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2016 / 22 February

A bad referral program is like asking me to invite friends to our first date

Crazy referral

3 common mistakes made with customer referral programs

Share Uber with a friend that has never used it before, and both get a free ride. AirBNB grew by having people invite their friends and letting them stay for free at AirBNB locations. When someone you refer uses Squads to build a digital product, you will get 10% of the money they spend. Tesla came up with something interesting by having customers compete in a regional-based referral contest. The first customers to refer 10 people in North America, Europe and Asia received a “Founders Series” Model X — a car otherwise unavailable for purchase — for free.

It seems like the golden method of growth for companies nowadays is making use of Other People’s Networks. But as with most successful hacks: most companies are missing the special touch when copying these strategies and are instead scaring customers away. Here are the three most common mistakes I see in referral programs.

1. Jumping the gun

Of course you would like to have your customers use their network to bring in new customers. But stop thinking of what you want and think about what your customers need. Somehow, we stop treating customers like human beings the moment they are on the other side of a computer screen.

Asking a user to import their entire contact list and inviting friends during the registration flow is a bad idea, unless the value of the product is directly correlated to the number of friends you have (Facebook, Twitter)

During registration, a customer has not yet experienced the value of your product. All effort should be focussed on making their first experience with your product great and a smooth experience. Asking me to import my friend list is a big bump in the road and will distract and even scare potential customers away. The customer doesn’t know you yet. First take her on a couple of dates before asking if she can tell her friends how much fun you are.

“First take them on a couple of dates before asking if she can tell her friends how much fun you are”

2. Asking unhappy users

It is great when people talk about your product… in a positive way. We don’t want to prompt unhappy customers to voice their experience in their network. That would scare customers away. But how do you make sure you are not handing a bullhorn to a user with a complaint when asking them to invite friends?

Simple. Segment your users in happy and unhappy users. Just before you would normally ask them to invite friends or share on social media, ask them whether they are happy with your product. If they indicate that they are happy customers, you proceed to your referral program. If they are not happy, ask them to give you feedback. This way you will give them a way to vent their frustration at you instead of using social media or their friends. Plus you will get a chance to learn and improve your product.

Unhappy customers to the customer service, happy customers to social media

3. Not giving the value of your product away

A missed opportunity in a referral program, is just giving away money for bringing in new customers. Although this might work, much more effective is giving away some of the value of your product.

You want new users to have a great first experience of your product as quickly as possible. A referral program gives you a golden opportunity to speed up this process. By having someone they know offer them the value of your product, you can take away any roadblocks that might be standing in the way. Like having to pay. A great example is TransferWise, a cheap online money transfer company. Every friend that you invite to TransferWise will receive a discount on their first transfer. Bonus upside: because the customer can see how much the gift is worth, it feels like that’s the value they are getting. While for TransferWise, the actual cost of the gift is many times lower because it is their service they are giving away.

3 Referral programs that get it right

Typeform: A 10% double-sided referral program, taking advantage of the strong natural word of mouth they already have. They only allow PRO users to refer, which is definitely not jumping the gun and also a way of segmenting happy and unhappy users.

Evernote: a two-sided referral program giving away premium memberships to Evernote. This program is giving away extra value of the product. Cheap for Evernote, good for acquiring new customers.

Dollar shave club: this company is famous for its amazing marketing. If you don’t know the video that launched the company, have a look over here. The value of Dollar Shave club is not just the blades, it is just as much their image. By using their typical humor in the referral program, brand advocates are more likely to share and invite friends.

In short

If you want to achieve growth with a referral program, make sure you are asking the right users. The one that are brand advocates and have shown their love for your product by being happy users. And make sure give them the chance to share your product. A sloppy, greedy referral program will have the opposite effect of what you desire and will just scare customers away.

If you would like to know more about referral programs, growth hacking or lean startup, let me know. And if you recommend or share it in your network, I will send you another common mistake about referral programs as a bonus.


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