Refer-a-friend vouchers: why offer discounts on other sites?

   

One of the benefits of a refer-a-friend scheme is not only bringing in new customers but also enticing your existing customers back. Those customers who made the referral are usually rewarded with a refer-a-friend discount off a future purchase and so are more likely to come and buy from you again. Not all of these sales will be incremental but enough will be that you get a boost from existing customer sales as well as the major boost to customer acquisition.

So, why on earth would you consider offering your referrers money off other sites rather than your own? And why are online businesses increasingly doing this?

Frequency of purchase

The first reason is the most obvious. Some online businesses involve buying patterns where they don't get repeat purchases or the repeat purchase is too far in the future and so discounts don't work. Incentivising someone with money off their next purchase when they're buying a car is unlikely to be motivating. Unless the customer can envisage buying again in the next 3 months, a discount off your next purchase is unlikely to be motivating.

Optimising incentives

The second reason is more subtle and is well demonstrated by Sky in the UK. They've run a referral programme for several years and have typically offered a number of free months off the subscription charge for a referrer. This is great for them. It's lower cost to them than it is perceived value to the customer and it's giving people what they want (since they're already paying for it). However, Sky have just switched to offering a choice of 3rd party refer-a-friend vouchers instead. Referers can choose from £75 John Lewis, Amazon, M&S or Boots refer-a-friend vouchers for themselves and their friends. The only rationale for doing this is because it results in increased referral and so they must have found that refer-a-friend vouchers are a better incentive than free time off the subscription. It is likely that consumers perceive the vouchers as a cash-like gift that is better than money off on something they were going to spend anyway.

Which refer-a-friend vouchers are best?

3rd party refer-a-friend vouchers work and can work very well. They work better the closer they are perceived to cash ... but they work better than cash. Consumers are confused by offers of cash. They don't quite understand how it'll get to them and it feels strange that an online is saying they'll send cash to them. Vouchers are far easier to get your head around. As for which refer-a-friend voucher works best for you, you need to test it. For example, M&S and John Lewis may fit most closely to your brand but you still find that Tesco is more effective because your customers can more easily envisage spending the money.

As always with refer-a-friend, the answer comes down to the fact that whatever works best to motivate people to share is the right answer and guessing that is close to impossible. The only way to go is to test everything until you know what works best and refer-a-friend vouchers are worth testing.

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