The Importance of Referral-Rewards for Brand Loyalty & Advocacy

Maritz Loyalty helps global companies build strong brands and stronger ROI by designing programs that attract, engage and retain their best customers through the lens of behavioral science. Maritz Loyalty offers a full-service solution combining strategy, decision sciences, rewards and creative communication to achieve results. Today, more than 100 million people participate in client programs representing industries including hotels, airlines, pharmaceutical, automotive and financial services.
 
Recently, Loyalty360 sat down with JR Slubowski, Senior Director of Marketing Strategy and Consulting at Maritz Loyalty, to discuss brand advocacy and how referrals can generate loyalty.
 
What is a referral and why is it so important to driving loyalty?
 
A referral is when an existing customer recommends a product, service, brand, or loyalty program to another person, and for many loyalty practitioners, referrals represent the pinnacle of the customer-company relationship. Dating back to the research that generated the Net Promoter Score, intent to recommend (and actually making the recommendation) is one of the true measures of customer loyalty.  But research has also found that beyond just identifying a customer as loyal, the act of referral can actually make the customer making the recommendation even more loyal as it strengthens and outwardly reaffirms the relationship they have already established with the brand.
 
In the context of loyalty programs, referrals represent an excellent way for programs already in place to be leveraged as acquisition vehicles, which is usually not a top priority for such programs.  The “birds of a feather, flock together” theory known as homophily provides the context for how loyalty programs can generate referrals. If you believe that some of your best customers are part of your loyalty program (and they should be), then those are the precise customers to ask for a referral because in theory, they’ll refer someone who has the potential to become a best customer in the future. They likely share your existing customers’ values and may even mirror their trajectory in becoming a best customer.
 
Finally, referrals from loyal customers create more knowledgeable potential customers and predisposes those new customers to being loyal, because they start the relationship with your brand with loyalty on the brain. When loyal customers who know your brand intimately make referrals, chances are they will share with those referrals why they love your brand, program, or company. This sharing creates a potential customer more familiar with your brand than a non-referral customer and gets that customer thinking about your brand within a long-term loyalty context.
 
What is Maritz’ point of view regarding reward referrals?
 
At Maritz, we believe a smart referral strategy belongs front and center as a component of a broader loyalty strategy. But it’s not as simple as “let’s just reward customers in perpetuity for every referral they generate!”  Referral rewards structure needs to be taken into consideration, especially given the more recent use of what we call prosocial referrals, where the referrer “gifts” a reward to the recipient. This especially works well with higher-tier customers who want to demonstrate and reaffirm their status to others and themselves. 
 
It also works in loyalty programs to help circumvent any barriers to conversion that might exist.  For instance, a new subscription service might offer a prosocial referral opportunity to its existing loyalty program customers and empower them to remove the barrier to trial that might exist for their friends. By lowering these kinds of barriers with a prosocial reward, the company is acquiring customers much more efficiently relative to simply rewarding the referrer for the referral. 
 
How do you address the pitfalls of referrals?
 
There are three main pitfalls to consider when addressing a referral strategy.

1. Not limiting or putting contingencies on referrals. 

 
Often, companies will launch referral programs and not be specific enough about the benefits of making a referral or will offer unlimited opportunities to refer. These same referral programs often break the proverbial bank. It’s okay to put limits on the number of referrals and to reward only when a referral converts to a new customer. This guarantees that you’ll be able to tie some incremental revenue to the referral itself. 

2. Not timing the referral offer right.

 
Too often, we see companies immediately launch a referral campaign aimed at brand new customers. The theory is that if they just made the decision to go with your brand, they’ll want to let others know as well. But, if you think about it, this situation is tantamount to asking someone to marry you on a first date. Smart referral programs or strategies adopt a wait and see approach with new customers. They look at who the customer becomes first, making sure they’re engaged and are valuable to the firm before they launch the referral strategy, which brings me to the third pitfall.

3. Not knowing your customers and which referral strategy is optimal for driving quality referrals. 

 
You could a have a huge cult following to where soliciting referrals with a reward attached might actually sour them on your brand. Sometimes, you might not even need to reward a customer for referral. Simply asking them to refer others may be all you need to do. Additionally, someone in your top tier who spends $10,000 per year with your brand and has referred five customers over their lifetime might not be motivated by the $20 reward you offer them. Think about how else you can show your appreciation for this valuable consumer that may further stoke their drive to make referrals organically.
 
How are customers changing and how would that affect referrals and loyalty programs in general? 
 
Customers have higher expectations of brands they’re loyal to now more than ever.  They expect total integration of their experience so that one channel knows what the customer did in another channel and another channel and another channel. They expect that history and context to be referenced. The same applies with referral. The stakes today are just higher. If you are a customer and you make a strong, well-thought-out referral to a company, and then later, you find out that the referral didn’t enjoy the same “Rockstar” treatment you receive, you’re going to react negatively. So, it’s important to remember that referrals aren’t just about you or your brand. They’re not only about filling your acquisition funnel or sales pipeline. They’re more about the person making the referral and trading on his or her own personal credibility in providing a referral than they are about your brand getting more consumers to try your products or services.


“JR Slubowski brings more than 20 years of experience in the marketing and loyalty fields to his work as the Senior Director of Marketing Strategy and Consulting. He specializes in connecting clients with their customers and partners, using a decision-sciences-based approach to help companies translate their data into actionable marketing insights. JR has worked with businesses such as Dillard’s, Domino’s, PetSmart, State Farm and Galderma to develop loyalty and engagement strategies, ultimately creating memorable, meaningful customer experiences.”