ReferralCandy's Dinesh Raju talks referral campaigns, ecommerce
Today’s ecommerce marketers have plenty of flashy, high-priced tools to choose from, but one of the most effective is something that’s been relied on for years: referral campaigns. Leveraging the benefits of word of mouth, referral programs incentivize customers and their friends with discounts, coupons, and other rewards. Today, one of the leading solutions for ecommerce merchants interested in customer referral campaigns is Singapore-based app ReferralCandy.
The idea for ReferralCandy came out of a lunch meeting between the company’s founders and a friend who was selling beads in a brick-and-mortar store. Dinesh Raju, ReferralCandy’s CEO and co-founder, says the friend had a loyal customer base and was looking to leverage that to generate new referrals for his business. At the same time, Dinesh and his partners had been watching the explosion of sharing happening online, and were trying to figure out if there was a way they could help small and medium-sized businesses (SMBs) attract new customers.
“We were kind of in that space already, thinking about different solutions for that problem,” Dinesh says. “And then we met up with this friend, and he was like, ‘Hey, a customer referral program would be great. That's something I've been looking for.' And so that's what we built.”
ReferralCandy is compatible with a number of ecommerce platforms, including Shopify and Bigcommerce. After installation, a setup wizard takes merchants through the process of specifying incentives and discounts for their referral campaign, and a template editor lets them customize their referral emails and landing pages. Once the setup is complete, according to Dinesh, “You pretty much just sit back and wait for new customers to come to your store.”
When a sale is made, ReferralCandy sends that customer an email with a referral link. The customer—or advocate, as ReferralCandy calls them—can share that referral link with friends, and if the friend clicks through that link and makes a purchase, the advocate is rewarded. Rewards for both the friend and advocate are fully customizable: for the friend it could be something like 10 percent off their next purchase, and for advocates it might be cash-back, a single-use coupon, or something else.
We chatted with Dinesh about the benefits of referral campaigns, how to use them most effectively, and some of the patterns and trends he sees emerging in ecommerce in 2016.
Update - February 2019
ReferralCandy has now come full circle with the introduction of CandyBar. Their latest solution allows brick-and-mortar shops—the very thing that inspired the creation of ReferralCandy—to reward their customers with digital loyalty stamps. Customers can then come back into the shop and use those stamps as discounts for their next purchase. CandyBar runs on browsers, so it can be used on any device in your shop. Whether you want to set it up on a tablet at your checkout or have your sales associates use it on their smartphones, it's up to you!
Learn more about CandyBar at www.candybar.co.
How do online store owners stand to benefit from referral campaigns?
Most SMBs know that word of mouth is the main way businesses grow. What we do is turbo-charge and automate that process. We incentivize it. Instead of just hoping your customer will tell a friend about your store, you can incentivize both of them with some type of discount or other reward. This makes the customer-advocate feel special. He’s able to give his friend something extra when telling him about the store. That feeling, as well as the reward you offer him, are both strong incentives.
Is there risk of somebody taking advantage of a referral program?
Just like any service, there's always a chance of malicious or fraudulent behaviour. We have a few capabilities built into our system to prevent that. For example, we obscure the discount code if the advocate tries to view the landing page, and we do tracking in the back end to make sure the advocate's email address is different from the friend's, and so on. Having said that, there's no 100% foolproof way of preventing all fraud, because if somebody uses a different laptop, a different email address, a different credit card, there's no way to tell that that's the same person.
In general, we haven't seen a huge issue with fraud, and that’s because kind of the whole point of referrals is that you have a customer base that loves you—they've found a product they love, and they want to tell their friends about it. Fraud is less of an issue when you avoid things like cash rewards, which attract people who are just doing it for the money. If the reward is a discount on the next purchase, that's harder to game. For that, you're usually going to get customers who really love you, telling their friends about you to get them to sign up and make a purchase.
That makes sense. How careful do stores need to be when it comes to discounts and the margins they're working within referral campaigns?
At the end of the day, you want to make sure you’re still profitable, even after the initial discount. Look at that discount as a cost of customer acquisition, and know the average number of times a friend or advocate is going to make a repeat purchase at your store. For example, if your average customer buys from you 3.5 times, you can combine that data with the average purchase amount to figure out the lifetime value of the customer. Once you have that info, you can use it to backward-calculate how much you’re able to afford to acquire this customer, and then work that into the initial discount.
What we’ve also learned from customer referral campaigns is that the new customers you get from word of mouth are typically going to be more loyal. They’ll hang around longer, and they’ll spend more money. That’s because your existing customers are a great filter for your business. If you’ve got a customer advocate who’s bought from you before, who knows your value proposition, who has a bunch of reasons why they love your products, they’re going to be great at finding friends and other people who would benefit from your business and product.
A big part of the power of word of mouth is the fact that advocates want to look good in the eyes of their friends. They’re going to make sure the match between your business and their friend is a good one, and so those customers they send you are typically going to be a strong fit for your value proposition. What we hear from most retailers is that word of mouth or a customer referral program is the lowest-cost channel they have in their marketing arsenal for getting new customers.
Because as a merchant you're doing a lot less legwork and spending...
Correct. And besides doing less legwork and spending less money, you're also only paying for that conversion. It's not like Google Adwords where you pay a whole bunch of money up front to get a bunch of clicks, when not all those clicks convert. In a referral campaign, that discount is only used or that referral reward only goes out when the friend of the advocate has made a purchase.
What are some of the most unique incentives you've seen?
With ReferralCandy, you can see who has made the most referrals in a given time period. We’ve seen some retailers go into the dashboard and find the highest-referring advocate, and then give them an additional coupon or ticket to an event or something. That's one of the more interesting ones. In most cases, the baseline incentives we see are discounts on the next purchase and cash-back as a reward to the advocate.
One thing to note about incentives is that it's important to understand your fundamental value proposition. Try to get into the mind of your customer to understand why they're buying from you. For example, you might be selling tool sets for girls, but the value proposition—the reason customers are buying from you—is that they want to empower the next generation of female engineers. Once you understand that, you can tailor your incentive around that core value proposition. Instead of cash-back on the next purchase, you might reward the highest-referring advocate with a ticket to an engineering conference. At the end of the day, the best incentives are the ones that tie back to that value proposition.
That's interesting, and in line with what we've heard from some of the other ecommerce apps we've interviewed—how important it is for merchants to get into the mindsets of their customers, to really understand things from a lifestyle perspective. What do you find makes a customer more likely to want to refer their friends?
It varies from business to business, but we see two key types of motivation. There's one group that's definitely motivated by cash. These referrers you can think of more like resellers for your business. They help you increase your sales, but you're giving them basically a commission or cash reward for making that sale for you.
On the other end, what we see—and this goes back to my point about the understanding your value proposition—is a group of customer advocates who really like your product or service, who believe it fulfills a promise and addresses a need, and who are motivated to share it with others. When they have friends or people they know, people they care about, who also have that need, there's an intrinsic motivation to help those friends and be appreciated by them, by introducing them to this great product or service.
If a business has access to a customer's friends and connections, maybe through social media or something else, how can they take advantage of that?
You know, just having a list of your customers' friends and their email addresses isn't really all that powerful, and the reason for that is you don't have a relationship with them yet. It doesn't work as well to just message people out of the blue, because they're going to be like, "Oh great, another message from some entity or business I have no relationship with."
What you want to do is understand that you've got a set of customers who trust you, and you've got a set of friends who trust them. Use these relationships to help the friends achieve something they want. In our experience, it's really about making it easy for customers to identify which of their friends would need your product or service, and making it easy for them to make that referral.
What types of products have you found work best with referral campaigns? What types of products don't work as well?
There are a few characteristics for products that do well. One is highly visible products, which tend to be referred more. For example, something like e-cigarettes or shoes—when you use those products, they're very visible. Often you're with friends. They may say something like, "Hey, that looks good. Where'd you get it?" That's the point at which the advocate is made aware that they could help a friend who has that need, and so that's when that referral gets made.
The other characteristic I would point out is products that are bought more regularly. Any product that's consumed and bought every week or every month is going to get referred a lot more than, say, a mattress, which you might buy every couple of years. We've found that referrals happen most when a customer finds a friend who could need a particular product, and it's more likely that they’ll find a friend who could need a product when that product is consumed at a faster rate. Basically, when a product is consumed at a faster rate, that referral is also going to happen at a faster rate.
What patterns do you see emerging in ecommerce that you think will continue to develop in 2016?
The social influence in commerce has always been there, even before the internet. You consult with friends before making a purchase—that's always been a part of how commerce works. What we’re seeing now, and this has been evolving for a while, is that it's becoming easier and easier to confer with friends even if they are not physically close to you. Whether it's through the internet, instant messaging, the proliferation of chat apps, it's much easier now to talk to friends before making a purchase, and that's making the social aspect of commerce grow a lot faster.
We’ve also seen people saying that 2016 will be the year of "conversational commerce." Basically, as a customer, you're in all these chat rooms and chat apps all the time, and it's going to become more common to have the businesses you buy from on those chat apps as well. Instead of getting an email after making a purchase, you might see a business become your friend on Facebook Messenger or WhatsApp, and the way you'd communicate with them is through that chat app instead of email.
What's your best piece of advice for ecommerce merchants—specifically those who might just be starting out with an online store?
I think by far the most important thing is what I touched on earlier—really understanding the fundamental value proposition of your business. Why do your customers buy from you? You might be selling shoes just like three other different brands or stores, but the reason customers buy from you is that they want to show off something about their identity, they want to show that they care about the environment, they want to show that they care about their family. You should understand the reason in your customers' minds for wanting to buy from you.
Once you have your fundamental value proposition nailed down, you should craft all your messaging and the entire experience around that, whether it's what copy you use or what tones you use in your referral emails, your email newsletter, what you put on your website, etc. If you can understand that value proposition and what makes you different from another store, even if you sell the same type of product, everything in your business will grow from there.
Learn more about ReferralCandy at www.referralcandy.com