Referral systems speak volumes

Word-of-mouth marketing is getting an injection of new digital ideas and venture capital funding to incentivise more people to pass on recommendations.

Personal recommendation has always been one of the most effective ways to broadcast positive messages about goods and services. We all value tips from our friends and acquaintances more highly than paid messages from strangers, while ‘Recommend a friend’ promotions have long acknowledged the popularity of word-of-mouth marketing by offering rewards to customers who tell others how happy they are.

But now the next stage of incentivising people to spread the word has arrived and it is growing fast on the back of digitally connected customers and venture capital investment. “Earned advertising channels have empowered consumers to advocate their favourite brands, something that shouldn’t go unnoticed by brand advertisers,” says Nielsen global head of advertiser solutions Randall Beard (see research box, below).

The brand advertisers appear to agree. The latest generation of online social recommendation services encourages people to recommend a variety of brands to their contacts from one login, with both parties earning cash incentives from the exchange, and the technique is being widely adopted by brands. ‘White label’ third-party referral systems promise bigger potential audiences for brands and the lure that news of satisfied customers could go viral.

“One of the most powerful ways for brands to grow in the digital age is through engaging the customer to essentially do the marketer’s work for them,” explains Andy Mulcahy, head of communications at online retail body IMRG. “There is no more trusted recommendation than that of a fellow shopper, especially a friend, and brands that successfully stimulate a lot of interest and activity through social methods stand to reap the greatest benefits. It certainly hasn’t done Asos any harm.”

White label referral schemes, such as Shopa used by Tesco, are becoming more acceptable

Perhaps the most high-profile white label offering, UK-based Shopa lets consumers ‘share and earn’ cash rewards by recommending any participating brand to friends. The shoppers can withdraw their Shopa funds at any time, without having to reach a minimum level. While for many users the scheme offers the chance to make small amounts of cash from their recommendations, the potential rewards are higher for popular bloggers, those with a bulging contacts book or those trusted to recommend high-ticket items.

US-based Ambassador offers a referral system that enables consumers to benefit from cash rewards, for clients such as mobile-phone accessory brand Lunatik and software group Sage. And US rival NextBee also offers a social referral system, along with elements of gamification designed to encourage consumers to interact more deeply with its brand clients. As well as collaborating with B2C brands such as Westfield and Hush Puppies, NextBee works in the education, hospitality and travel sectors, and for technology and media brands.

For their part, participating brands can choose the incentives they offer to consumers, run promotions, recruit new customers and gather data, with entry costs being relatively low. NextBee has worked with sports electronics group Fitbit on a two-year Facebook campaign to encourage referrals. “The pricing for a campaign similar to that is $600 [£375] per month and there is no setup fee with an annual contract,” says a NextBee spokesman. Shopa, meanwhile, is funded by taking a commission from sales generated by its referrals.

Winning brands over to their services has been the first challenge for these new groups, which have been reluctant to promote themselves heavily to consumers before they had recruited a sufficient mass of online merchants to take part.

The cost of acquiring a broadband customer can be high, so this is a satisfying way of doing it because you get the customer loyalty benefit

Many brands already provide incentives for customers to recommend their services to friends as a consistent feature of their marketing strategies. Insurance group Aviva, for example, offers a £25 Amazon gift voucher to those who introduce a new customer; online customers of fashion retailer Next can earn a £20 discount for themselves and a friend by introducing them as a new customer; and Sky TV offers each party a £75 voucher for a choice of popular retailers.

Yet companies have proven quick to adopt the new white label referral products, which promise to expand the horizons of the brand schemes, partly because they can be introduced easily via existing relationships with affiliates.

“We became part of their ecosystem rather than creating our own new one,” says Shopa chief executive Peter Janes, explaining that this approach replaced an earlier strategy of approaching merchants individually.

“We partner with the affiliate networks that manage the retailers’ accounts. Previously, we positioned ourselves as an alternative affiliate network, [but then] we had to talk to the likes of legal and the marketing team, because it is a new process.”

When Marketing Week reported on Shopa in July, the company had signed up 5,600 retailers to its service. Three months later the figure stands at 9,100, putting Shopa ahead of its expansion targets. The brand’s database went live on 2 October, allowing users to access the full functionality of the site for the first time.

“The database allows consumers to see which products are trending, i.e. being shared and liked the most, and then amplify word of mouth quickly on any platform they choose in one click. The database allows any online retailer to easily offer individuals financial incentives for their social interactions around their products or services,” says Janes.

Brands including iTunes, Puma,, Tesco and Starbucks are among the companies using Shopa, many of them signed up via affiliates. As well as ease of adoption, Janes says another reason behind the rapid growth in acceptance of white label referral schemes is that brands understand they build on existing consumer behaviour: consumers already share a high volume of product recommendations via platforms such as Twitter and Facebook.

Plusnet’s customer churn rate is around 50 per cent lower for shoppers who have referred somebody than it is for the average customer

“It’s not a new behaviour. What we provide for retailers is the ability to financially incentivise and amplify that action,” says Janes.

Third-party systems also provide merchants with a broader potential audience and standardised metrics, enabling them to use the data they gather from the process more effectively. “And from a consumer point of view, from one login they can refer products across those 9,100 sites,” adds Janes.

Having built up a considerable retailer membership, Shopa is set to embark on the next stage of its plan: recruiting more consumers. Currently there are 460,000 people using the site worldwide, primarily in English-speaking markets. “We have spent about $200 on marketing, so it has all been word of mouth so far,” says Janes.

“The users themselves are spreading the word about Shopa. It’s in their best interest to spread as far as they can a product they are referring in order to, potentially, earn as much commission as they can.” Further expansion, by offering versions of the site in more European languages and by growing in the US, is also planned. The group has been backed by investors from Octopus and Notion Capital, and is currently opening talks with potential US investors about the next stage of its development.

Early adopters of the service may typify the kind of connected consumer who can benefit most from a referrals scheme. As an Italian fashion editor based in London, Daria Simeome has always found her advice welcomed by friends seeking the latest trends. “I look at collections as soon as they are out, so friends ask me for advice, for free obviously, and I do it because I like to. I send links and sometimes I go to shops and take a photo of myself in an outfit in the changing room and I send it to them,” she says.

A friend suggested Shopa when Simeome was recommending shoes for another friend’s wedding just a month before the event. She suggested a pair which the friend bought and has not looked back since, regarded as a ‘power user’ among Shopa’s network of proactive consumers.

Simeome generally recommends fashion products, with some exceptions. For example, when she was seeking a fan that attached to a baby buggy during the hot summer, she found one and recommended it to fellow members of her NCT antenatal group, all of whom bought the product. She has also benefited from incentives after recommending two or three pairs of shoes costing £600 each.

Simeome describes the system as simple to use: she logs into Shopa via Facebook and the money she earns is paid directly into her PayPal account, which she can promptly access for further online shopping. If a product she wants is available from more than one retailer, picking one that offers Shopa benefits is a deciding factor in where she makes her purchase.

Finding more people prepared to share their views in this way is vital to the success of the latest players in word-of-mouth marketing. White label referral sites have proved they can get online merchants to sign up to their services. The challenge now will be to convince consumers to join in too.

Word of mouth – demonstrably popular

There is a growing amount of data that indicates why word-of-mouth marketing is so appealing.

US trade body Womma (Word of Mouth Marketing Association) has conducted research showing that 72 per cent of consumer credit reviews from family or friends have either a great deal or a ‘fair amount’ of influence when deciding whether to use a product or service, while 81 per cent of consumers are influenced by their friends’ social media posts.

According to Nielsen’s Global Trust in Advertising and Brand Messages report, published in September 2013, ‘recommendations from people I know’ are the most trusted form of brand advertising, with a score of 84 per cent.

And as digital communications have penetrated our world, this figure has grown, having been just 78 per cent in 2007.

It is also far more popular than the alternatives. The same report scores branded websites at 69 per cent, TV adverts at 62 per cent and emails – even those that consumers have consented to receive – at 56 per cent.

Referrals mean loyalty benefits for Plusnet

Broadband provider Plusnet has run its own referral scheme since shortly after the brand was launched in 2000. Customers who encourage a friend to sign up for the service get a discounted monthly tariff for as long as the friend remains a customer. To date, 136,000 customers have made referrals, bringing 300,000 new customers to Plusnet. As there is no cap to the scheme, industrious customers can recruit multiple friends and acquaintances, meaning that a small number find their account in credit every month.

“It can work out that you are earning an income from Plusnet from doing this, and we are delighted to pay it. It’s a brilliant way for us to acquire new customers from word of mouth,” says Plusnet commercial and marketing director Nick Rawlings.

“The cost of acquiring a broadband customer can be quite high, so this is a very satisfying way of doing it because you get the customer loyalty benefit. But it is very cost-effective as well,” he adds.

The customer loyalty element cannot be underestimated. “Some of it might be a self-fulfilling prophecy because clearly you are going to have to be, in the main, a happy customer to refer somebody else. But when you look at our customer churn rate, it is roughly 50 per cent lower for customers who have referred somebody than it is for the average customer.

“It definitely gives us a customer loyalty benefit,” says Rawlings.

The scheme is set to remain an in-house operation. “I think for something like referrals, it makes more sense to retain total ownership of it because it’s so intrinsic to the business and the proposition. It’s sort of an extension of the actual product, rather than a marketing channel,” he adds.

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