Whenever I recommend referral programs to my clients, they seemingly look at me with disdain and questions like – " Will it work?", "Is it not an old world marketing principle?" or they ask me " Tell me something more exciting, new and refreshing". Also, they tell me that their referral campaigns didn’t do too well the last time they tried it. They think it is to do with the gift, the sweepstake and that these did not appeal to their customers. Rather than attributing the failure to gifts or the referral program per se, I think they need to introspect and understand a really deep rooted problem that might exist- ‘Why are my current customers not referring their friends or colleagues?’.
Like it or not, customers continue to recommend or talk about their good or bad experiences with their friends even if some marketers believe referral programs don’t work. According to me, the best form of a referral program is one where a customer recommends your product without an incentive or a program.
Your referral rate is the best test of your top-line growth and customer loyalty. Research too seems to prove my point.
Fredrick Reichheld writes:
Companies spend lots of time and money on complex tools to assess customer satisfaction. But they’re measuring the wrong thing. The best predictor of top-line growth can usually be captured in a single survey question: Would you recommend this company to a friend? This finding is based on two years of research in which a variety of survey questions were tested by linking the responses with actual customer behavior–purchasing patterns and referrals–and ultimately with company growth. Surprisingly, the most effective question wasn’t about customer satisfaction or even loyalty per se. In most of the industries studied, the percentage of customers enthusiastic enough about a company to refer it to a friend or colleague directly correlated with growth rates among competitors. Willingness to talk up a company or product to friends, family, and colleagues is one of the best indicators of loyalty because of the customer’s sacrifice in making the recommendation. When customers act as references, they do more than indicate they’ve received good economic value from a company; they put their own reputations on the line. And they will risk their reputations only if they feel intense loyalty.