Word of mouth is one of the most effective ways for a business to acquire new customers – and plenty of businesses bring in referral marketing programs to encourage it. We get into the what, why, when and how of referral marketing with two businesses who have found success with it, and an expert on the subject. Strap in tight.
AMIRAH JIWA: From Courier, I'm Amira Jiwa.
DUNCAN GRIFFITHS NAKANISHI: And I'm Duncan Griffiths Nakanishi.
AMIRAH: And welcome to Courier's Workshop podcast. Every two weeks, Workshop breaks down one essential business topic and explains how it could be useful for you. Our goal is to get you just the right amount of info to help you apply whatever we're talking about to what you're working on. I'll be speaking to experts with practical tips and founders with relevant experience.
DUNCAN: And I'll be explaining essential terms and summarising the key takeaways at the end of the show.
AMIRAH: This week, we're covering an essential marketing channel that can have higher conversion rates than email or social. Referral marketing – more simply known as word of mouth – is one of the most effective ways for business to acquire new customers. So it can happen organically. Brands that hit the nail on the head when it comes to word of mouth actively and intentionally get customers talking about their product.
RUSSELL DAVIES: Most people don't think that much about their energy, they don't think that much about their energy provider. In order to switch people to renewable energy, we had to provide opportunities for them to think about it.
MATT PATE: If you've got people who love your product, I can't imagine a reason why they wouldn't tell somebody. Especially if it's in a non-spammy kind of friendly way where they truly believe their friend will get value out of your product. So start asking, essentially.
AMIRAH: Before we get into a couple of case studies from Bulb and Finimize, two companies whose growth relied heavily on referral programmes, here's Andy Cockburn, founder of referral platform Mention Me. Andy's gonna give us the what, when, why and how of word of mouth.
ANDY COCKBURN: Yeah, so referral marketing is all about going out to your existing customers and asking them to bring in their friends as new customers. And that effectively is the best possible way you could bring in a new customer to your business, because it's bringing in your best customers' best friends. Often, referral marketing also includes incentives. So, often a customer may be offered money off or cashback, or whatever, for introducing their friend and their friend will get an introductory offer. So from our perspective, referral really should be at the heart of any marketing mix – the greatest asset that any company has is their customers. And that is where growth should start from. So if you treat your customers right and provide a product or service that your customers love, you should be able to effectively grow from doing a great job for your customers and referral is really about doing that.
AMIRAH: OK, so assuming you've got a product or service that people love, how do you get people talking about it?
ANDY: When it comes to referral, what's really happening is one person is trying to influence another. And so in the middle of that is social psychology. And so when you're trying to get referral to work, you're really trying to solve for that social psychology, and you are trying to figure out how you can make your customer want to share with their friend. If a customer perceives any social risk, that they will look bad in front of their friends for sharing your brand or showing the offer, then they just will not share it. So you need to avoid any social risk.
And then to make referral really fly for your business, you need to harness social capital, which is a floozy way of saying that you need to make your customers feel like they will look good in front of their friends. And if they feel like they will look good in front of their friends, either because they want to be associated with your brand, or you're doing something new or what they're sharing will be helpful to their friends, then referral will really take off.
AMIRAH: And what's an example of a brand that's cracked this idea of avoiding social risk, and instead creating social capital for its customers?
ANDY: Uber, when it was initially starting, got more than 50% of its new customers through referral. People wanted to share Uber because it was helping their friends out – it was getting a free taxi ride at the end of the night, they were associated with something that was new and innovative. And Uber managed the customer journey really well because people had a code in their apps. So, at the end of the night, when people were waiting for a taxi, people could just pull out their phone and give their friends the £10 off so their friends got a free taxi ride home. And so it was solving for specific needs at the right time. And so that's kind of the holy grail, you know, like you're really helping your existing customers look good in front of their friends by showing something that has value to their friends.
AMIRAH: At what point in a customer journey should the brand introduce the suggestion to tell a friend about the product?
ANDY: Quite often referral falls flat because an online business might just put it in the footer of their homepage and expect people to go and find that link and click on it and share. The reality is that when you're promoting referral and asking people to share your brand, you want to be as close to a point of delight as possible. So, within the customer journey with your brand, customers will have points when they are ecstatic, they'll have points where they're, you know, waiting for their product and just mapping out the journey and understanding where your customers are happiest and then always asking them to refer at those points.
AMIRAH: And once you’ve figured out when and where you want to promote the referral programme, how do you actually set one up and manage it on the back end?
ANDY: There's a full spectrum of ways of doing referral, from tracking it in spreadsheets, through to building it yourself, through to using relatively thin referral widgets, to using more sophisticated solutions like Mention Me and, in the early days, I would keep it as simple as possible. So if you can do testing, using spreadsheets when you've got relatively low volumes, that will make sense. There are plenty of relatively simple widgets where you can also get started.
DUNCAN: Time for the first definition. A widget is like a miniature version of an app – a graphic element that can be embedded into existing platforms you use to collect and display useful data.
ANDY: When you get bigger and more sophisticated, it really is about figuring out what message to serve to which customer or which time that is going to make them most likely to refer. And so that's where the more sophisticated platforms like ours come in.
AMIRAH: What should the business owners and operators listening in keep in mind as they work to build a referral programme that you know, really resonates with that customers,
ANDY: It's about figuring out what people want to say about your brand, which might sound obvious, but actually, you know – the unique selling points that really resonate to your customers and convince your customers are what they want to be going to their friend with. And often customers, like, struggle to articulate that or to think about it. So the brand needs to do the work to understand what really matters to their customers. So that when they ask someone to refer, they can say put it in this way, because if that resonated to you, it's likely to resonate to your friend. And then you make it really easy for your customers to go out and have the right conversations.
AMIRAH: Now, let's hear from a couple of brands that really got referrals to work. First up, here's Russell Davies from Bulb, the UK's largest renewable energy company. Until recently, Bulb was one of the fastest growing companies in the UK. And its well-known referral programme was a key contributing factor to that speedy growth.
RUSSELL DAVIES: The programme's pretty simple, which I think is part of why it works. If you're a Bulb member, you can refer someone else to Bulb, you have a unique web link, which you can send them or share with them. If that friend or family member signs up, we give you £50, and we give the new member £50.
AMIRAH: What has been the value of referral marketing for Bulb?
RUSSELL: In effect, you're spending marketing money – I mean money that you might otherwise spend with Facebook or with a media company – but you're giving that money to your members. And that felt like a better thing to do with marketing cash. If you can give it back to your customers, that's a better thing to do than to give it to a media organisation.
So it kind of worked from that point of view. It's like our favourite source of acquisition in terms of efficiency, it sort of drives itself like conversation and word of mouth is doing the work. It feels like members are joining because they've genuinely been recommended to join. They're not just switching because it's the cheapest price or for some other reason. It feels like it's a more considered switch. From that point of view, the members that join us through referral are great customers to have. Members who refer or members who join us through referral, they stay with us longer, they're happier as members, they kind of like us more.
AMIRAH: And what do you think about your programme really resonated with customers?
RUSSELL: Large round numbers are very motivating to people. It just works as a simple mechanic for how to have a conversation. But we're also always keen to make sure that we don't just talk to people about the cash. It's also about the impact you can have by switching to a green energy provider and the conversation around it. It's not supposed to be some kind of get-rich-quick scheme. It is genuinely, ‘I like this company; you're thinking about switching energy provider – why don't you try this?’ It's supposed to be that rather than anything else. Renewable energy is a thing that people, particularly at the time, were keen to talk about, keen to share. It felt like a conversation that people were happy to have.
AMIRAH: OK, so your programme is great for your customers. How did you set up on the back end to make it work for your business as well?
RUSSELL: Because we had a good grip on our unit economics, we were able to be relatively generous with the scheme early on.
DUNCAN: Hey, I'm back. Unit economics is a way of working out whether each individual unit – in this case, acquired customer – is profitable for your business. And by how much.
RUSSELL: We roll our own programme, we run all the technology ourselves, and some of that is just to make it as simple as possible for members. It's incredibly easy to do. That means we do quite a lot of work on the back end to make that easy for people. But it also means that we know minute to minute how well it's working, what is working, what isn't working, all that kind of stuff. So that's quite important.
AMIRAH: Now, here's Matt, who leads growth at Finimize – the company behind a set of tools that help people become more financially literate and grow their wealth. Finimize is most well known for its daily newsletter, which now has over a million subscribers. Here's Matt on how they made referrals work.
MATT PATE: We very much grew through organic and word of mouth. I think in the beginning it was very much organic word of mouth and then we introduced a referral programme. A company is going to grow and you're going to get your best acquisition costs and you're gonna get your best engagement from the people that are referred.
DUNCAN: Acquisition cost refers to the costs and resources incurred to bring in an additional customer.
MATT: I would say most of our newsletter growth still today we don't really do any paid marketing on it. We do that on the mobile app side, but on the newsletter, it's very much about organic and word of mouth.
AMIRAH: Can you speak a little bit more to the value of that referred customer?
MATT: So one thing we've definitely found, and you should see, I think most people see this – is users who are referred should have a much higher level of engagement. And so I know for us their email open rates will be above 40%, 40% to 45%. And so well above the industry standard. And much typically better than people from other sources or paid channels or organic signup.
So I would definitely understand that your referred users should be much more engaged. And hopefully, they should have a longer lifetime value and be more involved in your product. And therefore you might be able to spend a bit more on them, you might be able to encourage them more. It should be worthwhile.
AMIRAH: And how do you go about setting the right incentives for customers that really encouraged referrals?
MATT: Really tie your reward mechanism or your referral programme to your product. Super important. So I think we could all go out there and give away £10 for free and people will tell their friends, it's pretty easy. But you need those people – people that you're paying for and putting time and effort into – to really be involved in your product. So I guess we give away brand items, we give you a newsletter, we give you swag to do with Finimize, and so it really creates a personal brand connection, it gets people who really love Finimize to share it. And they really feel part of the brand. I think you see other e-commerce people are more likely to give you discounts on that product – people like Airbnb give you discounts off booking a room – so it's all very tied to the product, it's about using their product and engaging with it. And I think that is really key.
AMIRAH: And what's the way to manage rewards on the back end? So I know at Finimize you have a tiered reward system that would be really hard to track manually I imagine.
MATT: There's a number of referral marketing platforms out there – we started out on a platform called KickoffLabs, which is kind of a really simple referral marketing tool. A lot of these tools will generate you a short, identify unique code per person. And they'll track it, and a lot of them do the verification or anti-fraud technology for you.
We very much now have a mix of custom tools we've built on our websites, your own dashboard, we then obviously utilise a lot of the technology of our email provider, which you sail through. So there's a lot of things you can do to conditionally show people the next reward. And you can obviously show their referral counter in the email, which is very important. And then we also have the anti-fraud and email verification tools as well. So you can always start with a platform that offers you everything and then, as you grow and need to experiment and to test and develop your platform, you then will probably need to kind of bridge out.
AMIRAH: Any tips on testing and optimising the programme once it's been set up? What's worked really well for you at Finimize?
MATT: We would test what shows at the bottom of the newsletter every day, the message that accompanies it, the images of the rewards, some of the simple things. Is it better to show you all of the rewards you can get at every stage in the referral programme or is it better just to show you the next one? We did a lot with design. I think not enough people do this. So we very much tested would a highly designed email work better than just a kind of a text based email. We also tested who it should come from. I don't know if a lot of people do that and the time it should be sent – but really a plain text email just saying hi, keep it personal and keep it to the point. We don't need to write essays here. We don't need to tell them why to refer if everybody knows why referring a friend is going to help us. Keep it to the point, have the ask and tell them what's in it for them.
AMIRAH: Finally, any last words of wisdom for those listening who want to build a really strong programme?
MATT: A great referral programme starts with the product. And I think if you read anywhere about referral marketing they should say this – nobody's going to refer a product that isn't great and they don't love. There's been some great examples. I think if you have a physical product, you can become a talking point. I think people like Monzo did this amazingly by having a coral card. I remember when Monzo went around London and everyone was just amazed there was a bank card that was kind of this bright, pinkish colour – it creates word of mouth.
I think one of the best ones was probably someone like Coca Cola – do you remember, they did the names on the bottle? Probably the best referral marketing you've ever seen in your life – loads of people going to buy an extra bottle of coke just to take it home and tell someone their name was on it. But those are some really cool concepts. So if you have a physical product, or if you're a tech brand and you can create these magical experiences, then you can also really create this word of mouth experience.
So not just focus on our incentivized referral programme, which is great, to track, measure, experiment – and probably will be the core of driving – but also remember, create magical experiences that people want to talk about.
AMIRAH: Lots of great insights and advice there from Andy, Russell and Matt. Thanks to all of them for joining us. Now, here's Duncan with key takeaways from today's show.
DUNCAN: Number one – the basis of any successful referral programme is having a product that people want to talk about and guiding your customers to that conversation.
Number two – referred customers are likely to become some of your most engaged and valuable.
Number three – there are lots of tech options for building a referral programme on the back end. Start simple and opt into more advanced solutions as you scale.
And number four – experimenting is a big part of the referral process – be that incentives offered, the channel you use to communicate with your customers, or even the language you use.
If you're looking for even more on referral marketing, check out the newsletter running in sync with this podcast – or our step-by-step guide to setting up your own programme on the Workshop website. All of that can be found at the Workshop home, which is at mailchimp.com/courier/workshop.
AMIRAH: And that's it for today. If you have any ideas or feedback for us, get in touch at [email protected]. We'll be back in two weeks with another edition of Workshop.
Related podcasts
‘It's not just about safety, it's also about psychological safety.’
We spoke to McKinsey’s Melissa Dalrymple about how travel companies need to innovate post-Covid.
Full episode
