In this highly competitive world of Ecommerce, standing out from the crowd and garnering customer loyalty is very important. While many ecommerce store owners rely solely on the quality of their products and services to attract customers, research shows that only 29% of satisfied customers actually make referrals. To bridge this gap, a well-designed referral program can be the catalyst needed for exponential business growth.
Many brands like Ulta Beauty successfully leveraged the power of referral marketing to tap into audience. Ulta Beauty is an American chain of beauty stores and it successfully used referral marketing to reach new customers. Through Ulta’s referral program, members of Ultamate Rewards could recommend friends and receive $10 off on $30 order for each recommendation.
This was a huge accomplishment in expanding the already loyal and thriving client base by bringing in new members. Since the debut of the referral program in 2015, over 27,000 new members have joined the loyalty club and become high-quality customers, while 100,000 Ultamate Rewards members have referred friends. Also, the average order values of the referred loyalty members 50% higher.
This article aims to provide you with a comprehensive guide on ecommerce referral marketing, equipping you with the knowledge and strategies needed to successfully implement it for your online store.
Benefits of Ecommerce Referral Marketing
Referral marketing holds great potential for Ecommerce brands, as it significantly enhances the post-purchase experience for customers. And it’s important because the way your customers feel after completing a purchase is crucial for the return on investment (ROI) of marketing efforts and overall business growth. This powerful strategy not only reduces customer acquisition costs but also increases customer lifetime value (LTV), improves customer retention rates, and strengthens online presence.
1. Reducing Acquisition Costs
Implementing referral marketing enables Ecommerce brands to monetize the power of word-of-mouth marketing, which helps onboard new customers effortlessly without spending money on advertising. As a result, you can cut down customer acquisition costs.
2. Increasing Customer Lifetime Value
The trust factor associated with referrals from friends is pivotal – 92% of customers trust word-of-mouth referrals. When these referred customers join your store, their likelihood to convert and become loyal customers is exponentially high. In fact, customers acquired through referrals exhibit a 16% higher lifetime value compared to those obtained through alternative marketing approaches.
3. Enhancing Customer Retention Rate
Retaining existing customers is undeniably cheaper than acquiring new ones. Customers acquired through referrals have an impressive 37% higher retention rate. By implementing referral marketing, ecommerce businesses can cultivate stronger relationships with their existing customer base, ensuring repeated purchases, fostering loyalty, and driving sustainable growth.
4. Enhancing Online Presence
One of the inherent advantages of referral marketing lies in the ability of existing customers to promote their referral links or coupons on various platforms, including social media. It boosts the brand’s online presence which is crucial for the success of any ecommerce brand. By leveraging referral marketing, businesses can tap into the vast potential of social media, expanding their reach and engaging with a wider audience, ultimately fostering brand loyalty and driving sales.
Five Step Strategy for Ecommerce Referral Program
Define business goals and KPIs
It is important to define your goals and key performance indicators (KPIs). This will help you stay focused and measure the success of your referral program. Your goals should be specific, measurable, attainable, relevant, and time-bound (SMART).
For example, you might aim to increase referral traffic by 70% month-on-month, boost the average order value by $50 within two months, increase customer retention rate by 80% in Q3, or improve conversion rate by 30% for the year.
Once you have defined your goals, you can select the metrics that you’ll be tracking to analyse the performance of your referral program. These metrics are known as key performance indicators or KPIs. The specific KPIs will depend on your goals, but some important ones to consider include:
1. Referral traffic: This measures the number of visitors to your site that come from referral sources. Tracking this metric will help you understand how effective your referral program is at driving traffic to your store.
2. Conversion rate: This measures the percentage of visitors who make a purchase. By tracking the conversion rate of referred visitors, you can assess the quality of the traffic generated by your referral program.
3. Average order value: This measures the average amount spent by each customer in a single transaction. Increasing the average order value can help boost your store’s revenue and profitability.
4. Customer retention rate: This measures the percentage of customers who continue to make purchases from your store over a specific period of time. A high customer retention rate indicates that your referral program is not only bringing new customers but also encouraging them to keep coming back.
Once you have set your goals and identified the KPIs you will be tracking, it’s time to move on to the next step of implementing your referral marketing program.
Determine Right Rewards
One of the most crucial aspects of referral marketing is the rewards or incentives you offer to your customers. Rewards act as a motivating factor for your existing customers to refer your brand to their friends. When deciding on the rewards, ensure that they are exciting and easily redeemable. Offering rewards to both the referrer and the referral can create a win-win situation, encouraging both parties to engage with your store.
Some popular rewards that you can consider are :
1. Cash rewards: Offer a specific amount of cash as a reward for successful referrals, such as “Earn $25 on the first purchase”.
2. Store credit: Provide customers with loyalty points or store credit based on the amount of purchase made by the referral, for example, “Earn X points on Y amount of purchase”.
3. Free products or free shipping: Give customers the opportunity to redeem free products or enjoy free shipping for successful referrals.
4. Discounts and coupons: Provide exclusive discounts or coupons to both the referrer and the referral as an incentive to make a purchase.
5. Gift cards: Offer gift cards that can be redeemed on future purchases as a reward for successful referrals.
6. Access to subscription service: Grant customers access to premium subscription services or exclusive content for referring customers.
For example, Harry’s, a shaving brand, collaborated with an ecommerce store to launch a referral program. Each referrer got a free razor for every 10 referrals, a free shave cream for 5 referrals, a free shave set for 25 referrals, and a year of free blades for 50 referrals. Each referee got 10% off their purchase.
And as a result, they have gained 100,000 leads. Harry’s is an excellent example of a well-designed, two-sided referral program
Choosing referral software
Once you have decided on your referral rewards, the next step would be to find a referral software that enables you to set up the referral program as per your business needs.
Here are a few features that you must look for in referral software
- Supports your ECommerce platform.
- Allows multiple rewarding options.
- Simple redemption of rewards
- Automatic coupon or referral link generation
- Analytics and reporting
- Advanced fraudulent protection
The industry is flooded with tons of referral marketing software. Make sure you choose the right software that is dynamic and aligns with your brand.
Design a dedicated landing page.
You want to create a landing page for your referral program just like you would for any other marketing initiative. This is the page where you direct your customers to get the entire referral program details.
Make sure the landing page addresses the following queries for visitors in order to make it more efficient and conversation-friendly :
How can I sign up for the program?
How would I be rewarded for each reward?
When will I be rewarded for referrals?
How can I redeem the rewards?
Invite customers to signup for your referral program
The way you present your referral program determines the success of your referral program. Below are some of the ways you can invite your customers to join referral program
- Include your referral program link in email newsletters that are sent to customers.
- Include the landing page URL in the emails sent after the customer makes a purchase.
- Insert the invitation link on the purchase confirmation page that the user sees after purchase.
- Use popups at the home page and checkout page to grab attention.
- Promote your referral program on social media and retarget your existing customers.
- Embed referral widgets at a catch-worthy area on your site.
Example of a brand that successfully implemented Referral Program
Love with Food – Earn Free Snack Box
Love with Food is a snack subscription service that delivers clean and palatable ingredient snacks right to your home every month. The best part is that they also give away a portion of a nutritious lunch to charities who specifically need food.
Love with Food referral program
You will receive a free snack box and 1000 points, valued at $10, when you recommend a friend through the email or social media link. Referrals will receive 50% off their first package when they utilize the link.
This is a smart move, because it removes barriers, making it simple for your friends to use the referral link, make a purchase, and get the reward.
Referral marketing is one of the best strategies for increasing sales and attracting new clients. It is a tried-and-tested strategy that has helped leading Ecommerce companies like Harry’s and Ulta beauty succeed. If your brand is experiencing a rise in CAC and perhaps seeing the ‘ups and downs’ when it comes to acquisition strategies, then you need to implement effective referral marketing strategies that can help you maximize and extract more revenue from your existing customer base.
Hence, include referral marketing in your marketing strategy if you’re opening a new store or want to expand sales by double digits.
Interested in more examples? Check out the top ecommerce referral programs.
