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Are referred customers better customers, and do they represent a significant segment of brand loyalty for any marketer?
Extole’s refer-a-friend technology powers referral marketing programs for some of the world’s best-known brands−including Virgin America, Petco, and eBags.
What’s more, Extole offered six compelling reasons why referred customers are your best customers:
They have 15 points higher NPS (Net Promoter Score)
25% higher lifetime value (LTV)
20% higher AOV (Average Order Value) each year
4-5 times more likely to refer new customers
18% less likely to churn
25% more profitable
Chris Duskin, Extole’s VP of Marketing, talked to Loyalty360 about the critical relevance of referred customers.
From your experience, what makes a referred customer a better customer?
Our customers, along with independent research, have found that referred customers are more valuable than customers acquired through other channels, and for a number of reasons. They have higher NPS scores than other customers, for one. AAA of Northern California, Nevada, and Utah finds that their referred customers have NPS scores an average of 15 points higher than their customers from other channels, in fact. They also find that referred customers buy more than other customers -- in their case; average order values (AOVs) of referred customers are 20% higher.
A Wharton study that spanned several years and followed tens of thousands of customers at one of the largest German banks, found that referred customers have higher lifetime value, that they’re more profitable, and that they’re less likely to churn. Data from our platform (we’ve powered over 500 Refer-A-Friend programs for top brands) also show that referred customers are more likely to refer new customers themselves. We call this R-Factor: The rate at which a customer refers other customers. We see that referred customers have R-Factors 3-5x greater than customers who come in from other channels.
This makes sense when you think about it, especially the NPS stat, because advocacy and referrals are at the heart of NPS. We were talking about this not long ago with Fred Reichheld, who created the NPS score at Bain. What NPS asks is: “How likely is it you’d recommend our company, product or service to a friend.” That’s exactly what an advocate does when they share a referral. Except referrals don’t need a scale to answer that question–they’re binary. Someone either refers or doesn’t. Everyone who refers gives your brand an NPS of 10.
How are companies using referrals now? What are they doing well and not so well?
Marketers realize that referral marketing is a customer acquisition channel, one that complements their other channels and brings in high-caliber customers. And that’s how they primarily use it. But, within that, we see variety. Many brands are using it for pure customer acquisition. Some are blending it with their loyalty programs and using it to drive enrollment. (That makes sense too. Why not use a channel that acquires people who are pre-disposed to being more valuable and loyal?) Others target loyalty program members to drive new customer acquisition through Refer-A-Friend.
The companies doing it well are the ones who are using all the touch points available to them to make people aware of their programs. Everything from their website, their mobile app, promotional emails, and transactional emails), to their social media feeds, to their customer-facing employees, packaging, and in-store placements. The more people you expose to the program, the more who become advocates. And the more people who become advocates, the more they’ll share with friends and the more friends will convert into customers. And that’s how refer-a-friend becomes the biggest source of your best customers.
When we see companies doing it not so well, it’s usually the flip side: they make their programs hard for people to find, or they make them difficult to use, like by requiring registration or sign-in. Or they make them available only to certain special customers. All of this serves to reduce the top of your funnel, which is the number of advocates you have. When the top of your funnel is small, everything below it will be small too.
Where are the greatest opportunities for marketers when it comes to referrals?
There are big opportunities in personalizing the experience. One type of personalization is targeting. Give different customers, perhaps depending where they are in the customer journey, different refer-a-friend experiences. Give your super advocates a different, more compelling incentive than your everyday advocates. Or, target your loyalty program members with different messaging and points-based incentive. We also love when marketers use their refer-a-friend program to run surprise and delight campaigns to thank top advocates for their loyalty and to encourage even more sharing. You can also do things like target the new customers who’ve come in through referrals and get them to refer, too (because they’re more likely to do so). The point is Refer-A-Friend isn’t a one-size-fits-all channel. Our platform automatically segments advocates for you so you can easily identify who you should target. It also lets you easily run different campaigns.
Another form of personalization is individualization. And this is where the opportunity with refer-a-friend is unique. Refer-a-friend is about the connections your customers have with other people. Reinforce these connections between the individual people using names, pictures, and advocate-created messages. The new people that your referrals reach will respond. And, not only will marketers learn more about their individual customers, they’ll be learning about their relationship to other customers.
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