Who is Rewarded?
While there are infinite opportunities in creating a specific type of referral offer, there are really only two general methods of reward.
1. ”Reward Me” Program – the referrer, or existing customer, receives the reward.
2. ”Reward Us” Program – both the existing customer and the new customer receive a reward.
There can be some significant differences in the likelihood of referrals between brands with stronger recognition than those of weaker or smaller brands. In a recent study, there were notable differences in how these two systems of reward were affected by the reputation of the brand to which individuals were referring friends and family to.
While referral offers of both reward types definitely increased the company’s customer-bases, the Reward Me type did a bit better than the Reward Both system. Researchers noticed and helpfully explained that customers of the smaller brands seemed to be personally invested, or more concerned about what they would get out of the referral offer. Customers who relied on the weaker brands tended to be more sensitive about pricing. For this reason, they wanted to be the one to gain the most out of the referral, making the Reward Me type of offer more attractive.
Brands that have already made a name for themselves benefit endlessly in the referrals they are already receiving from word-of-mouth and likely many media outlets they choose to utilize. The “Reward Both” strategy reflected customers that didn’t seem to care about receiving a higher reward for them such as they would in a Reward Me scheme. Researchers believe this result is due to a brand’s existing consumers having a direct affinity for the brand itself and therefore a willingness to make a referral regardless of personal reward. Research also showed the customers of larger brands were less price sensitive. This meant that the bigger personal reward of a Reward Me referral offer became less important.
There is no doubt that offering rewards improves the likelihood of generating new consumers over offering none at all. However, it is vital to weigh the risks versus the rewards for your business when deciding which type of referral offer scheme to use.
Newer brands should choose from one or the other types of reward offers. If a new business decides to go with a “Reward Both” type of plan, it is vital to offer a bigger reward to existing customers. Offering a bigger reward to those who may be more price sensitive will likely have better results for your business.
With an already established brand, a Reward Both type of referral offer is the obvious choice. While established customers of more reputable brands may be less price sensitive, rewarding them for their loyalty can never go wrong. Adding a reward for those your existing customers refer is simply icing on the proud-of-your-brand cake.
Christian Fea is CEO of Synertegic, Inc. A Joint Venture and Referral Marketing firm. He exemplifies how to profit from Joint Venture and Referral relationships by creating profit centers with minimal risk and maximum profitability.
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