Streamlining and driving loyalty through referral marketing
One of the highest compliments banks and credit unions can receive are referrals from their current customers. When a customer refers their friends and family to your financial institution it means they are confident to put their own reputation behind your brand.
Formalized referral program opportunities
It is a compliment that can be rewarding to the bottom line. A Harvard Business Review study followed 10,000 customers of a large German bank over 3 years. It found that referred customers generated 16% more in profits and were 18% more likely than others to stay with the bank. The return on the referral award for the bank was a healthy 60%. Another study found that referred customers are 5 times more likely to refer their friends and family using the same referral program, amplifying these results. Companies that have a formalized referral program experience 86% more revenue growth than those without over a two-year period. Yet, only 30% of companies are taking advantage of this opportunity and supporting formalized referral programs.
Referrals are trusted by all generations
A Nielsen survey on trust and advertising found that referrals led as the most trusted form of advertising across every demographic, out-doing editorial content, all forms of ads, and brand sponsorship. 83% of respondents said they completely or somewhat trust the recommendations of friends and family. Trust is not contained only to those in their inner circle; 66% said they trust consumer opinions posted online.
Know what your customers want
A referral program relies on a reward to encourage both current and prospective customers. Choosing this reward requires an understanding beyond customers needs to what they value. It’s not just about money, but rewards that are meaningful to the audience.
Bigger isn’t necessarily better
After you determine the reward, you need to consider the size. In a study published by the American Marketing Association found that while offering a reward increases referral likelihood, the size of the reward does not have a significant impact.
Understanding likelihood to refer
The same study suggests that programs should be designed to encourage subsequent rewards to casual acquaintances. It found when referring close friends or family, there was only a minimal increase in likelihood when the referer was also rewarded. However, referer rewards are impactful for increasing referrals of casual acquaintances. This suggests that referrals between close friends and family are likely to occur anyways.
Gamification is a strong loyalty and engagement tool which can be powerful when combined with a referral program. Programs can combine financial games with scoreboards that include point allocation for referrals. Digital rewards such as points, honors and badges can be combined with physical and monetary rewards to create a fun or educational experience.
Improve loyalty, reduce costs
A common concern among marketers is the cost of the referral incentives, when in reality, referral programs offer reduced costs for other channels and media. Referred customers require fewer marketing resources, enabling costs savings and opportunities to invest in other key initiatives. However, fewer resources does not mean no resources. Referral programs must be strategically planned, regularly measured, and managed on an ongoing basis. Successful programs need structure and commitment within your financial institution.
Cost savings also come from a reduced conversion effort. Companies see up to an 80% close rate when the lead comes from a strong customer referral. This is leaps and bounds above the just 1% close rate of cold calls and 15-30% from inbound traffic.
In the Harvard Business Review German bank study, the provided €25 referral reward implied a return on investment (ROI) of roughly 60% over a six-year period. A conservative estimate as it does not consider that the total acquisition cost of a referred customer was around €20 less.
Ask for referrals from your loyal customers
Customer loyalty is the prerequisite for any referral. Happy customers are more likely to remain loyal and share their positive experiences with others. Research by Texas Tech University confirms that 83% of satisfied customers are willing to refer others. However, only 29% actually do, primarily because they were never asked.
Are you asking your customers? Voleo has launched a new reward program offering free portfolio cash and trading tokens and we are excited to see it progress. We’d love to compare notes! Share your thoughts by getting in touch at email@example.com.