Loyalty trends and best practices

Why Referral Programs Dont Work For Everyone

by Tiffany Go
November 02, 2012

Tiffany GoWant more customers? Do you think a referral program is an easy win? It could be, but only if your referral program is a part of a comprehensive strategy and your expectations are realistic.

Last week, the press quickly picked up a study released by online-ticketing company Eventbrite that attributed an average of $3.23 worth of revenue to each share on Twitter, Facebook, and Linkedin. Though it’s enticing to jump to conclusions and race to ramp up a social referral program, let’s perform some additional analysis. Just because social referrals seem to drive big value for Eventbrite doesn't mean every business will see the same results.

Let’s take a step back and look at the factors that drive referrals:

  • Circle of Influence based on Dunbar’s Number: 150 individuals*
  • Engagement and Relevancy: 33%**
  • Social CTR: 0.07%***
  • Industry Conversion Rate: 3%****
These are solid baseline assumptions to apply to a sample of 100,000 customers in two very different contexts. Imagine a retailer whose audience shares 9% of the time and wants to drive referrals, and then compare the outcome to a very social business like Eventbrite, whose audience shares 60% of the time.

The Economics of Referrals

It’s a sharp contrast.  The retailer sees only 15% of the referrals that an intrinsically social company like Eventbrite would expect.

This doesn't mean retailers should completely ignore customer referrals. However, retail marketers do need to consider their referral strategy in context:

  1. Be rigorous with your assumptions. Set realistic expectations about the expected sales lift when analyzing referral programs.
  2. Understand what it will take to make your brand or product something that your customers would proudly share with their friends. Start by adding value to both the person sharing and the person being referred. Giving 100 points or a $10 coupon for referring a friend is not enough.
  3. Make sure you have the analytic capabilities to track and attribute your referrals so you can identify your advocates and find ways to uncover high-quality referrals.
* NPR ** Colloquy *** ClickZ **** Internet Retailer


Enter your email address recieve notifications of new posts