What are referrals?

Referrals means spreading the word about a product or service through business’ existing customers, rather than traditional advertising. However, there’s usually some form of incentive or reward offered for customers to refer other people. They are a way to encourage happy customers to spread word about the product to acquire new customers.

Why referrals are all the rage?

Because recommendations from people I know is the most trusted form of advertising. There are other forms of advertising such as branded website, Consumer opinions posted online, commercials in TVs and newspapers etc. But none of them have as much impact as recommendations from people that I know. Another important reason is it is cheap, cheaper than anything when compared with the value that it brings, and these types of customers retain better.

You must have seen lot of referrals and they all look quite similar, right? That is because good products in the market have it down to a science. It is kind of a formula which includes variables like Reward, Timing, Place, Convenience and Incentive. For example, if you have used Airbnb, then you would have received an email to rate your experience. Once you rate it, it will take you to landing page with a notification saying “Why don’t you invite your friends?” and in-turn you will earn some credits. Here, the most important thing is the TIMING! As soon as my trip was completed, I received a mail so that I can rate them. Likewise Cure.Fit, Dunzo, Healthifyme all use their own referrals.

THE KEN

India’s first subscription-driven media company – bunch of journalists who write stories about technology, startups, and health care – one post a day! Ken gives a lot of important to quality of the content over quantity. Most stories are behind a hard paywall and are for subscribers only. The cost of reading a single story is Rs. 590 only. They wanted to bring in referral program to their product when they already have 10,000 paid customers who acted as substantial base willing to advocate their product. All these paid customers were added organically. Before proceeding to referral program, it is always better to understand how your existing customer base increased to the number that they already have in order build some insights. The assumption was that the ken’s paywall was value limiting but the most interesting point that was observed based on the surveys conducted was that their paywalls unlock the value because most of their customers want to share the stories(or a small part of the content) that they find value in.

“Embracing behavior is much easier than changing it!”

The Ken know that their referral reward must be a story, but there is still a question of why someone would refer a story. This can be looked in completely different way i.e. “How valuable products can use scarcity to drive referrals”. Scarcity value is an economic factor describing the increase in an item’s relative price by a low supply. Marketing scarcity is common, but how do you productize it! Superhuman is the best example for that as they raised the demand while limiting the supply which boosted the scarcity ratio and in turn increased their referral rate. The more buzz, the more word of mouth.

Ken did not value sharing, instead they concentrated on gifting, because gifts are valued. Their equation was to add emotion to the product for their referrals.

The Ken emphasized scarcity value throughout the product. Continue to read to know how!

• Gift credits are available only to paid subscribers
• One credit allows a subscriber to gift one story
• You can request more credits, but it comes with a cost
• Gift credits are individually trackable. And if unused, retrievable
• Gifts are beautiful. And it feels great to receive a gift

Now what is the outcome – Over 20% of new subscribers gift stories within their first month of joining with zero interventions. You don’t need material incentives to get subscribers to refer. A combination of scarcity, exclusivity, and habit formation worked for Ken, and it might work for you too or rather a different combination! Find out the combination yourself as you know your product better than anyone else.

Wondering what is the right time to ask someone to refer?

Answer lies in the feature of your product where your users find value. Your product’s "Aha moment" is often the best place to drive referrals. The Ken used the Hooked Model Canvas to understand that.  

Ken sends a notification 10 minutes after the subscriber reads a story acting as external trigger and over time users would notice it inside the app. This redirected to make this a habit by sharing it on social media platforms like WhatsApp and Facebook. The observation was that the subscribers who gift one story are 65% more likely to gift another with in the same month compared to subscribers who doesn’t. That is the exact way to build a habit. But, be ready to learn as it may quickly fall apart if it’s not convenient.

Summary

• Understand where your users find value. Your product’s “Aha moment” is often the best place to drive referrals from
• You don’t need material incentives to get subscribers to refer. A combination of scarcity, exclusivity, and habit formation worked for The Ken. A different combination can work for you
• It all quickly falls apart if it’s not convenient.

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