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How to Choose and Offer Referral Program Incentives for Your Ecommerce Store?

Posted by Joel Platini on  November 29, 2020  in Ecommerce


The success of a Referral Program depends hugely upon the type of Referral incentive rewards you offer.

Ecommerce referral programs have become a huge success because of the WOM sales it offers. But if you don’t choose the right Referral incentive rewards, your Referral program will not convert,

Rewards, a referral program would become obsolete without it. You need to choose and offer the right rewards or your efforts will go in vain.

Don’t worry, we’ve been doing it for so long, so allow us to share our experience on how to offer the right Referral incentives rewards.

What is an Ecommerce Referral Program?

Ecommerce referral program is the process of turning your customers into brand advocates to increase your Word of mouth sales and boosting your customer retention rate.

Ecommerce referral programs can minimize the need of acquiring new customers, your advocates will do that job for you.

All you need to do is, sit back, relax and offer the right Referral incentives to both the advocate and his referral to retain them and foster customer loyalty.

How important is an Ecommerce Referral program to your store?

Existing and Loyal customers are the ones that can stabilize your revenue. So, you must retain them if you want to keep achieving your intended sales.

The only way you can retain them is by offering a reward.

But instead of offering a customer referral bonus for no reason, ask them to refer your store to their friends and then reward them for every successful referral.

This will not only help you retain your loyal customers, but you can also acquire new customers without spending much and that’s why you need an eCommerce referral program in your store.

Here are some more reasons why you should create a Customer referral program in your store,

  • Referral programs increase the credibility of your store.
  • Referral program increases your customer retention rate
  • The customer referral program has the highest ROI.
  • It helps you engage better with your customers.
  • Minimizes the risk of spending much on customer acquisition.
  • Boosts your WOM marketing and sales.
  • The referral program fosters customer loyalty.
  • It helps you acquire new customers with less expense.

These are the reasons why your store needs a Referral program but all of this can only be achieved through a strategized incentivization. Let’s discuss those incentives.

What are Referral incentive rewards?

Referral incentive rewards are offered to customers who have successfully referred their friends to your store.

You can also reward your Referrals(new customer) for completing their first purchase. Since they are new to your store, offering Referral incentive rewards will motivate them to drive repeated sales.

You can offer any type of Referral incentive rewards to your customers, Flat amount and percentage discount are the most common ones.

So, if you want your Referral program to be successful then you’ve got to choose the right Referral incentive rewards.

Who should you reward in your Referral Program?

Now that we’ve seen what is a Referral program and a Referral program incentive, it’s time to decide who gets the customer referral bonus.

This should be the first thing to decide before you launch the Referral program in your store. Determining who gets the reward will help you plan your incentive and target the right customers.

Why you should reward
  1. If your goal is to increase your customer retention rate, then it is enough to reward only your Advocate for referring his friend.
  2. If your goal is to acquire new customers, then you can just reward your Referrals with discounts for their first purchase.

Hope we’ve cleared it for you, defining who gets the customer referral bonus will save you both revenue and time.

Generally there are three types of Referral rewards campaigns,

  1. One Sided Referral Rewards
  2. Double Sided Referral Rewards
  3. No Referral Rewards.

1. One Sided Referral Rewards

As the name suggests, in One Sided Referral Campaign only one member involved in the Referral sale will be rewarded.

So, it can be further classified as,

  • One Sided Advocate Incentive
  • One Sided Friend Incentive

One Sided Advocate Incentive

The reason for offering an incentive is to motivate the customers to expose your store to new leads. In this type, only the advocate(existing customer) will be rewarded for referring his friends.

One sided reward

Positives – Increases your customer loyalty and helps you to retain your existing customer. Increased sales because loyal customers purchase more.

Negatives – It will impact your credibility, as you are blindly rewarding your customers for bringing in traffic, the chance of fraudulent referrals is high.

One Sided Referral incentive rewards

In this campaign, you’ll only be offering rewards to the Referral(Friend) and not to the person who referred them. There are not many stores that use these types of campaigns.

25$ Cash reward

Positives – It can help you acquire new customers and since they get a reward right away, they’ll go on to drive repeated sales at your store.

Negatives – Your existing customers are the ones that bring new customers through Referral program, so not rewarding might demotivate them. This will result in them not referring your store to their friends.

2. Double Sided Referral incentive rewards

Double sided referral rewards is one of the most commonly used Referral reward campaigns. It is very practical and benefits all the members involved in the Referral program.

You can offer the same customer referral bonus (20$, 20$) to both your advocates and referrals or you can offer different rewards. It is based on your choice.

Double sided rewards

Positives – Offering rewards to both the parties is the best way to boost your credibility and increase your organic sales. It can also lead to higher number of successful referrals and foster customer loyalty.

Negatives – Even Though, it seems a better idea but the effort that needs to be put to make this type of campaign successful is huge. So, it is better to choose a campaign based on your business requirement.

3. No Referral incentive rewards

We know this might be a surprise, but there are many eCommerce stores that run a Referral program with no rewards to offer for the members involved in the program.

Positives – Non-incentivized Referrals are more genuine than incentivized Referrals.

Because here your customers don’t expect anything from you, they just share your store to their friends because of loyalty they’ve towards your store

Negatives – You cannot expect every customer to think the same way. Some might need a motivation in the form of rewards to share your store with their friends.

Non-incentivized referrals might push your customer away from your Referral program or even your store. Alright, now you know whom to offer your Referral incentive rewards. It is time to choose your customer referral bonus.

This process is crucial because if you want your Referral program to succeed then you must pick the right Referral incentive rewards.

Why is it necessary to handpick the right referral incentives?

Offering a Referral incentive reward is more or less like a ‘Do or Die’ situation. If you offer the right incentives, then you can retain your customers but if you mess it up then you will lose both the advocate and the referrals, instantly.

You need to determine your buyer personas before you select the referral reward.

Example 1

Some customers just visit your store to purchase and then leave. They won’t be interested to be a part of your community. They just want to be a normal customer.

Skincare Refer a friend points

For those customers, if you offer ‘credit points’ as a Referral incentive reward, they won’t be enticed. They’ll leave and never come back.

Customers like these will expect cash or a discount reward so that they can keep benefitting through those rewards.

Example 2

Some stores might have overseas customers. The biggest concern for these customers will be the shipping costs.

 Free shipping

In these cases, you can choose “Free shipping” as a Referral incentive reward. It motivates your overseas customers to purchase and refer their friends to your store.

‘Free Shipping’ is one of the lucrative rewards that a store can offer. At the same time, the customer also expects the same more than cash or discount rewards.

Alright, what did we learn in these two scenarios?

If you don’t know what your customer is expecting, you cannot run a successful Referral program.

So, through the above two examples you might have found the necessity of choosing the right customer referral bonus. Now, let’s discuss how to choose them.

Choosing a suitable Referral incentive reward

You might think choosing the right Referral reward is hard, but if you’ve already defined your Buyer Personas then it is easy as it sounds.

If you haven’t determined them, here’s how to create Buyer Personas.

Once you’ve created it, you’ll get to know your customer’s,

  • Demographics
  • Frustrations or pain points
  • Location
  • Goals
  • Interests
  • Revenue

These are crucial as they will help you understand what your customer wants and eventually you’ll get to know their expectations for rewards.

Alright, now let’s get to some of the most common Referral incentive rewards and how they can suit your customers.

1. Cash Discount Rewards

One of the most common types of rewards offered in Referral programs. It is very practical and loved by people of all demographics.

Cole haan

The best thing about cash rewards is that you don’t even need to offer too much. Just 10$, 15$. 25$ will work wonders for your Referral program.

All those dollars you offer will only be valid on your store, remember cash discounts are not cashbacks.

Cash discounts are not that suitable as daily rewards. They are more suitable for customers who visit your store only on special sales, pre-orders.

2. Loyalty/Credit Point Rewards

This might not be the most commonly used Referral reward but it has many advantages within it.

Credit points let’s you customers choose their rewards by themselves, they can either use them to purchase, renew their subscriptions or collect them to earn your Referral incentive rewards.

It minimizes your effort of choosing the suitable rewards.

All tier referrals

But the only downside is, Credit points are most suitable for loyal customers, users who engage with you everyday, or customers who read your newsletters.

If your store and your customers are new then credit points are not the best Referral incentive reward to offer.

3. Discount Rewards

It is the most used reward alongside cash discounts. Percentage discount rewards are the right name for it.

Most Referral programs use Percentage discounts to offer First order discounts for new customers(Referrals) and Next order discounts for existing customers(advocates).

Discount rewards

Percentage discount is a two-sided reward, which means you can offer the same rewards for both your Referrals and Advocates.

Percentage discounts are more suitable for regular customers who drive repeat purchases. They might be your loyal customers who’ve been shopping at your store for a while.

These customers often purchase in bulk so offering a cash discount or a credit point won’t suffice. Percentage discount is the most suitable for them.

You can also offer discount coupons as a Referral reward. Just make sure you make the coupon design more enticing.

4. Product Based Rewards

A relatively new type of rewards used by several Referral programs these days. Instead of offering a conventional cash discount or a percentage discount, you offer your product or service as a reward.

Dropbox’s Referral program implemented this type of Referral incentive reward on a large scale.

Dropbox referral reward

Offering product based rewards like these suits almost every customer. It doesn’t matter if it is a long time customer, repeating customer or a new customer.

If you are ready to offer your service as a reward then this can be the best Referral reward option for you.

5. Free Shipping rewards

This is also a relatively new type of Referral rewards. Free shipping rewards came into fruition because of the alarming rise of abandoned carts.

Reports suggest that around 50% of abandoned carts were due to high shipping costs.

This is the reason why most eCommerce stores have started offering ‘Free shipping’ as a Referral incentive reward so they can increase their customer retention rate.

Free shipping rewards

‘Free Shipping’ is suitable when you have many overseas customers. If you’re struggling with abandoned carts then Free shipping rewards are also a best way to minimize it.

Alright, we’ve seen some of the most commonly used Referral rewards and we also showed you how you can choose them based on your customer demographics, behaviors, locations and more.

Type of reward

It is better to have 3 or 4 types of reward in your Referral program like Retainful, so that you can change them as per your preference.

More Referral Rewards Examples For Your Inspiration

There are many Referral programs that offer different types of Referral incentive rewards. Let’s take a look at a few of them.

Uniqlo

Let’s start off with something practical, Uniqlo offers a cash discount of 10$ for both the Advocate and the Referral.

The Advocate can share the 10$ promo code with the Referral and when he uses the promo code to purchase the advocate gets a 10$ discount for the next purchase.

Uniqlo

Leesa

Leesa’s Referral incentive reward is a classic example of One sided advocate rewards.

Leesa offers a cashback reward which means the customer will have the freedom to use the customer referral bonus anywhere.

Leesa referral program

You’ll be given a unique link as you sign up, you can share this link to your friends and when they make a purchase you can earn a 75$ cash reward on PayPal.

Shoes For Crews

Shoes For Crews follows the One sided reward campaigns. The Referral gets a reward on their first purchase and the advocate gets nothing.

This type of Referral program is suitable when you have created enough credibility. Your existing customer will simply be happy to refer your store to their friends without expecting any rewards because of your credibility.

Shoes For Crews

Bright Minds

Bright Minds Referral program offers credit or loyalty points instead of cash or discount rewards.

Rewards like these are more suitable when you have many loyal customers at your store.

If follows the One sided Advocate reward campaign where only the advocates gets rewarded and not the Referral.

Bright Minds referral program

SkyRoam

SkyRoam is a popular WiFi service organization. It’s Referral program is similar to the Dropbox program we saw earlier.

Instead of offering direct conventional reward they leverage their Service to entice the customers into referring their friends.

Members can enjoy 50% off on their WiFi service as a customer referral bonus for referring their friends.

SkyRoam Referral program

Hunter

Hunter has one of the most common rewards in theri Referral program. A Double sided percentage discount reward when all the members can get benefitted.

These types of Referral incentive rewards are most suitable for Fashion brands as customers will drive repeated purchases in these stores.

Hunter is a Fashion brand that specializes in boots, etc. Their Referral program offers 15% off on the Referrals first order and a 15% off on the advocates next order.

Hunter referral program

Conclusion

The success of your Referral program solely depends on the rewards you offer. If those rewards don’t entice your customers, then your chance of successful Referral sales will be less. Hope this article showed you how to choose your Referral incentive rewards.

Create your Buyer personas then choose a customer referral bonus parallel to your customer’s interests and increase your WOM sales.


Author Bio
Joel Platini 
Joel Platini
Joel is a content writer that loves to think outside the box. He has an immaculate experience on eCommerce platforms and written articles on customer retention strategies, Shopify app, WooCommerce plugins, etc. Joel is also a whizz in motion graphics as he has a great eye for elegance and finesse.

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