Why Referral Programs Work and How to Launch One
Updated: Oct 11, 2023
“Hey! Kantara movie is now streaming on Amazon Prime. Did you watch it?”
“You know H&M has this amazing winter collection. You must check it out”
“Next time let’s go to Chulha Chauki Da Dhaba for dinner. I’ve heard it’s amazing!”
I’m surrounded by people who keep suggesting all the things I could watch, food I could try, and places I could go and it feels amazing.
But that’s not even the best part. The best feeling follows when I come back and tell them how much I enjoyed their suggestion.
The satisfaction that I experience for time and money utilised well and the happiness they get upon their suggestion turning out good is truly a win-win.
That’s why I love the whole concept of referrals, especially the potential it holds when it comes to businesses.
I mean think about it, a customer who has already been pleased with your product or service will now spread the word, bringing you more customers.
“Wait, so…I’ll just run a referral program within my product and it will work?”, you may wonder and if you do, let me clear that thought out for you.
Referral Programs Psychology
People will refer and those who are referred will value it. No no, it’s not me. It’s Dr Robert Cialdini’s Influence: The Psychology of Persuasion book which makes it possible.
Let’s see how.
1. “If they say it, it must be good”
Why do we buy best-selling books? Why do we check for movie reviews and hotel ratings? Go to events or parties with more attendees? Because of the Social Proof Principle of influence.
Since we humans want social acceptance (accept it or not), we always check for social validation before buying a product or taking a service.
Keeping referrals in mind, we are more likely to use a product or service when someone who’s already used it, refers us.
That’s how Airbnb increased guest arrival numbers from 21 thousand in 2009 to 80 million in 2016.
Despite worries about having hosts who were strangers, people started airbnbing when they heard of it from their peers.
2. “Given his expertise, this must be valuable”
In 2020, I decided to invest in stocks via Upstox, not because I had great trading knowledge but because my friend, Nikhil was an expert in it. I was already in the habit of turning to him for financial literacy. So the day he shared his referral link, I decided to install and use the Upstox app.
How did all of this happen? Well, due to the Authority Principle of influence.
When a person who’s well-informed on a topic refers someone to a brand, they are more likely to trust the brand.
3. “I must return the gesture”
Return gifts would be the best way to explain the Reciprocity Principle of influence.
Whenever I visited birthday parties, I used to walk back from some of them with return gifts - a token of thanks for my presence.
Similarly, when customers in a referral program are offered something special, they return the favour by spreading the good word about the brand among their friends and family.
The referral program of almost all brands works on this principle. For example, when EazyDiner offered Aadhi a ₹300 discount voucher, she shared it with all of us.
4. “I want to be like them”
Ever wondered why brands use celebrity endorsements to promote their products? Why do most brands want to get their hands on influencer marketing? Make use of brand ambassadors?
It’s all because of the Liking Principle of influence - we are more likely to buy from people we like and want to become like.
This is also the reason why we do merchandise shopping for things we follow like Marvel, Game of Thrones etc.
Now if we map this to referral programs, we’ll see that if people connect with the person who referred them, they will end up engaging with a brand.
Take HealthifyMe for instance. They have Bollywood actress Sara Ali Khan as their brand ambassador and that’s because of her successful weight loss transformation.
Similarly, if I get a referral code from someone in my circle I admire for being into fitness and seeing the transformation, I’d definitely mind giving it a try.
How to Make Your Referral Program Work?
So far, we know that referral programs work. But here’s the thing - a referral program isn’t a magic wand that you can swirl and expect results.
You, as a brand, must ensure that you introduce elements which would make your customers want to refer people. So how do we do that?
By understanding the 4 aspects of customer mindset when it comes to referrals. If you answer these questions, you can make a referral program work for you.
1. Is the referrer incentive exciting?
Your referral program depends on referrers. If they don’t refer, there’s no point. So what is it that will make them refer a friend? Rewards.
Ask yourself - will a customer really want this reward? Find out what works for them - virtual currency, cash back, brand gift cards.
2. Am I making it easy the referral easy?
Making a referral takes effort. The second question you must ask is how easy it will be for my referrer to refer and for my referee to claim the reward.
You’ve to make their effort and time worthwhile. This can be done by making the following steps frictionless and easy:
Providing various options for the referrer to refer - easy to share a referral link with a personalised message and referral code
Enabling convenient reward redemption for both referrer and referee
Setting up Referral Tracking and reminder system
3. Is your referral program worth customers’ social capital?
Say a friend asks you to recommend a nice restaurant. You’d obviously suggest one where you liked food, service and ambience, right? Because you don’t want to look bad in case they don’t like it.
Social capital holds importance when it comes to referrals. So before putting a referral program together, think about what would make a referrer confident of referring my product.
Is it the reward or the message? Find out what would bring out the referrer’s hero factor.
4. Could a referrer be received negatively?
“I don’t want to be been seen as selfish, making profit out”, “Will I look cool when sharing this?”, “I don’t want to spam others” etc could be some of the social risk thoughts when it comes to referrals.
Hence, your referral program should be designed in such a way that it pops such bubbles of social risk. One way to do this is by offering Two-Way Rewards.
When a referee gets a reward along with the referrer, it removes the ‘selfish’ friction. A finely crafted referral message that shows the referrer as someone trying to spread love and care also helps.
How to Launch a Referral Program in Minutes?
Having understood various psychological elements behind referral programs, we now arrive at the last and easiest part i.e launching a referral program.
I know, I know. I said easiest and I mean it. It’s actually deciding the above factors which needs more effort. Creating a referral program is pretty easy with Flyy’s Acquisition Module.
All you have to do is integrate our plug-and-play SDK and follow the ‘Pick, Prompt and Publish’ steps with a dashboard.
Pick what to reward: Create a currency by selecting whether you want to reward virtual currency (coins), cash back or gift cards from Flyy’s redemption system
Prompt users: Create a user segment and prompt them to take an action by creating events such as transactions, sign up etc.
Publish a campaign: Once your currency, user segment and events are in place, create a campaign by putting these together with a budget, content and banner and other details.
In my next article, I will be sharing with you why creating a referral program within Flyy is as easy as setting up a Facebook ad. Keep reading!
