Customer loyalty programs began in the late 1700s, when American retailers started giving repeat customers copper coins they could exchange for a small bonus product at their next purchase. That’s loyalty in a nutshell. You give customers points toward free stuff when they buy your product, and keep them coming back.
Nowadays, customer loyalty has embraced digital and spread to nearly every industry. As a marketer, your loyalty program represents the perfect partnership with your best customers—they love your product enough to buy frequently, so you hook them up with some extra value.
That’s great engagement, but it’s like a broken record—just the same people buying over and over. The next step is to turn your loyalty members’ excitement outward and get them to recruit new members.
That’s where referral comes in. If you have a robust customer loyalty program, you have enthusiastic, committed customers who you know are motivated by rewards. You also have a tried and true points system that gives customers great value without losing you money. In other words, you have everything you need to build out referral marketing and convert all that loyalty into growth.
Let’s dive into three companies who have done just that, and see why referral and loyalty work so well together.
1. Referral Maximizes Existing Loyalty Infrastructure
If you have a loyalty program with infrastructures like member accounts, points, and excited customers, you have everything you need for a powerful referral program. It’s actually a waste of those resources’ full potential not to have referral.
Take American Express’ Membership Rewards program, for example. Credit card companies like AMEX have to work hard to stand out considering that their average American customer has 3.7 different cards. AMEX incentivizes its loyalty members to swipe their card more often by offering them “points,” which they can then put towards travel, shopping with AMEX partners, and services like Uber.
But AMEX was able to get even more out of that program by incorporating referral. Customers who refer a friend to AMEX receive as many as 5,000 points upon the friend’s approval (for reference, an Apple Watch retailing for $399.00 is 79,900 points).
Thanks to the Membership Rewards Program, AMEX already had the key ingredients for referral marketing: loyal customers and a points system. Adding referral was a quick, easy, and scalable way to get new members using the resources they already had—the very definition of efficiency. Using that existing infrastructure also made sharing referrals feel like a logical next step in the customer experience for those loyalty members.
How to Retrofit your Loyalty Program with Referral
Here are three ways to build referral out of your loyalty program’s existing infrastructure:
- Target potential advocates. Loyalty program members already love AMEX, use it all the time, and are incentivized by rewards—they want those points! It’s not a tough leap for them to start referring friends in order to get them. Target your most active membership program participants with your referral plan, and they’ll become your best advocates.
- Recycle your reward system. AMEX already had a system of points to reward members with, and it knew exactly what dollar amounts those points should correlate with. If you have that, all you need to do is figure out a reward structure that makes sense for your company.
- Encourage self-referral. You can have regular customers to enter the loyalty program by offering to let them refer themselves and their friends in exchange for sign-up bonuses. It’s a great way to get customers in the program who might not know an advocate themselves and acclimates them to the idea of referral right off the bat.
If your customer loyalty program is a success, then you’re 90% on your way to a great referral program too. The other 10% just takes a little loyalty repurposing.
2. Referral Makes Customer Loyalty Addictive
Both customer loyalty and referral lend themselves well to gamification because they both reward users for repeated, specific actions—making purchases and converting new customers. If your members can see themselves making progress toward a new perk, they’ll feel compelled to keep participating until they hit the goal.
The secret lies in a psychological phenomenon known as the Zeigarnik Effect. Uncompleted tasks stick in our memories, and we can’t let go of them until we’ve finished and mentally checked them off. Video games leverage graphics like progress bars that show users how much of the game is left to complete—it’s one of the reasons they’re so addicting.
The Bing Rewards program, which gives members credits for performing Bing searches, taps into the Zeigarnik Effect much in the same way. Members can always view their personal credit tally on their Bing homepage, so they always know how far they are from a prize like an Amazon gift card. The program is further gamified with its 3-tier system—after 200 credits, members reach Silver status, and after 750 they reach Gold. Each milestone comes with more credits and, as Bing points out, bragging rights.
Bing also folds referral into that same gamification system. Advocates get 50 credits if they refer somebody who joins and reaches silver status. So if the customer loyalty program is a game, referral is like a cheat code that pumps up members’ stats and gets them rewards faster—they’ll want to share as many referrals as they can.
How to Gamify Referral
Whether you’re building referral into your existing customer loyalty program or starting from scratch, there are several ways to gamify your program:
- Give top advocates special status. You can either do this with tiers, like Bing does, or through special titles like “superadvocate.” It’s all about reciprocating with the advocates bringing in the most customers so they feel a desire to continue.
- Show advocates their progress. Bing, for instance, always shows members how many points they have and how many they need for the next reward or membership level. Incorporate that into your referral program to create a sense of urgency: “Only two more referrals and I can enter that sweepstakes for a free Surface!”
- Emphasize reward increases. Once someone refers enough to get a reward, congratulate them, but also keep them motivated by showing them what the next, even better reward looks like.
Each of those strategies creates excitement—both around referral and around your customer loyalty program—and gets advocates wanting to share more.
3. Referral Personalizes Loyalty to Individuals
One of the biggest shortcomings of traditional “earn and burn” customer loyalty programs is that they feel entirely transactional to customers—and really, that’s because they are transactional. It’s basically a company saying, “Keep buying from us and we’ll give you free stuff.”
That provides a tangible incentive to keep buying from your company, but it doesn’t create a bona fide connection with your brand. It keeps loyalty totally dependent on the rewards—if someone else starts offering better rewards, your customers could defect. Referrals are a great way to make your customer loyalty program a more personal experience.
Take Starbucks’ Rewards, for instance. When members send referrals to friends, Starbucks has them write in a message to accompany the referral. That lets advocates tell friends in their own words what’s so awesome about Starbucks Rewards, which feels much more authentic than the usual corporate marketing speak. Plus, that message comes from the advocate’s own email address—not some anonymous “donotreply” address most people would just ignore.
Starbucks also widens the program’s reach by allowing advocates to send referrals to their friends on Facebook or followers on Twitter. They position the social sharing buttons right next to the email option, so users can easily do all three at once, and again, require advocates to include their own message.
How to Make it Personal
Here are three simple ways referral can individualize your customer loyalty program:
- Take a page out of Starbucks’ book. Using the advocate’s email address and having them include a personal message reinforces to new customers that this referral is a personal invite from a friend, and not a dry marketing scheme. It also ensures the referral stands out from the marketing emails that flood most of our inboxes.
- Familiar faces. Everyone loves looking at people’s faces, especially when it’s someone they know—that’s why the selfie is so popular on social media. Companies like AirBnb have tapped into that by displaying the advocate’s picture on their referrals. It intensifies the friend-to-friend feel of the interaction.
- Collect the data. Referral doesn’t just make your rewards program more personal for customers. It also gives you a wealth of data about what your customers like most and tells you how to nurture them better. You can analyze the advocate’s LTV and membership age at the time of referral, their time since last purchase, or the most recent marketing effort directed at them before sharing—all of that data can tell you what members value most about your program.
Those strategies make your most loyal customers feel more personally connected with your brand and can also tell you what drives their behavior.
You’re almost there
If you have a successful loyalty program, you have everything you need to build out referral marketing. You just need to repurpose some of your loyalty infrastructures, properly incentivize members to refer, and let them restock the top of your funnel with new customers.
Not only that, but they’ll be better customers with longer life spans and higher LTVs, who are more likely to get all the way to the bottom of the funnel and become customer loyalty participants themselves. Customer loyalty and referral feed off each other to become the ultimate acquisition flywheel.