How to Run a Referral Program for Your Marketplace?

Before you ask why you should even bother with referrals when there are dozens of other marketing techniques out there, we have a figure for you: 92% of consumers trust recommendations from the people they know rather than other forms of advertising. This is something to think about and an advantage that any customer-facing business should try to use to the maximum.

Referral marketing, or word-of-mouth marketing, is a method of promoting a product or service through referrals or recommendations, from the customers who spread the word about the business. Of course, it can happen spontaneously without any effort on your part, however, for the greatest effect you can and should organize and stimulate the referral process.

In the online marketplace sector, you have the advantage of accessing two groups of users at the same time: sellers and buyers. Both can refer you to their friends or relatives, thus bringing you more customers. The key is building a truly effective online marketplace referral program that will encourage your users to share their experience with your service and bring new clients to you.

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How referral programs work

Referral marketing is based on the natural, instinctive desire to tell others of a great experience we've had. When we eat something really terrific, watch a great movie, buy a perfect outfit, or get superb service, we are bursting with the desire to tell friends about it. So, what’s the point of building special programs when users are naturally inclined to refer you to their friends?

The problem is that while people love to share their views about a business, they seldom do it. They forget or find it no longer relevant or are distracted with other impressions. By creating a referral program, you will stimulate your users to mention you to their friends. How can you possibly do it? The answer is as old as time – by offering something in exchange!

Let’s see which techniques you can use to build an effective customer referral program for your online marketplace and how you can encourage users to advertise your business.

Referral methods

What can your users possibly do to refer you? Of course, they can communicate their experience verbally while chatting to their friends, but this is something you can't control or encourage. Thankfully, with the popularity of social networks, there are other referral methods that you can implement. Check the following list of referral actions to choose those that will suit your business best:

  • Link sharing. This is the simplest referral method that is used by many types of businesses not only marketplaces. When you read a news story or a special article, you are most likely to see a number of icons to share the content on Facebook, Twitter or LinkedIn. Link sharing can earn you the widest exposure, however, it is less likely to bring any actual conversions. This technique works well for making your brand known and recognizable.
  • Promo codes. With promo codes existing customers urge their friends to use your service at a discount. The code is issued to a customer who then passes it on. You're getting double benefits, as your customer will definitely tell their friends about their experience which, together with the promo code, will stimulate their purchase.
  • Contact list use. Depending on the format of your marketplace application, you can request access to your users’ telephone contact list or friends list. This way, you're getting leads for further promotion of your product.
  • User-generated posts in social networks. You may make the referral game even more interesting by suggesting that your users not only share or re-post your content but also create their own. Ask your users to post a photo of themselves using your product or write a short review.

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Rewards to your users

Of course, if you want your referral program to work, you should establish an attractive rewards program too. By offering some incentive, you encourage users to refer you to others.

What can you offer as an incentive? Naturally, it depends on your business, however, the most logical solution is to offer your own services. This way, you retain existing users while also bringing in new customers. A brief list of possible rewards includes the following options:

  • Free use of your products or services
  • Additional points for the loyalty program, if you have one
  • Discounts for future purchases
  • Upgrades to premium versions

Make your reward attractive to your loyal customers and easy to use. People should want to take part in your referral program; try to offer rewards that have real value. At the same time, make the reward collectable only after the referral becomes a conversion, making sure that you are indeed getting new customers.

Examples of successful referral programs

Once you begin your research of existing referral programs, you're bound to come across Airbnb as a case of a very effective referral system offering attractive bonuses both for new and existing customers. By sharing a unique link, the customer provides a discount for the new user, while at the same time securing a discount for their own travels. However, the discounts apply only when the new user actually travels with Airbnb.

The home rental marketplace also has a system with actual money awards for bringing new hosts to the platform. However, there are restrictions, such as the number of referrals and the minimum booking amount.

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Uber, a taxi marketplace, uses a similar system for increasing its user base. Each person having an Uber account, both driver or rider, is issued a referral code that they can share with others. New riders get a discount on Uber rides and sometimes can even ride for free. When the new user completes their first ride, the referring user also gets their next ride free of charge.

When an Uber driver brings a new driver to the service they can also expect a bonus after the new driver signs up.

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Image source: SaaSquatch

A notable referral program example is Shutterstock, an art content marketplace. In fact, Shutterstock offers quite a number of rewards for bringing both new customers and contributors. The user referring a contributor gets a certain commission each time their image or video clip is downloaded. For referring a customer, the user is entitled to 20% of their first payment on Shutterstock.

As you can see, while referral programs by online marketplaces seem different, they effectively boil down to the same basic concept – bring a new user and get a reward after they start doing business with us.

How to make a referral program for marketplace

We seem to have convinced you that a referral program is an important component of your business. Let us offer some tips on creating a truly successful system capable of bringing new customers to you.

Build a great product

This recommendation may sound a bit odd, but you can only expect customers to refer you if they have a really good reason to do so. Think of it this way – by making a referral, your customer in a way stands up for you and may feel awkward if their friends are unhappy with your product. The outstanding quality of your product not only ensures a high retention of existing customers but urges them to share the great experience they had.

Make it easy to use

People prefer easy processes and quick results, so try to make your referral program as easy and straightforward as possible. Avoid making the user type email addresses or links. Instead, request access to the user’s contacts to send the referral link or code quickly.

If you scroll up to the screenshot of the Airbnb referral message, you'll see a great example of an extremely user-friendly flow. With a single click, you can import your mail contacts or share the link via Facebook or Twitter. Of course, there's a manual entry option for those who prefer it.

The rule of thumb is reducing the number of actions to make a referral to the absolute minimum. No complicated forms or verifications – just a link or code to send.

Create transparent referral rules and stick to them

By browsing the referral rules, your customer should clearly see what's expected of them and what they can expect in return. You want them to bring more business to you, so don't use fine print. If you offer a reward, make sure you deliver it when and how your customer expects.

There's nothing more damaging than a customer not being able to collect their reward after doing their side of the bargain. Viral marketing works both ways, and bad news tends to spread faster than good news. A straightforward reward system will create a good buzz around you.

Implement analytics

Any marketing strategy is fully successful only when you can measure it and see the relationship between your actions and the results they yield. Therefore, implement an analytics engine to provide you with insights on which method works and which doesn't, whether there are any trends or patterns, which social media creates the highest conversion, and so on.

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We recommended Google Analytics for giving you a complete picture of the effectiveness of your promotion campaign. From the data generated by this tool, you'll be able to identify any trends and analyze the results of your marketing efforts over time.

Referral program solutions

As it often happens, you can either use a ready-made platform solution to create and run your referral program or invest in a custom product that's unique for your application. For a relatively small business, you can start with a platform option allowing you to create a referral program with no coding skills at a relatively low cost. For example, ReferralCandy charges $49 per month while offering quite a number of features, such as unlimited number of referrals, fraud prevention, automated reward issuance, and a lot more.

At the same time, a platform solution may become difficult to scale and manage as your business grows. Besides, while offering certain customization, the platform may be unable to fit all of your specific requirements. With a custom referral program, however, you are sure to obtain exactly the set of features that you wish to have and you can expect the best possible performance.

By opting for a custom solution, you will get a product that belongs exclusively to you and does not depend on third-party rules or policies. In fact, you can set up your own referral rules and practices, and test and analyze them as you see fit. A custom referral program will contain all the security and fraud prevention mechanisms that work best for your type of the online marketplace.

If you are looking for the most optimal referral solution for your marketplace business, contact us for a consultation to learn the best ways to organize and develop it. We will be happy to share our marketing and analytical knowledge to work out the most effective solution and provide an experienced development team to bring it to life.

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