Store owners are always looking for innovative ways to attract new customers and keep the existing ones engaged. One of the most popular ways to achieve that is to use a WooCommerce referral program.
A good referral program is easy to implement, it’s cost-effective and it can help you expand your user base, enhance your brand loyalty, and boost your sales. This alone makes it seem like the ultimate solution for any e-commerce business.
Or does it?
Join us as we explore the pros and cons of using a WooCommerce referral program and learn whether your store can benefit from having one.
Table of Contents
Promote your referral program with beautifully designed tools made to turn more customers into advocates.
Pros of using the WooCommerce Referral Program
Increased sales
One of the most important benefits of WooCommerce referral programs is increased sales. According to Nielsen, a global leader in audience measurement, data, and analytics, a good program can increase your sales by up to 25%.
But why is that?
You see, referral programs allow you to utilize the power of personal recommendations – also known as word-of-mouth marketing. And unlike other, more traditional advertising methods, personal recommendations always come from trusted sources.
This means that potential customers are learning about your business from friends and family – someone who is already a part of your customer base. This increases the chances of conversion and makes the referral program extremely valuable for your business.
Cost-effective
What makes referral programs cost-effective?
Well, compared to other marketing strategies, referral programs are not constantly spending your hard-earned money on bringing in new customers. Instead, you are using the referral program to expand your existing customer base through word-of-mouth marketing.
Think of referral programs as a pay-as-you-go tool that offers many advantages when it comes to their cost-effectiveness, such as:
- Targeted spending – you are investing in customers who have already shown an interest in your products, which in turn offers a higher chance of conversion
- Reduced acquisition costs – your existing customer base can be leveraged to bring in new customers, which is less expensive than traditional marketing channels
- Measurable ROI – referral programs make it easy to measure your ROI by tracking the number of successful conversions that are attributed to referrals. This helps you calculate the revenue your referral program generates
- Long-term value – customers who come to your business via referrals are more likely to remain loyal to your brand because they came through a trusted recommendation
Customer loyalty
If you want to make customers feel appreciated and valued by your brand, introduce a referral program. It is that simple.
The average referral program offers incentives such as discounts, gifts, or cash rewards to the referrer. These are called single-sided incentives (also known as one-sided incentives). However, a referral program with double-sided incentives can bring in a lot more than a referral – it can bring in a new loyal customer, which is worth much more than the reward.
According to research, “77% of consumers say they have had an ongoing relationship with brands for 10 or more years”. So, to achieve this loyalty status, a business should focus its efforts on creating a mutually beneficial long-term relationship with customers.
Why? Think of it this way – a loyal customer is a returning customer. And existing customers bring 65% of business revenue.
Increased brand awareness
Customer loyalty and increased brand awareness go hand in hand.
Referral programs not only offer a unique opportunity to expand your customer base, but they also create an organic marketing funnel for increasing brand awareness.
Your loyal customers are almost always the most satisfied customers, and satisfied customers will often share their positive experiences with others – online and offline.
Compared to traditional advertising channels that can bring in visits to product pages and likes on social media, satisfied customers can create a ripple effect that could potentially introduce your brand to entirely new audiences and markets.
A good example of that is Zara – one of the largest fashion brands in the world. They spend just 0.3% of their sales budget on advertising. Of course, this doesn’t mean they don’t do any marketing, they just have their own spin on it.
Zara creates their ripple effect by focusing on immediate customer feedback, which in turn increases brand awareness and customer loyalty.
Data insights & scalability
Let’s face it – not every product you push out is going to perform. And that’s exactly where a referral program can come in handy and help you learn what resonates well with your customers. You can use such data insights to adjust your product offerings and marketing strategy.
Additionally, you can utilize the information you get through data insights to expand the reach of your referral program. This ability to scale your program will help you future-proof your program and maintain a competitive advantage in the market.
Easy implementation
WooCommerce referral plugins make it relatively easy to add a referral program to your store. They are easy to integrate which is exactly what you need to get your referral program up and running quickly.
However, just because plugin installation is quick and easy, it doesn’t mean that you shouldn’t do your due diligence. For the best possible outcome, do thorough research, make a list of must-have features your business needs from the referral program, and cross-reference them with what the referral plugin offers.
Make sure that easy implementation is at the top of that list, as this will definitely save you time in the long run.
Cons of using the WooCommerce Referral Program
Not suitable for all businesses
At first glance, a WooCommerce referral program seems applicable to all types of businesses. However, if you run a business in a niche market, have a seasonal business, sell complex products, or sell heavily regulated products, you might not be able to create an enticing referral program.
- Niche markets: These markets usually have a small customer base, and expanding the referral program beyond that might not be possible due to fewer people who can refer new customers.
- Seasonal business: Some e-commerce businesses are seasonal, which means they have a busy season with high traffic which is good for referral programs, but off-peak seasons receive very little traffic, and that usually results in poor program engagement and participation.
- Complex products: E-commerce businesses with complex products, or products that require a high level of expertise to use, may not be the right fit for a referral program. Customers who don’t fully understand the product will most likely hesitate to recommend the product to friends and family.
- Heavily regulated products: Other e-commerce industries, such as financial services or healthcare, are heavily regulated which means that compliance with regulations in these industries might be challenging for a referral program.
So what can you do for your customers if a referral program is not suitable for your business?
Well, you can introduce a quality subscription discount – offer a fixed discount or percentage discount on your products in exchange for the customer’s email.
You could also try utilizing a subscription program, but you need to make sure the benefits you offer provide value to your customers, as this will help attract new and retain existing subscribers.
Rewards can be expensive
Whether you are offering store credits, discounts, or free products, reward incentives are an excellent way to motivate program participation within your customer base. However, if you are not paying close attention to them, rewards WILL deplete your budget very quickly.
According to Elon Musk, their referral program was quite successful and viral when it launched in 2015, but it eventually became so expensive that it started to add cost to vehicle production. Their referral program was shut down in February 2019.
Since then, the company has moved to a scaled-down version of its most popular referral program.
So, what can YOU do about it?
Assuming you don’t have the budget of Tesla, there is something you can do to avoid wasting money on overpriced rewards.
Balance the cost and value of your incentives. To run a successful referral program, you need to calculate the potential ROI for each referral and find the sweet spot for the value of the reward you offer.
To find that sweet spot, try the following – figure out your average cost to acquire a converted customer, then make it equal to your referral reward and incentive cost. For example, if an acquired customer costs you $100, then you would split that between the referrer and their friend.
In the end, acquired customers will cost you even less as referred leads are two times more likely to convert than leads you acquire through regular (paid) marketing channels.
Another factor that can deplete your budget is the type of incentives you offer. What does that mean?
- Are you offering single-sided incentives – rewarding just the referrer?
- Or are you offering double-sided incentives – rewarding both the referrer and the person they referred you to?
The type of incentive really depends on your business model, but if you are offering double-sided incentives and straining your budget you may want to revisit your referral program and optimize it for lower costs.
Fraudulent Referrals
Every referral program is susceptible to fraudulent referrals. These are activities in which program participants try to manipulate the referral program to gain reward incentives without creating actual referrals. Such fraudulent activities can seriously undermine the credibility of your referral program.
However, there are a few things you can do to minimize the risk of fraudulent referrals:
- Use a referral plugin with a good fraud prevention system
- i.e. customers can’t have similar/identical emails, they can’t use a temporary email or the same IP address, etc.
- Make sure that fraud system rules are customizable
- this will allow you to set up a fraud prevention system based on the needs of your business
In addition to that, you should use your referral programs’ analytics to monitor referral patterns and identify any activities that resemble fraudulent referrals.
Prevent fraudulent referrals with a state-of-the-art WooCommerce referral plugin.
Program Management
To ensure a successful referral program runs smoothly you either need to have a dedicated person who can monitor the program or invest a lot of time and resources yourself – both of which are a burden on your budget.
Inadequate program management can result not only in a lack of trust and credibility but a lack of promotion and integration, as well. This usually leads to customer frustration, confusion, and poor program performance, in general.
So what should you do if you struggle with managing your referral program?
Analyze. Optimize. Improve.
Put in a bit of extra time and effort to figure out what is wrong with your referral program. You will learn from your mistakes and create an even better program for your customers. And make sure to listen to customer feedback, as their feedback will help you pinpoint the issues.
Limited reach
A referral program allows you to tap into the potential of your existing customer base, but it may have some limitations in reaching new demographics. If you are relying strictly on your referrals, then you might not be able to expand the program effectively.
Nevertheless, you can counter this limitation by combining your referral program with other marketing strategies, such as social media campaigns, content marketing, partnerships, collaborations, or targeted advertising.
This will help you achieve a nice balance between expanding your existing customer base and reaching new demographics.
Few other cons of using the WooCommerce referral program
- Uneven referral distribution: This happens when you have a small group of enthusiastic customers who do most of the referral activity, whereas other customers show very little interest in program participation. Such behavior often leads to uneven reward distribution and discourages less active program participants from engaging with your business.
- Privacy concerns: Such concerns are often raised as a result of sharing personal information. Some participants may not want to share the contact information of their friends and family, which can reflect poorly on program participation.
- Referral program fatigue: When your existing customer base becomes overwhelmed with frequent referral requests, you end up with referral program fatigue. In turn, this leads to poor program participation and can affect the overall experience with your business.
Conclusion
E-commerce is a tough & competitive market where referral programs are not always a one-size-fits-all solution. The suitability and stability of the program depend on the industry you are in, the nature of your business, and the power of your customer base.
A good referral program can help you utilize the power of personal recommendations to generate higher conversion rates and expand the reach of your brand – which makes it a valuable tool in your marketing arsenal.
Nevertheless, you still need to approach referral program setup strategically in order to mitigate some of the potential risks associated with it. By understanding the pros and cons of using a WooCommerce referral program, you will be better equipped to make informed decisions that will help you drive your business’ success.