How A Referral Program Can Benefit Your Business

How A Referral Program Can Benefit Your Business

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At their core, referral programs serve as a powerful marketing strategy for businesses that want to both attract new customers and retain existing ones. By providing rewards to their current customers, a business can incentivize their customers to refer the business' products or services to their social networks of friends and family. 

Referral marketing uses a reward system. Customers who make successful referrals receive rewards that they value, which incentivizes them to continue referring the business, and the cycle of making referrals and receiving rewards benefits both the referring customer and the business itself. 

Once the referral system catches on, a snowball effect results, wherein new customers who decide to do business with a company based on a positive referral will also go out and make referrals themselves in order to reap the promised rewards. 

Increase the number of successful referrals and you will increase the chances of new customers becoming referrers themselves, who will go out and influence even more consumers to choose your business. For an in-depth look at how a referral program can benefit your business, let's dive in. 


The point of any marketing campaign is to attract and retain customers. But truly the emphasis is placed on improving customer retention. After all, your returning customers, i.e. your frequent shoppers who remain loyal to your business, are the reason you're able to stay in business. 

These days, consumers are bombarded with advertising in every direction. No matter where they look, an ad creeps into their view, attempting to persuade them to read, click, and buy. These ads aren't tempting, but rather distracting, and consumers have learned how to ignore them. 

Rather than listen to pesky advertisements, consumers listen to their friends, family, and acquaintances when those people within their social circles talk about stores, products, services, and solutions that they love. 

Since people trust their friends and social circles far more than they trust traditional advertising, savvy business owners would greatly benefit from taking this fact into consideration when they devise their marketing strategies.  

This is where referral programs come in. Referral programs reward customers for recommending a business to their friends. As current customers make referrals, they become increasingly invested in the company they're referring. In fact, they start to feel like they're part of the company. 

The following are just some of the valuable benefits your business will experience as a result of launching a referral program to improve customer retention: 

●     Increased Brand Enthusiasm & Engagement—Improving customer retention is all about increasing customer engagement with your business, as well as building enthusiasm for your brand. A valuable benefit you will experience as a result of launching a referral program is increased customer engagement, thanks to the nature of the referral process itself, which involves enthusiasm and engagement. Equip your customers with the right marketing content tools so that they succeed at referring your store, and they will generate enthusiasm for your brand on social media and other viral platforms. 

●     Great ROI Value—Referral marketing is a cost-effective strategy to advertise your business. This marketing method places the onus of work on the referring customer and not on you, the business owner. You can save both time and money, while gaining the strongest marketing there is, i.e. word-of-mouth marketing, when you implement a referral program at your store. 

●     Least Expensive Strategy for Acquiring New Customers—You've probably heard that it can cost a business 5x more to attract new customers than it does to retain existing ones. Customer retention marketing, therefore, becomes the primary focus of most businesses, but this shouldn't mean a business gives up on trying to attract new customers. By engaging and rewarding current customers for acquiring new customers for you, referral marketing becomes the least expensive strategy for acquiring new customers.  

Be sure to get your staff on board, too, by offering an employee bonus for those who make referrals themselves. Bonuses can be custom rewards, either monetary or points. 


In the previous section of this article, we explained how these days the average consumer will trust the recommendation of a friend over an advertisement. A friend-to-friend recommendation, or any personal recommendation whether it occurs in person or online, is a form of "word-of-mouth marketing." 

The great thing about referral programs is that they incentivize word-of-mouth marketing. When you, as a business, reward your current customers for successfully encouraging their friends to also shop with you, you are effectively generating word-of-mouth marketing. 

But unlike truly organic word-of-mouth marketing that doesn't track and monitor referrals and overall campaign success, a real referral program that's tied to a digital platform with CRM and other marketing capabilities will provide you with important data insights that you can leverage in your future marketing campaigns. 

The key is to choose a pre-designed referral program platform that comes with tracking and monitoring CRM technology. Once you select the best provider for your business, you will have the option to expand your referral program with more dynamic rewards opportunities and you will be able to track every referral channel you include. 

Referral program platforms won't do everything for you, however. As the business owner, you will still need to make specific decisions regarding the exact rewards that will be offered, as well as any limitations you decide to set on the referral process.  

These are the steps to focus on when implementing a referral program at your business: 

●     Decide what incentives you want to offer your customers for making successful referrals. The incentive(s) must be worthwhile to your customers and also financially feasible for your business. 

●     Review your CRM data and create an email list of "power" customers, i.e. your customers who have proved their loyalty by doing business with you frequently and consistently. 

●     Market your referral program to your "power" customers, using an email campaign that provides all the details about your new referral program, the precise protocol they must use to make referrals, and the particular rewards they can earn for doing so. 

Be sure to implement a system of tracking referrals, such as issuing each power customer their own referral code, so that you can connect new customers with the power customer that made the referral. 


Including a referral program as part of your business' overall marketing strategy will expand your marketing scope on the whole. Referrals can be a great addition to your marketing efforts, especially your digital marketing efforts due to the fact that most of your customers will "refer" your business to their social circles on Facebook, Instagram, and other social media networks. 

For this reason, it's very important that you provide your current customers with excellent digital content they can "share" online as part of their effort to make successful referrals. 

Your referral program content should present clear, concise information, as well as clickable calls-to-action, so that whoever sees it will be able to quickly understand the gist of why they should "cash-in on" the referral opportunity.  

If you want your referral marketing initiative to catch on, be sure to bear the following six principles in mind as you create your content. For short, we call these six principles STEPPSSocial Currency, Triggers, Emotion, Public, Practical Value, Stories. 

Integrate the following key STEPPS as you create your referral content, and you'll increase the number of loyal customers who will be eager to refer your store: 

●     Social Currency—Customers will refer your business to people they know if your business' values, goals, and products & services will reflect positively on them. In other words, the better your store makes people look, the more likely they will be to tell their friends about you. 

●     Triggers—What makes your business and its products & services relevant and valuable? Highlight the problems that your business solves. Those problems are triggers, so place those front-and-center in your campaigns, and remember, things that are "top of mind" are more likely to be "tip of tongue." 

●     Emotion—When people care, they share. Play up the emotions involved in the "customer journey" of your average satisfied customer. The higher the emotions ingrained in your marketing, the more likely people will connect with your brand and spread the word about it through your referral program. 

●     Public—Visibility is key. People are inclined to mimic and imitate what they see, which means you want your referring customers to demonstrate their love for your brand on public forums, including social media. 

●     Practical Value—How useful are your products and services? When you show customers how useful your brand is, they will be more likely to share that useful information with their friends and family, which leads to successful referrals. 

●     Stories—People live for stories. They love the thrill, going along for the ride, and living vicariously through adventurous heroes and heroines. Use storytelling as your marketing vehicle and you will be able to deliver powerful messages to your customers, empowering them to attract new shoppers during the referral process. 

Be sure to check out our other article, Marketing Strategies for Loyalty Programs, for an in-depth look at integrating many digital marketing methods, which can help you devise how to position your referral program. 


As we've explained so far, a referral program rewards your existing customers with incentives when they recommend your store to others and make successful referrals. 

The incentives used in referral programs typically match the desired objective. If you have a lower commitment objective, such as getting new shoppers to buy a particular item, then the referral reward could be a one-time discount, a low-value gift card, or an inexpensive free product. 

If, however, your objective involves a much higher commitment, such as getting new shoppers to sign up for a monthly subscription, then the reward you give your customers who successfully refer new subscribers should reflect the value you've received. You could reward them with a percentage off or free shipping for a set time period, or a free month on their own subscriptions, or even a big-ticket item. Granted, using a big-ticket item as a referral reward might only make sense for really big commitments, such as rewarding timeshare tenants for getting their friends and family to sign up for timeshare rentals, which have a massive monetary value. 

In short, referral programs are aimed at your current customers, who are the ones that go out and accomplish the objective for you. 

This isn't the case with affiliate programs. The greatest differentiating factor is that affiliates do not have to be actual customers. An affiliate program is aimed at people who are in a position to market your store. 

These could be actual marketers, bloggers, influencers, industry leaders, and really anyone who has a relevant audience. Affiliate programs use monetary compensation or free products and services to reward affiliates for making successful referrals. 

More often than not, the rewards offered with affiliate programs are usually cash-based, which is why we recommend that you start with a traditional referral program, and later down the road if you want to expand your referral strategy, you can add an affiliate program. Understand that an affiliate program will operate separate from a referral program.  


Although referral programs are different from customer loyalty rewards programs, both are marketing tools that use rewards to influence customer behavior, incentivize enrollment and spending, and ultimately build brand reputation to expand a business' customer base. 

In the case of loyalty programs, customers are rewarded for frequently shopping at a store. Whereas in the case of referral programs, customers are rewarded for referring a store to their friends and family.  

Integrating a referral rewards system into your customer loyalty program could give your business an edge over the competition, which is why we highly recommend that before you launch a full-blown referral program, you first consider adding referral rewards incentives to your customer loyalty program. And for those of you business owners who do not have a customer loyalty rewards program in place yet, you would actually do better to launch one than to launch a referral program without a loyalty program. 

The concept of offering referral rewards to loyalty members who successfully refer your loyalty program to their friends and family is simple. All of the rewards suggestions that we've touched upon in this article apply. For a more in-depth look at how you can get your loyalty members to refer your loyalty program, be sure to check out 3 Ways to Get Customers to Refer Your Loyalty Program

Are you interested in launching a referral program, but aren't sure where to begin? Loyal~n~Save can get you started. Our loyalty strategists can help you determine the best referral rewards for your business. We have experience working with retailers of all industries. Contact us today. 

This article was written by Loyal-n-Save, an omni-channel customer loyalty solution for retailers looking to increase customer retention and new customer acquisition.
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Douglas Nolan
Written by Douglas Nolan

He believes in solving real problems with realistic technological solutions that stand the test of time. Seeing his clients struggle to retain consumers, Douglas decided to help his clients by offering affordable and top-class loyalty solutions. Doug loves transforming the lives of his employees by assisting them to develop a solid blend of TQ (Technology Quotient) & SQ (Spiritual Quotient) to excel in their professional & personal lives.

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