Would you ‘recommend friend?’

With hundreds of retailers and voucher giants tapping into the ‘recommend a friend’ promotional marketing tool, it begs the question does it actually pay off?

An article in Genroe online (titled ‘Refer a friend programs are they worth it?’) revealed that customers who have been acquired through a paid customer referral programme have a higher retention rate and a higher initial contribution margin than other customers. The article highlights the psychology behind recommend a friend campaigns and how companies utilise this in order to influence a consumer’s decision.

There are various ways in which the promotional tool impacts the consumers thought process:

  1. The person who is carrying out the customer referral tends to feel that they owe the company a good customer due to their payment.
  2. When one person likes a company there is more of a chance that they will influence their friend’s perception.
  3. People tend to have friends that are similar to themselves which will hopefully ensure a higher customer value margin.

Recommend a friend campaigns prove to be worth the investment, as customer referrals showed an initial 25% higher contribution margin than non customer referrals and the net increase in value more than pays for the cost of the reward.

With the likes of Twitter and Facebook becoming part of everyday life, many companies are set to increase their recommend a friend usage within online portals.

Word of mouth is the primary factor behind 20%- 50% of purchases and 90% of online consumers trust recommendations from people they know. The potential power of ‘recommend a friend’ campaigns is something which companies are only now experiencing due to the advancement of social networking sites. With the increase in development of app’s, forums and instant online voucher codes it seems more and more customers will be enticed to recommend a friend this year!

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