Businesses spend millions of dollars to bring people into their stores. Wouldn’t it be nice if those businesses could incentivize their customers to bring people in for them? That’s what we’ll be exploring here today. Let’s start with an example:
On a Saturday afternoon, I received a phone call from my gym. They called to tell me of their latest promotion, which was this: If I bring a nonmember to the gym at anytime during the weekend, we both will receive a free t-shirt and a complimentary lunch.
So instead of launching a multi-million dollar ad campaign to bring in people, my gym implemented a growth hack. They turned customers into marketers by incentivizing them to bring in a friend. Then the friend possibly could become a member.
The math works out for them as well. Let’s break it down:
T-shirts ($3 each) x 2 = $6
Complimentary lunch = $0
A total of 100 members bring in a friend. The total cost of the promotion — $600.
The result is that 3% of the 100 members convert their friends to members at $55 per month for each membership. The total ROI in the first month — $165/$600.
The ROI is positive in 4 months. The total acquisition cost for each customer — $200 ($600/3).
The promotional cost for each customer is very cheap. The t-shirt probably cost a few dollars, and the complimentary lunch probably was a gift certificate to a local restaurant that cost the gym $0.
We’ll be breaking down some more tactics like this that you can use in your own business.
Everything we’ll be discussing has one thing in common — incentives. Economists almost universally agree that people respond to them. Businesses should give their current and prospective customers an incentive to act on their offer. It has to benefit both parties or it won’t be nearly as effective. Not all the incentives are monetary, as we’ll see.
Let’s first look at one of the most popular ways you can turn your customer into a marketer.
Refer a Friend
One of the most common ways businesses spread their product and increase their viral coefficient (how many customers your current customers bring in) is through the use of referrals.
If you’re a Netflix customer, you’ve probably noticed their promotional ads that come with the envelope the DVD’s are sent in. Many of them encourage you to give Netflix to a friend as a gift. According to Netflix, 75% of their customers come from these recommendations.
I’m a customer of Naturebox. Every shipment contains this card that encourages me to spread their product:
If I give this card to a friend, they receive a 25% discount.
By spreading these products, I’m helping my friends by giving them a discount.
Likes and Tweets
It’s difficult to come across any page on the internet that doesn’t have Like and Tweet buttons. They’re everywhere for a reason. They spread a company’s product by making it easy for people to share.
If you run an eCommerce site, add a Tweet, Like, and Pin It button to every product page. Here’s an example from Threadless:
If you run a SaaS company, put a Like or Tweet button next to new feature announcements. You might be able to take advantage of user excitement and get them to share it with friends and followers.
If your business has a blog, attach the Like and Tweet buttons next to every post.
All of these social media buttons help get your product in front of more eyeballs and more prospective customers.
On the internet, you may see certain banners that are not necessarily advertisements. If you go to the FreshBooks website, you’ll see this posted at the bottom:
While the Rackspace logo does not contain a link; it still shows that the FreshBooks website is hosted by Rackspace.
Even if you’re not a customer, Rackspace still has widgets available.
Mixergy uses the Wistia video hosting platform to host their videos. With each video, there are links to see the statistics. If visitors click to view the statistics, they are taken to the Wistia page where they can see a little demonstration of the Wistia product.
Can you implement something like this for your business? Will your customers post your widget on their websites? Will they ask for anything in return?
Contests help users get energetic about your brand and the thought of winning something. If you’re creative enough with your contest design, it can also get you some PR. Dropbox has gained significant PR by having their annual “Dropquest” contest. Just Google Dropquest and you’ll see all the articles written about it.
As a simple contest idea, a business can encourage users to tweet a pre-set message. This message can be about a recent feature. At random, the business can pick a person who tweeted out the message.
Be creative and offer a big-time prize. You may get some PR and customers to boot.
Avoid giving out a prize that’s unrelated to your business. Instead of giving them a car or a television, give them an upgrade.
If you want to incentivize users to spread your product, you will need to utilize affiliate links. For example, let’s say you have a user named Tom who loves your product. Tom is online a lot and has tons of connections. He wants to get the word out about your product, but won’t do it without an incentive. Since you’re a savvy business owner, you want to take advantage of Tom’s passion for your product. So you give him an affiliate link that he can use anywhere on the internet to spread your product. If Tom recruits a user, he will get credit for it.
As you likely know, affiliate links are not a new idea and have been around for a while. Dropbox is one company that has had a lot of success with them.
I can spread the Dropbox product with my referral link. Check out this screenshot that gives me the tools to refer new users:
Both my friend and I will receive an extra 500 MB of space as long as my friend signs up. According to Dropbox CEO Drew Houston, this increased their signups by 60%.
Do Something Unexpected
Remember when all free email had a storage limit of about 6 MB? Then, on April 1, 2004, Google launched Gmail. It featured 1,000 MB of free storage. People were so surprised that many thought it was an April Fools’ Day joke.
Many were so thrilled with Gmail that the lucky few who had a Gmail account began selling invites on eBay. People wanted this free service so much they were willing to pay up to $150 for it.
Surprising customers can have a positive impact on customer happiness, which in turn spreads your product. However, a negative surprise can be damaging to your brand. If you surprise customers by not fulfilling a promise, they’ll talk about it to their friends and colleagues.
Zappos frequently surprises their customers by upgrading them to free one day shipping.
These customers don’t stay quiet about their shipping surprise. They praise Zappos for it. Here’s some real time feedback via Twitter:
Have you surprised your customers recently?
Customers Give Your Product to Others
Your customers likely know a lot of people who are like them. This is especially true if you’re a SaaS company. You can take advantage of this by offering your customers a product to give to others. For instance, a customer could give a friend a trial of your product. So the friend receives the trial, and the customer gets some sort of discount or offer.
You can also have an “Invite a Friend” box on your product, similar to what Gmail has. These can go along nicely with referral links.
Make a Really Great Product
“Advertising is a tax you pay for unremarkable thinking.” ~ Founder of Geek Squad
Above anything else, the best thing you can do to turn your customers into marketers is to build a really great product. People want to spread the word about a product they love. Building a product customers love is easier said than done. It requires tons of focus and listening to customers.
Here are some examples of brands that have spread due to happy customers:
- Chipotle: By the time Chipotle went public, they were spending less than 2% of their total revenue on advertising. They write in their S-1:
“We believe the best and most recognizable brands aren’t built through advertising or promotional campaigns alone, but rather through deeply held beliefs evident in how a company runs its business. By adhering to this principle, we believe that Chipotle is becoming a highly recognized brand. We believe the single greatest contributor to our success has been word-of-mouth, with our customers learning about us and telling others. For example, some of our customers have gone so far as to develop websites about Chipotle. Our advertising has a low-key and irreverent tone that has been popular with customers. Our approach has captured the attention of some of the country’s most renowned news media, including the Washington Post, Food and Wine magazine, the New York Times, and several well-regarded food critics, which we think is unusual in our segment of the restaurant industry.”
- Rackspace: In 2005, 7 years after launch, Rackspace spent just 7% of their total revenue on advertising.
- Tesla Motors: In 2008, 5 years after its founding, Tesla spent 5% of its total revenue on advertising. According to Tesla’s S-1 filing:
“As the first company to commercially produce a federally-compliant, fully electric vehicle that achieves market-leading range on a single charge, we have been able to generate significant media coverage of our company and our vehicles, and we believe we will continue to do so. To date, media coverage and word of mouth have been the primary drivers of our sales leads and have helped us achieve sales without traditional advertising and at relatively low marketing costs. We also use traditional means of advertising including product placement in a variety of media outlets and pay-per-click advertisements on websites and applications relevant to our target demographics.
The strength of our brand has been highlighted by independent authorities. For example, in November 2009, Advertising Age selected us as one of “America’s hottest brands” in a special report highlighting the year’s 50 top brands.
Our marketing efforts include events where our vehicles are displayed and demonstrated. These events range from widely attended public events, such as the Detroit, Los Angeles, and Frankfurt auto shows, to smaller events oriented towards sales, such as private drive events.
As of March 31, 2011, we had 122 employees in our sales and marketing department.”
Tesla is an innovative product that gets press and media attention.
Take a lesson from Chipotle, Rackspace, Tesla Motors, and others: Build a great product and you won’t need to worry about advertising.
About the Author: Zach Bulygo is a blogger for KISSmetrics, you can find him on Twitter here.