The best type of referral offer for your business

Creating a valid referral offer can help attract new and better customers to your business. In turn, this brings in additional capital that is always helpful to a company’s bottom line. While customer referral programs are beneficial for a business, a business will need to decide what type of customer reward system to implement.

Who is rewarded?

While there are endless opportunities to create a specific type of referral offer, there are really only two general reward methods.

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 may be some significant differences in the likelihood of referrals between brands with higher recognition than those of weaker or smaller brands. In a recent study, there were notable differences in how these two reward systems were affected by the reputation of the brand that people referred friends and family to.

Weaker/smaller marks

While referral offers from both reward types definitely increased the company’s customer base, the Reward Me type performed slightly better than the Reward Both system. The researchers kindly noted and explained that customers of the smaller brands seemed to be personally involved or more concerned about what they would get from the reference offer. Customers who trusted weaker brands tended to be more price sensitive. For this reason, they wanted to be the ones to get the most out of the referral, making the Reward Me type of offer more attractive.

Strongest/Reputable Brands

Brands that have already made a name for themselves benefit endlessly from the referrals they are already receiving through word of mouth and probably from the many media outlets they choose to use. The “Reward Both” strategy reflected customers who didn’t seem to mind receiving a higher reward for themselves, as they would in a Reward Me scheme. The researchers believe this result is because existing consumers of a brand have a direct affinity for the brand itself and are therefore willing to recommend it regardless of personal reward. The research also showed that customers of the larger brands were less price sensitive. This meant that the higher personal reward of a Reward Me referral offer became less important.

There is no doubt that offering rewards improves the probability of generating new customers instead of offering none. However, it is vital to weigh the risks against the rewards for your business when deciding which type of referral offer scheme to use.

Just Launched

Newer brands must choose between one or another type of reward offers. If a new business decides to go with a “Rewards for Both” type of plan, it is vital to offer a higher reward to existing customers. Offering a higher reward to those who may be more price sensitive will probably do better for your business.

established brands

With an already established brand, a Both Reward 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 just icing on your brand pride cake.