existing customers a good incentive to refer, you are creating a way for your existing community to continually build on itself. Customers who already have an account and have made a purchase will refer high quality friends that then also create an account, make repeat purchases, and join your community.
Your referral messages have a lot to do with that. Be sure to customize your referral share messaging to be on brand, and create social proof for those that are seeing the message. You want to show potential customers that your existing customers are already loving your brand.
Clearly a referral program lets you generate value from your existing customer community, and a points program keeps them engaged and shopping again and again. Let me explain how to integrate the two of them together.
Integrating referrals with a points program
Clearly a referral program lets you generate value from your existing customer community, and a points program keeps them engaged and shopping again and again, but how do they integrate together?
The easiest way to understand it is to think of your referral program as a way to add members to your community, and your points program as a way to keep them there. These two programs are super powerful when used together. In fact, building a community that grows sustainable is extremely difficult without both.
Here are a few tips to make sure that you are using the two programs together to their highest potential.
1. Use the same tool for both programs
If you are looking to build a profitable customer community through rewards, you should use the same tool for both referrals and points. This makes it easier to manage the experience you are providing, use points as rewards, and keep track of everything in one place.
2. Reward the referral sender with points
Reward the person who is sending the referral with points. Points are more meaningful to customers who are bought into your brand and plan to shop again. This reward makes the quality of referrals being shared higher as the sender is looking to create more value for themselves by referring individuals with long term shopping value.
It also allows referring friends to become part of the entire rewarding experience for these customers.
3. Reward the referral receiver with meaningful value
Don’t forget about the shopper accepting the sent referral! The referral needs to be appealing and meaningful for them to want to take action. Getting this first purchase from a referred friend is the first step to using network effects to build community.
If you give 5% off to the referred friend, chances are they will not find that valuable. A good rule of thumb is that you want to give 20% of your AOV as a reward. Just be sure that 20% is not more than your margins!
4. Giving points for account creation is a must
Once a referral has happened, you want that friend to become part of your community. That way, they can become a repeat and loyal customer.
This is where welcome points become extremely important. Show new customers that you are giving points when they create an account. This is even more motivating if that account creation reward is enough or close to being enough points for your first reward.
5. Make both programs feel connected
Connect the two programs together with a consistent rewards program brand and communication. If your customers/shoppers feel like these are two separate things, they will never be motivated to use them in tandem, weakening both branches of your retention strategy.
Points and referrals are a powerful community building pair
Effectively combining the powers of a points and referral program gives you the tools you need to build lasting emotional relationships with all of your customers. Use your points program to create a switching cost for customers and to gamify repeat purchases and layer in referral to make sure that your community is able to grow. This encourages people to join your community and to continue to buy again and again, while building on the strengths of your existing community.
So start building your own powerful community today, and reap the benefits of truly getting to know and engaging with your best customers.