Practical Ecommerce

Using Referral Marketing to Fuel Ecommerce Subscriptions

HelloFresh is an example of an online subscription company using direct mail to encourage and enable referrals.

HelloFresh is an example of an online subscription company using direct mail to encourage and enable referrals.

When your subscribers refer your ecommerce subscription service, they are helping your business grow. Both the customers who refer your products and the referred customers they bring in are likely to be more loyal and to spend more than other shoppers.

At it’s core, referral marketing is really a form of word-of-mouth marketing. Your happy customers tell their friends about their good experience with your service and those friends try it out.

This works well for everyone. Your customers get a good product, and you have a successful business. In fact, according a one study from 2010, referred consumers to a German bank were 18 percent more likely to become loyal customers and 16 percent more profitable than new customers from other channels.

While individual results will certainly vary from subscription service to subscription service, the prospect of loyal customers makes referral marketing worth trying.

Requires Great Service, Products

Image this scenario. Julie sat on the edge of the couch folding socks. It was about 8:30 p.m. on a Tuesday, and she’d barely gotten home. Work, at a local credit union, had ended just after 6:00 p.m., then she drove to a nearby high school to meet her husband at their eight-year-old’s flag football practice.

On the way home from practice, she stopped and picked up two bags of fatty, fast food to feed her family of four. And she spent more than $40 for it.

Now she was folding and complaining about the fast food as she chatted with a friend, Melisa, who stopped by to talk about kids, sports, and other activities in the coming week.

“We’ve been using Blue Apron,” Melisa offered. “We had the same problem. We were eating fast food too much, so we tried it.”

“I’m not sure I have time to cook,” Julie said.

“It’s easy really, it only takes about a half hour for the Blue Apron recipe, which is just about what it takes to drive and wait at the drive through”

Later, Melisa sent Julie a free meal from Blue Apron. The company had offered several free meals for Melisa’s friends and provided an easy form for inviting Julie.

Blue Apron had a product Melissa was happy to recommend and an easy form to make referring simple.

Blue Apron had a product Melisa was happy to recommend and an easy form to make referring simple.

This story, which is based on actual events, is meant to make a single point.

Referral marketing starts by having a great product and offering great customer service.

Your customers will not refer a product they don’t like from a company they don’t trust. Thus, before you plan your masterful and clever referral marketing campaign, make certain that your ecommerce subscription service is delivering what it promises. Without a good product and good customer service, referral marketing will not work.

Make It Easy to Share

Referring a friend has to be easy. In the Blue Apron example above, it was a matter of logging into the site, clicking a free meal link, and filling out a brief form. It was simple.

HelloFresh, a service like Blue Apron, has a similar referral program. The company sends its subscribers a direct mail piece with four, $40-off coupons for the first box. The subscriber just needs to hand these discount cards to friends to refer the service. Again, it’s easy.

Four perforated discount cards make it easy to refer HelloFresh.

Four perforated discount cards make it easy to refer HelloFresh.

If you create a referral marketing program for your subscription business, consider offering:

  • An easy referral form online;
  • Referral emails that can be forwarded;
  • Direct mail referrals to hand out.

Offer an Intrinsic Reward

Your referral marketing program may be more successful if you offer your current subscribers an intrinsic reward for sharing your service with others.

The HelloFresh referral program is an example. When a HelloFresh subscriber shares a $40 discount card (or code), the new subscriber gets a hefty discount, and the existing, referring subscriber gets a $20 credit on his own orders.

HelloFresh gives referring subscribers a $20 credit for each new customer they bring in.

HelloFresh gives referring subscribers a $20 credit for each new customer they bring in.

Get a few friends to sign up for HelloFresh and you might be eating for free.

When your customers refers someone new, reward them. Offer either a discount or extra products as a way of thanking them and encouraging them to refer more folks.

Provide Great Feedback

When your business does get a new referred customer, make it a big deal. You want this new subscriber to feel welcome and you want to give the subscriber who referred her great feedback.

Whenever a referral is accepted, consider sending a series of messages to both the new customer and the referring one. This series might look something like the following.

  • The new customer gets a welcome email that encourages her to thank the referring customer.
  • The referring customer gets an email saying the new customer has accepted the referral and that a reward is available.
  • After the new customer gives a review, email the referring customer, letting him know what his friend thought.

The experience of referring someone to your business should be enjoyable and feedback can reinforce the reward, and garner additional referrals.

Armando Roggio

Armando Roggio

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Comments ( 3 )

  1. Gareth August 17, 2016 Reply

    I am interested in the idea of referral marketing, but am struggling with the tax implications. Perhaps I’m being over cautious, but isn’t a referral with a cash incentive (even if it’s money off a future purchase) effectively the same as an affiliate sale? If so, isn’t there a risk that such an affiliate program could open up sales tax nexus in multiple US States?
    If I’m missing something then please let me know because I’d love to hear why it’s different and would not have any nexus implication!

    • Armando Roggio August 18, 2016 Reply

      Gareth,

      I think you are wise to consider tax. In the United States, sales tax laws vary from jurisdiction to jurisdiction, so it makes sense to do a bit a research.

      In general, there is a difference between giving someone a discount as a reward and paying someone for a referral.

      In the former case, the discount would be similar to offering 5 percent off for signing up for a newsletter subscription. So treat the referral reward like any other coupon, but do check laws in your jurisdiction(s).

      When you pay for a referral, you will have to send someone a 1099 form if the referral amount is more than $600 in a year. See the form instructions at https://www.irs.gov/uac/about-form-1099misc

      • Gareth August 19, 2016 Reply

        Thanks Armando, I appreciate that.