Word of clout: How subscription brands can optimize their referral programs

Answer this question honestly: Would you rather buy a product promoted by a YouTube auto-play ad or from a friend who tweeted her endorsement of the item?

Most of you will say a friend’s referral holds more weight than just another ad delaying you from watching a video, and that truism holds up in the ecommerce subscriptions space: Referral marketing is powerful and sticky, and can be an ideal way to give both parties (the referrer and the one receiving the referral) incentive to stay loyal to the brand.

Several figures back up this assertion: Word-of-mouth is the primary factor behind 20-50% of purchasing decisions, and customers who are referred to a brand are up to five times more likely to use their referral program than customers who weren't, according to data from Extole.

But how can subscription brands add successful referral programs to their businesses? We collected actionable insight from several leading experts who can speak on successful subscription businesses so you can flesh out the referral initiatives that work well for your brand.

Best Practices: Harness the lure of exclusivity

The most common referral program for subscription brands selling physical products gives a current subscriber a referral link to pass along to friends. If that person joins, then they may get a discount on joining, and the referrer may receive a discount or a bonus product for sending a successful referral to the brand.

Peloton users have been seeing this reward program often. Its referral program states: “For any friend you refer who purchases a Peloton Bike, Bike+, or Tread ("Hardware") using your referral code, you will receive up to $125 off your next Apparel purchase…”

Refer-a-friend programs have been around for decades, so what works best? Chris George, co-founder and chairman of the Subscription Trade Association, stresses the importance of product-driven businesses to bring exclusive products into their referral rewards program.

“Exclusivity is a big deal, especially if you offer items that no one else can get,” he says. “For example, you can set up a program where you ask subscribers that if they refer three people, they can get an item that’s never been sold before.”

Along with an actual product, credit-based referral programs could also be appealing to new visitors and longtime subscribers. Credits can be applied to, say, online courses or software subscriptions, and they often don’t cost the brand anything.

“Referral programs work because it allows real people to say things that the brand can’t say,” says Robbie Kellman Baxter, author of books focused on ecommerce subscription strategies, The Forever Transaction and The Membership Economy. “Also, your friend has more credibility than a brand you may have heard of talking about how it’s so great.”

Beauty products often excel in offers where a mystery box is awarded to both the referrer and the recipient, says George, and that kind of surprise can elicit delight in subscribers who want something different in their usual deliveries.

When brands ensure both parties get rewards, it’s known as a double-sided referral program. It’s a decision that many major brands inside and outside the subscription employ regularly: Uber, Airbnb, and Dropbox all have double-sided referral programs to grow their customer base and retain committed users.

Best Practices: The value of giving VIP status

Don’t we all enjoy feeling special, singled out of a crowd for a positive reason? That’s an emotion subscription brands can leverage with their referral programs by offering a higher tier of subscriber status if they refer a friend to the brand.

Brands can invite these select customers to a special club with exclusive benefits, such as early access to sales, free products, or invitations to VIP events. Gamifying the status of subscribers can be sticky: when fans are elevated on a publicly visible leaderboard, they can be more loyal to a business that appreciates their work as part-time brand ambassador.

This strategy can work well because the one receiving the referral won’t see the moment as transactional. “If there isn’t anything monetary involved in the referral program, it can make the friend getting the referral feel like it’s a true recommendation, that the person referring to the brand isn’t doing it for financial reasons,” says Baxter.

She cites the Salesforce MVPs, where customers who go above and beyond to support the community receive MVP access and treatment. They get invites to the annual conference Dreamforce (where bands such as Metallica and the Red Hot Chili Peppers have played), and get to meet other MVP employees who are wearing swag, such as tote bags and socks, that designate them a level above other staff.

“Having status and being appreciated should be seen as very valuable,” Baxter adds.

Best Practices: Where should the referral offer be displayed?

Now onto a technical but important issue: placing the referral offer.

“Build a strategy around your referral marketing so every email you send to subscribers reminds them about the offer at the bottom, for example,” suggests George.

Baxter recommends placing the referral offer close to the transaction event, such as in the checkout page. “Or maybe have it in the thank-you page after purchase, as close as possible to that moment of high trust,” she says.

Brands can also play around with design elements, such as displaying an image of a gift-wrapped box in the checkout portal, with a circle around it and an arrow pointing to the box as an indication of a potential reward for a successful referral.

Sending referral offers via SMS can also be an option, but brands have to be careful they aren’t encroaching too closely into a subscriber’s private space. Often, when we receive texts from brands, we view them as unwanted spam.

Referrals come in many different flavours, but it’s clear abstaining from having one can be detrimental to your subscription brand. The rewards for the brand are numerous: Referred customers are 18% more loyal, spending 13.2% more than other customers, and have 16% higher lifetime values than non referred customers, according to data from SaasQuatch.com.

To that end, what are you doing to implement compelling referral programs to retain and acquire subscribers? And what will you do tomorrow to further elevate this integral tool in your marketing arsenal?