Referral Madness

Mar 01, 2006 10:30 PM  By

As the cost of search engine marketing continues to rise, merchants are increasingly eyeing friends-and-family e-mail programs, in which customers receive incentives to hand over the e-mail addresses of others, as cost-effective acquisition tools. But though refer-a-friend programs certainly get lip service at online marketing conferences, anecdotal evidence suggests that for the most part, lip service is all they get.

For one thing, most refer-a-friend offers are almost impossible to spot. They are made in barely legible six-point, sans serif type at the bottom of the page. Moreover, they often aren’t even real offers — just reminders that the merchant would appreciate it if the customer would pass its URL along. Little wonder, then, that they get little to no response. As Arthur Sweetser, vice president of marketing and professional services for e-mail services provider e-Dialog, says, “Consumers don’t seem to actively participate when there is no real marketing behind it.”

Friends-and-family programs can pay big dividends, however. It’s just that, like all other worthwhile marketing programs, some management is required and some pitfalls need to be avoided.


Not surprisingly, consumers are pretty quick to hand over their friends’ contact information when the offer is an appealing one. An example: An e-Dialog client (who did not give consent to be named) has begun a refer-a-friend program in which its customers earn $50 for every three friends who shop at the store and don’t return their purchases within 30 days.

“Their best customers are worth thousands of dollars over the course of a year, so spending $50 on acquiring a new person based on a strong referral is well worth it to them,” says Ben Ardito, an account director for Lexington, MA-based e-Dialog. In general, you should use what you consider an acceptable cost-per-acquisition figure for your other media as a benchmark for your refer-a-friend expenditures.

Sweepstakes can be powerful incentives for getting people to participate in referral programs. But they can also deliver a lot of names that don’t convert. So rather than a new car, give away something like $500 worth of merchandise to at least qualify addresses as those of people who are interested in the product.

“The big thing is relevancy,” Ardito says. For instance, the National Football League a year and a half ago offered a trip to that year’s draft in its refer-a-friend program, and the effort worked like gangbusters at bringing in qualified names, Ardito says: “To NFL junkies, it was very relevant.”

Another merchant that has crafted a relevant and effective refer-a-friend offer is The six-year-old cell-phone and service-contract merchant invites customers to give the e-mail addresses of up to five friends to receive coupons for $25 off their next purchase; it also gives the referring customer a $25 credit for each person who redeems a coupon and buys a phone as a result of the referral.

“We wanted to establish this program to reward those who help us spread the word,” says founder/CEO Delly Tamer. “My perspective is you cannot put enough value on a personal endorsement. A lot of people send e-mail to people they’ve never heard of. It’s completely different when you receive an e-mail from a friend of yours who says, ‘I had a good shopping experience here. You should check it out.’”

Tamer won’t reveal exact numbers regarding the program. He does say, however, that in the months since the program launched in mid-2005, it has far exceeded his expectations.

There is such a thing as an offer that’s too compelling, though, warns Elaine O’Gorman, vice president of strategy for Atlanta-based e-mail services provider Silverpop. “If you’re going to incent at all, you want to make sure it’s rich enough that people go to the trouble of digging out their friends’ e-mail addresses but not so rich that they’re going to dig out the e-mail addresses of people they barely know,” she says.


The strong performance of the program suggests that a solid offer will draw response even when it isn’t promoted heavily: touts the offer behind a small tab at the bottom of its home page.

“We don’t advertise the program,” Tamer says. “We wanted it to be borne out of a customer who has had a great experience. The people who are going to take [the offer] seriously are the people who have shopped with us and who realize the value that we have to offer.”

But Chuck Smith, senior vice president for marketing services provider Harte-Hanks’s e-mail division, Richardson, TX-based Postfuture, believes that as a rule, you should give referral offers prominent play. “If the forward-to-a-friend function is really important, then shouldn’t it be above the fold?” he asks.

Another key to a successful e-mail refer-a-friend program, says Smith, is to make the reward as immediate as possible: “Unless it’s tied to an incentive with instant gratification, the chances of success for any send-to-a-friend program is limited.”

Playing up the online aspect of the program can heighten the sense of immediacy. A good refer-a-friend e-mail program “really is a loyalty-points type of program more than it is pure viral word-of-mouth marketing,” says Ardito. As a result, e-Dialog’s client offers participants “referrers’ management pages” where they can log in and see the status of the people they have referred. Referrers also get e-mail notifications when the people they refer make purchases and when they return merchandise. This self-service aspect lightens the burden such a program could have dropped onto the customer service department.

Placing a deadline on the offer can also add immediacy. Smith says that often the most effective referral e-mail marketing programs are, say, twice-yearly sweepstakes rather than ongoing promotions. “The programs that seem to work have a pretty limited shelf life,” he says. “You really only have one or two times a year where you can do this and be effective and not fatigue your audience.”


Not surprisingly, there are regulatory issues you need to be aware of. In the U.S., if a merchant provides a financial incentive to forward an e-mail, the e-mail falls under the Can-Spam Act of 2003, and the merchant is responsible for who receives it, O’Gorman says.

And you need to run any e-mail addresses you gain from the program through your suppression file so that you don’t send e-mail to people who have opted out of your previous e-mails. “The trick is that when you design your program you don’t ever reward someone for hitting the forward button in their browser,” O’Gorman says. “Because if they can get the incentive by just hitting the forward button, you’ve got no control over this commercial e-mail that you’re personally responsible for” and you therefore run the risk of violating the Can-Spam Act.

For good measure, Tamer says, e-mails referred addresses only about the program and nothing else. This way it avoids angering prospects and customers.

After all, an angry customer is not going to be an advocate of your company. And friend-and-family referral plans are, in the end, simply a form of customer advocacy. “The idea is to turn your audience into salespeople,” says Postfuture’s Smith. “What you want to do is get them off e-mail and onto the phone with their friends saying, ‘Look, I just sent a forward-to-a-friend e-mail. Just sign up, please.’”